The results of the Lodging Market Potential Index are no surprise judging by the recent wave of high-profile transactions in gateway cities. New York City and San Francisco are again at the top of the latest L-MPI, a relative ranking of the 25 largest lodging markets in the U.S. by long-term potential for hotel investments.

The L-MPI was developed by The School of Hospitality Business and Michigan State University and first unveiled at the Midwest Lodging Investors Summit in 2009.

In the latest index, New York City remained at the top primarily because of its large economic base, strong purchasing power and positive tourism trends. San Francisco was second (indexed at 91), while Boston moved into third with an index rating of 88, up 26 from the spring index, and Miami and Denver followed after large gains.

Oahu’s index of 64 was down 12 as it dropped from third to seventh. Atlanta improved from 18th to 11^th, while New Orleans moved up five spots from 22nd to 17^th. Detroit and Norfolk, VA remained at the bottom of the rankings.

As investors and developers look to cash in on the rebound of the lodging industry, the L-MPI provides a valuable tool in identifying potential markets for acquisitions and new-construction projects.

“As such and notwithstanding an economic blip, top-tier real estate markets should stabilize, which would further augment investment appetite within the sector,” said Amar Patel, Trimont Real Estate Advisors. “Improvement in lodging operating fundamentals coupled with an apparent loosening of the credit markets has led to a significant increase in hotel transactions for 2010."

The School of Hospitality Business publishes the Lodging Market Potential Index biannually. The overall scores and city ranks are a function of the 10 dimensions and 30 indicators. For a detailed review of all the cities and an explanation of how the index is calculated, please visit http://globaledge.msu.edu/resourcedesk/lmpi/. The interactive feature of the L-MPI will allow you to rank each city based on the 10 dimensions identified that have an impact on the overall ranking.

The 270-room W Union Square in Manhattan was recently sold by Lem Capital to a joint venture between Host Hotels & Resorts and Istithmar World PJSC for $185 million ($686,049 per key) according to PricewaterhouseCoopers.

Raymond S. Schmidgall, Ph.D., CPA, is the Hilton Hotels Professor at The School of Hospitality Business at Michigan State University. A.J. Singh, Ph.D., ISHC, is an associate professor at The School.