Transaction activity soars in 2005.

Like the ski jumpers at the winter Olympics, hotel real estate transaction activity soared in 2005 well above 2004 levels. Based solely on the transactions that have been recorded in the database of PKF Hospitality Research (PKF-HR) as of February 2006, the number of hotels bought and sold in

The boom in real estate sales is not a sell off of unwanted assets. The average price-per-room paid for hotels grew from $39,259 in 2004 to $56,224 in 2005, an increase of 43.2 percent. At the 2006 America's Lodging Investment Summit in Los Angeles, virtually all lodging industry analysts were forecasting continued revenue and profit growth for the next few years, and relatively low cap rates despite threats of rising interest rates. Investors are very optimistic and counting on high returns based on both increasing cash flows and asset appreciation.

Investor optimism appears to be equally distributed among all types of properties and regions across the nation. Leading the 2005 transaction sample for price growth were large hotels (more than 226 rooms) with an average price-per-room increase of 70.1 percent. The purchase of large convention and resort properties is a strong indicator of buyer confidence because these properties require the greatest investment dollars.

The other lodging classification showing an exceedingly strong increase in price-per-room was extended-stay hotels.

The price for these properties increased 69.5 percent in 2005. Of note is the fact that the average age of extended-stay hotels transacted in 2005 (8 years) was more than half the average age of the properties sold in 2004 (17 years). Extended-stay investors are showing an appreciation for properties affiliated with the newer, moderate-priced chains that operate in this segment.

Lagging in price appreciation were mid-sized hotels offering between 151 and 225 rooms. The average price-per-room for these properties increased just 2.2 percent from 2004to 2005. It should be noted that older, full-service hotels dominate this segment

As for geography, the coastal markets continue to receive the most attention. Transaction activity grew the most in the northeast, southeast, and western regions of the nation. While price appreciation was strong in the central regions, the average price-per-room paid for hotels in these states is still below the national average.

Like downhill ski runs, there are plenty of potential bumps that can cause a nasty fall for hotel markets (e.g., energy price increases, interest rates, international events), but right now the hotel markets are firmly on their skis, rapidly heading down to a successful finish to 2006.