HQUANT Launches Lodging Derivative Index

MANHATTAN/ITHACA, N.Y. | HQuant LLC today announced at the Morgan Stanley CMBS New Products Conference in Manhattan, the introduction of the HQuant Lodging Index (HLI), a new sophisticated investment tool for investors who wish to participate in the future performance of the hotel industry without investing in the underlying real estate. The HQuant Lodging Index, the first of its kind, will provide detailed information on seasonally adjusted hotel average daily rates (ADR) based on data collected on more than 3 million U.S. hotel rooms, or approximately 68 percent of the nation’s total.

The HQuant Index will enable traders to buy and sell derivative contracts tied to the performance of the U.S. lodging industry. A number of major trading groups have expressed interest in subscribing to the index service. The HQuant Index is expected to be the first of a series of indices the company will publish that measure hotel industry performance, both domestically and internationally. Initially focused on the U.S. hotel industry, future indices will cover specific geographical and product segments within the industry.

The HQuant Index is a calculation of the nation’s average ADR, a key indicator of profitability, which also can be interpreted as the commercial real estate equivalent of “daily leases.” The Index will be calculated using proprietary, proven algorithms based on daily aggregate data provided exclusively to the company by Smith Travel Research (STR),, the hotel industry’s recognized leader in the provision of statistics on hotel performance. The HQuant Index is capable of providing data nationally and by the top 25 markets in all seven of the market segments tracked by STR.

“Today, when investors acquire hotels, they must invest substantial sums of money,” said Dr. Daniel Quan, co-founder of the HQuant Lodging Index and Professor of Real Estate and Finance at Cornell University’s School of Hotel Administration. “As owners, they participate in profit from day-to-day operations, as well as the expected future real estate risks/appreciation. The HQuant Index allows investors to participate only in the day-to-day profitability from operations by constructing and trading contracts based on seasonally adjusted room rate data on a weekly, monthly, quarterly or annual basis, without the much larger investment in acquiring the real estate.”

The HQuant Index grew out of an emerging trend of banks seeking to develop a U.S. commercial derivatives market. A number of banks recently signed agreements to work with the National Council of Real Estate Investment Fiduciaries to provide data on commercial real estate to develop this market. Until now, there has been no derivative index exclusively for the hotel industry.

“The United Kingdom pioneered commercial property derivatives two years ago and already has reached about $10 billion in value,” he noted. “Real estate is one of the few main asset classes without a U.S. derivatives market. The HQuant Index provides a reliable data index that will give investors the necessary benchmark information to hedge or protect their investments.

“What makes our index unique is that we can offer a daily index defined for much finer geographic regions,” Quan pointed out. “Our ability to provide more timely market information conforms more closely with the ‘real time’ nature of derivative markets. Also, the ability to target specific commercial real estate areas, in some instances within several city blocks in a specific market, is more consistent with the ‘location, location, location’ notion of real estate investments.”

Potential users of the HQuant Lodging Index include:

• Equity investors who want to invest/hedge hotel real estate without purchasing the asset.
• Mortgage lenders and Commercial Mortgage-Backed Securities investors who seek protection against default risk from declining average daily rate.
• Hotel operating companies and management companies who wish to obtain protection from declining average daily rates and/or from event risks.
• Investors who want to trade swaps between cities to reduce risk of regional declines in the economy. Combined with swaps between price segments, investors also can shift hotel real estate investment exposure between price segments of different cities.
• Individual revenue swaps for investors who seek a synthetic mixed-use derivatives portfolio.

“The HQuant Lodging Index will be more robust and provide more up-to-date immediate market information than is available for any other category of commercial real estate,” said Cornell School of Hotel Administration Professor Steve Carvell and HQuant co-founder. “We believe this will help create a viable market for hotel derivatives.”

“For the first time, investors seeking exposure or looking to hedge exposure in the hotel real estate sector will be able to do so efficiently and economically,” said Leland Pillsbury, chairman of Thayer Lodging Group, a major hotel real estate investment company, and the third co-founder of HQuant. “We expect the HQuant Lodging Index to quickly become a viable investment option with traders and investors.”

About HQuant | Based in Ithaca, New York, HQuant LLC focuses on creating and distributing quantitative products and services for the hospitality industry. The HQuant Lodging Index is the first of a series of products expected to be introduced by the company. Additional information about the HQuant Lodging Index and the company may be found at .