Revisiting the hotel capitalization rate

Based on empirical analyses of US hotels, this study finds that hotel capitalization rate is a complex combination of macroeconomic and asset-class specific variables beyond the cost of capital, capital structure and growth rate. In particular, investors in hotel real estate base their cap rate measures on the performance of corresponding REITs. Incorporating asset specific trends improves the explanatory power of the capitalization rate model. A significantly persistent cap rate across consecutive-periods experiences an offsetting autoregressive effect in a year. Unusual increases in rents lead to investor scrutiny. Regulatory environment significantly impacts the capitalization rate after controlling for the overall economic activity in a market.