Limited Visibility At NYU Conference

It was Tuesday just before lunchtime on the last day of this year’s NYU hotel investment conference when a panel discussion finally got real. Before then, at most of the sessions I attended, I heard a lot of optimism about the bottom of the cycle either being in sight or already having been reached. There was talk about hotels starting to see longer booking windows, pent up demand for both business and leisure travel potentially leading to improved sales before the end of 2009 and financial markets showing signs of stabilization.

No doubt, at some time that hopefully is not too distant in the future, opportunity will knock again in the hotel business. Hotel real estate will start trading and better comps will emerge for operators. But the overriding sentiment I heard from hoteliers who were not on stage in front of 1,000 people is that visibility of a recovery remains clouded, at best. Financing remains near impossible and a lot of hotels are going to have a very hard time refinancing their debt when it comes due over the next few years. Others worry there is serious risk that government-regulated stability will take any meaningful long-term growth out of the economy, and with approximately US$540 billion of hotel debt in the United States alone coming due between now and 2011, the challenges are just starting in the financial sector.

During the session entitled, “Now what are we going to do?,” Jack Adler, president and COO of Loews Hotels admitted the misery index is still high in the hotel business. “Maybe we have hit bottom,” he said. “But the big question remains, when will we get pricing power again?” No one seems to have that answer just yet.

Steve Goldman, head of development for Hilton Hotels Corp., added that he does not know when group business will come back, when assets will start to trade and when lenders will start demanding answers from their distressed borrowers. He says it all adds up to very limited visibility.

Michael Medzigian of Watermark Capital Partners was not very optimistic either, saying hotel real estate values are down some 50% and that still does not seem to be enough to bring buyers to the table. Deals and refinancing can’t get done until true values can be established. Right now, that is just not the case.

I don’t want to be so gloomy about the hotel industry’s near-term prospects, but based on the candid comments of this very well respected group, I am afraid this industry is going to have to endure a lot more pain first.

Ever the optimist, however, let me leave you with one bright spot: If you were in San Diego for the ALIS hotel investment conference in January, it was so depressing you could cut the tension in the auditorium with a knife. This week in New York, the stock market was continuing to tick upward, consumer confidence was stronger and the general tone was a little less depressing. It’s a start, right?

Of course, I am anxious to know what you think.