MSU faculty creates a new tool for measuring long-term for hotel investment potential

Publish Date: Monday, September 28, 2009

In the hotel industry, being able to tell the difference between Park Place and Baltic Ave. can be the difference between success and failure.

Finding the right location to build a hotel is complicated, but the process is becoming more transparent. 

Faculty from The School of Hospitality Business and the International Business Center at MSU have developed an index that ranks lodging markets based on their long-term potential for hotel investments.

"Right now there is a lot of scattered information available on lodging markets," said A.J. Singh, associate professor of International Lodging Finance and Real Estate. "People get info in a very ad hoc way. Some people get their information from a magazine or a report and they'll analyze it. So, there is a lot of ad hoc information floating around so we systematically organize that across these different dimensions."

The index, called the L-MPI, uses 10 economic and performance indicators -like hotel market performance, growth and tourism rates- to rank major markets. Each variable, picked by experts in the industry, is weighted differently to create an accurate, comprehensive measurement.

The framework for the L-MPI is based on the Market Potential Index for Emerging Markets, an index published annually since 1996, tracking opportunities for U.S. exporters in emerging markets. This index, created by MSU-CIBER, at the International Business Center, ranks market potentials for twenty-seven emerging markets across eight dimensions consisting of nineteen variables.

"We have always been interested in developing industry and firm-specific applications of the ranking and indexing methodology developed for the Market Potential Index," said Tunga Kiyak, outreach coordinator for the International Business Center and managing director of the Academy of International Business.

"The Market Potential Index offers a way to filter and organize the plethora of data and information out there into a simple, but theoretically sound, decision analysis tool," Kiyak said. "We are extremely happy to have played a part in providing the lodging and real estate industry with a tool that could lead to a better decision making process. We look forward to the opportunity to work with The Hospitality School to extend the L-MPI to covering international destinations in the next step of the process."
 
 "The L-MPI will be used in the first step of hotel development, investment and acquisition decisions by identifying market areas that show long-term potential for hotel investment", said Ray Schmidgall, Hilton Hotels professor of Hospitality Financial Management. The purpose of the indexing study is to help hotel developers and investors compare the largest U.S. lodging markets with each other on several dimensions.  He explained that the L-MPI will be published on a regular basis and will identify changes in the ranking of the individual markets.

The L-MPI was introduced by Singh at one of the general sessions of the Midwest Lodging Investors Summit in Chicago in August. Future iterations of the index will include more markets, and additional versions will be created to analyze sub-markets and the global real estate market.

For further information about the Lodging Market Potential Index, contact Singh at singharj@bus.msu.edu or Schmidgall at schmidga@msu.edu. They may also be reached at (517) 353-9211.

The Market Potential Index for Emerging Markets is available online as a part of globalEDGE: http://globaledge.msu.edu/resourceDesk/mpi/

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MSU-CIBER, at the International Business Center of the Eli Broad School of Business, was designated in 1990 as a National Resource Center by the U.S. Department of Education as a center for international business and education. globalEDGE  is developed by the MSU International Business Center as the primary portal for Global Business Knowledge.