BRICKS AND STICKS
Hotels Still in the Sweet
Spot for Growth
ATLANTA—The lodging sector’s multi-year
run of double-digit annual NOI gains
isn’t over yet. That streak will continue
through the end of 2015, PKF Hospitality
Research says in the latest edition of its
annual Trends in the Hotel Industry
“By 2014, the average hotel in our
Trends sample will finally achieve bottom-
line profits greater than their pre-reces-
sion peak on a nominal basis,” says R.
Mark Woodworth, Atlanta-based presi-
dent of PKF-HF, a subsidiary of Colliers
International. Perhaps more important is
that hotel profits, in inflation-adjusted
terms, “will exceed 2007 levels in 2015.”
The firm is forecasting unit-level NOI
increases of 12.4% in 2014 and another
14.2% percent in 2015. The hotel sector
has maintained annual profit growth of
greater than 10% each year since 2011,
the longest unbroken streak since the
That five-year streak was maintained
last year, albeit just barely, despite the
slower pace of RevPAR increase.
Woodworth chalks up that 10.1% NOI
growth to a 5.4% gain in total hotel revenue, along with a 3.7% increase in operating expenses.
“An accumulation of market, opera-
tional and economic factors has resulted
in a business environment that is very
conducive to increases of both the top
line and bottom line,” he says. “We are in
the middle of the sweet spot in the busi-
ness cycle for hotel profits.”
All property types within the hotel sec-
tor enjoyed an increase in profits during
2013, although not all saw double-digit
gains, according to PKF-HR. Resort hotels
fared best at 11.9%, followed by full-ser-
vice properties at 11.5%. Lagging the
average were limited-service hotels at
6.8%, suite hotels with food and beverage
at 6.8% and suite hotels without food and
beverage at 7.9%.
Convention hotels achieved profit
growth of 8.2% last year. “While this was
less than the overall sample average, it is
greater than the profit growth these properties achieved in 2012,” Woodworth says.
“The increased profitability of convention hotels is consistent with the initial
stages of the recovery of the group
demand segment” observed by PKF-HR,
he adds.—Paul Bubny
Buying a Closed Gas Station? Consider
So you’re thinking about buying a closed gas station for a new development. The
property is located at a prime intersection with high traffic and accessibility. Since
the high cost of oil has made it difficult to sell gas profitably over the last few years,
many gas stations have closed throughout the United States, leaving a large supply of
abandoned gas stations. It’s a buyer’s market and the price for the closed gas station
is just right.
Buyer beware. Before purchasing a closed gas station, there are some important
things to know about environmental cleanup liability.
Many closed gas stations sit idle for years because they are contaminated by petroleum leaking from underground storage tanks into the soil and groundwater. The
high cost of cleaning up these contaminated sites can kill a real
estate deal or make the transaction economically unfeasible.
Environmental cleanup issues can become an insurmountable
obstacle to development
of a closed gas station site
when buyers don’t understand ( 1) the extent of environmental cleanup liability associated with the potential site; and ( 2) how to qualify for statutory
protections from environmental liability afforded to innocent
Before purchasing a closed gas station site, it is critical that buyers quantify any
environmental cleanup liability. For example, if fuel migrated off-site from a leaking
underground storage tank into groundwater, the cleanup costs can balloon. In addition to the standard environmental consultant assessments (Phase I and II
Environmental Site Assessments), buyers should obtain an environmental liability
assessment and mitigation plan from an environmental lawyer. An environmental
lawyer can provide a “snapshot” of the environmental cleanup liability associated
with the property. Regulatory counseling from an environmental lawyer can help
identify the extent of environmental cleanup that will be required by the regulatory
agencies and the cost of obtaining the necessary agency approvals associated with
any required cleanup. Additionally, an environmental lawyer can resolve any environmental fines and penalties that might be pending with the agencies due to any
unaddressed environmental contamination at the property.
After purchasing a closed gas station site, it is important that buyers understand
how to qualify for local, state and federal statutory protections from environmental
cleanup liability afforded to innocent purchasers. For example, the Florida
Brownfields program provides “safe harbor” provisions that may limit environmental
cleanup liability associated with the prior use of the property if certain statutory conditions are met. Additionally, Florida’s Brownfields program offers developers the
opportunity to negotiate a brownfields site redevelopment agreement (“BSRA”)
which outlines the specific cleanup tasks that will be required and the applicable
time line for each task. When a BSRA is signed by the developer, it automatically
provides the developer with certain environmental cleanup liability protections.
Many states offer a brownfields redevelopment program to encourage redevelopment of abandoned, closed gas stations. These programs often provide both regulatory and financial incentives for development of contaminated properties. If properly invoked, these statutory protections can substantially limit cleanup costs
associated with redevelopment of a closed gas station site, making this type of project
financially successful despite any environmental cleanup liability issues.
Maribel Nicholson-Choice is a shareholder with the environmental practice group of interna-
tional law firm Greenberg Traurig. She may be reached at (850) 222-6891 or at nicholson-
firstname.lastname@example.org. The views expressed here are the author’s own.
By Maribel Nicholson-Choice