With the business and leisure travel segments exhibiting concrete signs of improvement, the hotel capital markets are buzzing with deals. A slew of factors — among them a shallow supply pipeline and thinning inventory thanks to condo converters — has cemented the lodging market as one plum asset class.

What’s behind this heated demand to snag hotel properties? Try present and projected valuations. For example, the average value of a U.S. hotel property should jump by 28% between the end of 2004 and 2005, driving room values up to $91,000 by year-end. HVS International, a Long Island, NY-based hospitality consulting firm, also projects a 23% increase in 2006 room values, which would boost values into six-digit territory (or $112,000 per room) for the first time ever.

Hendersonville, Tenn.-based Smith Travel Research reports that the U.S. lodging industry posted record total revenues of $113.7 billion in 2004. Meanwhile, profits for 2004 hit $16.7 billion in a $3.9 billion increase over total profits for 2003. On the fundamentals side, Pricewaterhouse Coopers projects that national lodging occupancy will rise from 63.4% at the end of this year to 64.5% by year-end 2006. It should get even better in 2007, when occupancy is expected to hit 64.9%.

"This is an excellent buying opportunity since values are heading up," said HVS International founder and president Stephen Rushmore, who addressed New York University's Hotel Investment Conference on Monday morning. The conference drew more than 1,500 global hospitality executives to Midtown Manhattan’s Waldorf-Astoria hotel for three days of networking and panel sessions. Like the 2004 conference, the tone was largely upbeat.

It’s easy to see why, based on the data that Rushmore presented at the conference. Slide after slide depicted one of the strongest sellers markets in recent history. In New York City, for example, the average value of a hotel room hit $126,000 in 2004, a 61% increase over the 2003 level. The second biggest positive year-over-year change occurred in Oahu, where the average value of a room hit $66,000.

Not only did average room values climb between 2003 and 2004, but the sheer number of deals also posted an increase. There were, for example, 121 major hotel transactions in 2003. The total number of transactions increased 2.2% to hit 178 in 2004. So just how high is that on an historical basis? In 1997 — the beginning of the late 1990’s economic expansion — a total of 280 major hotels were sold. That was the busiest year for major hotel deals on record.

In closing his presentation, Rushmore offered this advice: “If you are a seller, now is the time to put your hotel on the market.”