A Comparison of Hotel Indices with Hotel Properties and Portfolios

The development of hotel real estate indices raises the possibility that investors could benchmark hotel price appreciation using hotel indices. However, individual hotel property transactions are poorly tracked by the aggregate hotel index that is available. Moreover, for individual assets, the level of tracking error is larger for hotels than non-hotel properties. Forming portfolios reduces tracking error quite dramatically, but the level of tracking error for hotel portfolios still appears to be higher than for other commercial properties. These results demonstrate that indexing individual properties is difficult, since any individual hotel investment is unlikely to perform like an aggregate index. However, it may be reasonable to compare a portfolio aggregate hotel indices. In that instance, this would require a fairly large portfolio of hotels where the properties are of approximately the same value...

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