Last week’s Midwest Lodging Investors Summit was a watershed event in the hotel business. It was the first industry-wide conference since 2007 in which the prevailing sentiment was overwhelmingly one of optimism. Not wishful thinking; not a wing and prayer; but honest and fact-based belief the worst of the industry’s bad times are behind us and plentiful opportunities are ahead for buyers, sellers, operators and even developers.

Lodging Hospitality, in association with HVS Hotel Management, sponsors MLIS, which was held this year at the Hyatt Regency McCormick Place in Chicago. The School of Hospitality Business at Michigan State University is the Summit academic partner.

Participants in a general session panel on the opening day of the Summit were particularly bullish about Chicago and the Midwest. Veteran hotel broker John Jameson of Jameson & Co. said he sees a “dark cloud lifting over Chicago.” And Paul Kirwin, CEO of AmericInn parent Northcott Hospitality, spoke glowingly about northwest North Dakota, a market he called “hotter than a firecracker” due to the recent boom in the oil shale business. But he’s also high on Chicagoland, which he sees “improving as the region’s manufacturing base improves.”

Paramount Lodging Advisor Senior Managing Director Sanjeev Misra

Of course, generalities can be misleading, as Sanjeev Misra pointed out. The senior managing director of Paramount Lodging Advisors reminded the audience that this industry rebound, like those in the past, is “very local market centric.” He did predict a significant volume of transactions in the region this year and next.

As optimistic as these statements were, the panel also addressed the new normal in hotel acquisitions and financing. Misra believes there may be a structural shift among investor expectations, from expected internal rates of return in the 18% to 20% range down to 12% to 14%. And while HVS Global Hospitality Services Managing Director Hans Detlefsen agreed yield expectations are lower he sees the trend as a function of the normal real estate cycle and not a structural shift in the industry.

The panelists all agreed delayed capital improvements at many properties have complicated some hotel transactions. One panelist said 90% of deals involve some kind of product improvement plan, and 60% of the required PIPs are significant.

“An even bigger issue are those 20- to 30-year-old, 500-room properties that really can’t be supported anymore as hotels,” noted Paramount’s Misra. “How can someone make these work? The answer is probably deflagging and finding a suitable alternative use, such as senior living, multi-family or something else.”

A panel of owners tackled another topic finding its way back into investment conference conversations: the viability of new hotel development. Opinions on the subject were split.

“We believe in new hotel development,” said Ravi Patel, senior vice president of Burlington, IA-based Hawkeye Hotels, owners of nearly 60 mostly select service properties either open or under development. “There are lots of markets ripe for development and we can get them done because our lenders have trusted us for 20 to 25 years.”

And while construction costs continue to rise, and did even during the recession, Patel said, “We’re able to get better value from our subcontractors and in some cases, better prices on construction materials.”

Perhaps not surprisingly, panelist Steve Kiselica, founding principal of Lodging Capital Partners, disagreed with Patel. Kiselica’s firm is an investor and asset manager mostly in upscale and luxury full-service hotels, a segment where new development is difficult.

“In recent years, we bought nearly all of our assets at below replacement costs, so I don’t see any markets with real opportunities for development of full-service upscale and luxury hotels,” he said. “An exception might be if public money is involved in the project.”