In Part 1 of this series, I highlighted that hotel property investors transact to acquire both real estate and the operating businesses with their varying sets of revenues and expenses. This institutional arrangement is unlike those for most other commercial real estate investments in which the business owners make fixed rental payments to property owners while expenses are mostly variable. Hotel investments therefore come with counteracting exposures to inflation of operating revenues and expenses that may neutralize inflation impacts on profits (i.e., net operating cash flows). The statistical results reported in Part 1 suggest that hotel profits do not adjust to inflation. Over the period of 1946-2020 inflation positively influenced both total revenues and total operating expenses to the extent that they offset one another.
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