HOTELS

Jeff Weinstein

No, The Sky Isn't Falling
September 24, 2008

I am reporting from the Lodging Conference in Phoenix this week, where some 1,500 people are gathering to talk about the state of hotel investment.

Considering President Bush's sobbering speech tonight warning that the U.S. economy is in serious danger if the US$700 billion bailout is not approved by the U.S. Congress, it was not at all encouraging to hear industry leaders during the opening session of this conference basically saying, "I don't know" when asked how and when this credit crisis will start to show signs of a bottom, not to mention a recovery.

Art Adler of Jones Lang LaSalle Hotels said we have been through many cycles, but that this was the first down cycle led by a credit crisis and that this one is completely different. Private equity does exist, but it is in serious hibernation when it comes to hotel investment.

Another owner-operator said he spent the last two weeks talking to institutions and said that no one seemed to know what this meant because they never expected anything quite like this. Basically, it could only mean difficult times are ahead.

The repricing of real estate is not yet complete but apparently will have a sobering effect on values and the ability to build new hotels going forward. For the moment, this crisis appears to be mostly a U.S. phenomenon. The question is whether it will spread to the rest of the world. Afterall, we are living in a global economy. In western Europe, I think the answer already is "yes."  Whether it spreads to Asia, the Middle East and beyond seems far less of a possibility.

The panel went on to put a positive spin on the state of affairs by talking about making sure operators were engaged in the market, listening to customers and doing whatever is necessary to attract what business remained. They talked about efficiencies and how the industry would come back even stronger in 18 months.

But based on the overall tone and quizzacle expressions from most everyone at this conference, there is serious concern about values, the ability to tap capital and the potential for some serious discounting because the root of this downturn is frighteningly foreign.

As the day progressed and I did private interviews with developers, my mood and point of view turned much more positive. Industry developers whose opinions I trust were not as dire with their predictions. Was it because they were talking to a reporter and didn't want to put a negative spin on things? Perhaps. But there are some shrewd investors in the hotel business and some spoke to me with quiet confidence about how the fundamentals of the U.S. free market economy, its capital market structure and envied democracy would not fail the world and eventually the hotel business.

Yes, it appears we are in for a rough 12 to 18 months as this nightmare of a credit mess gets sorted out. But I have faith that this time next year I will be talking about the start of a rebound. While the headlines might read as rather gloomy today, I don't think this economy is on the brink of collapse or depression. Have a little faith. The sky is not falling.

Posted by Jeff Weinstein on September 24, 2008 | Comments (1)