Memo to Distressed Hotel Investors: Understand the Opportunities and Risks

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Many investors and other potential buyers have been trying to determine whether the time is right to invest in distressed hotels. The recovering U.S. economy and hotel market indicate that the hotel industry’s severe recession has bottomed out, which has investors wondering whether they should make some investments in the near term before prices rise and the steep discounts disappear.

The good news is that, despite improving fundamentals, there still are a lot of distressed properties, though many of them have not yet appeared on the market. When, and how, can investors best take advantage of distressed opportunities?

Economic and market considerations

There are opposing trends that have both encouraged and discouraged investment in distressed hotels. The encouraging signs include recovery in the capital markets, improvement in hotel operating fundamentals, an increasing number of sale transactions, and muted construction activity.

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