January 15, 2002

The old Greek philosopher liked to say that wisdom is knowing what you don�t know. This is more true than ever, looking out ahead at 2002 for our industry. 

That said, one thing we do know is this: 2002 is not 1992 all over again � and the reasons for the difference should give us reason for hope as the new year begins. 

Many of us remember 1992: Coming off a deep national recession and massive overbuilding, the lodging industry was littered with the remnants of deals gone bad, projects abandoned and hotel assets sold at pennies on the dollar. The speculative excesses and over-leveraging of the late 1980s created an ugly situation, with the FDIC and the RTC selling hotels and other real estate at huge discounts to their original cost; lots of people had built hotels who knew little about the business. Often appropriately, lenders cracked down hard, creating a difficult financing environment for everyone. This environment would last three to four years.

In addition, let�s not forget that the high mark for the Dow Jones Industrial Average in January, 1992, was about 3300, and the Internet was a completely unknown phenomenon; as compared with today, the financial infrastructures that matter � the infrastructures of our industry and our country � were relatively undeveloped.

2002 presents a better picture overall. The industry is better capitalized than in 1992, with lower leverage and ownership of most hotels in the hands of professional hotel owners.  And although the final numbers aren�t in yet, it is clear that in spite of the sluggish economy, people continued to travel in 2001 � albeit more slowly, selectively, and via car or train rather than plane.

The capital markets are stronger, too. There is far more investment capital available available than a decade ago, and rates for borrowing are 400 to 500 basis points less than a decade ago.

The national economy is in better shape today than it was ten years ago. In spite of the events of September 11 and the recession we�re currently experiencing, most analysts do not expect a downturn of the same proportions or pain as the early 1990s. Along with it, our national outlook and spirit is stronger and more resilient. Even with recent events, most of us are better off today than we were five years ago, and many see a recovery, hopefully a strong one, as inevitable. Consumer purchases, always the backbone of an economic recovery, seem to be holding relatively firm, even in the face of tough times.

Finally, generally speaking, we have become more responsible and efficient as an industry. While the past few months have hurt RevPAR and occupancy everywhere, our industry does not have the level of over-building that crippled us in the early 90s. If lenders are tougher, they are also fairer and more willing to commit significantly to deals that are financially sound and make long-term sense. 

Property-level, there is much more financial attentiveness, and, overall, a more educated and cost-conscious group of managers and executives. Hotels are being built, managed, renovated and operated more effectively than ever before.

Don�t get me wrong, the hotel industry is hurting in January 2002. Operating numbers and trends are down, deals are on hold, and lots of people are out of work. The crash-and-burn of the airline industry has devastated many properties that depend on air travel for much of their traffic. 

Looking ahead, the specter of continuing terrorism and a war-time environment causes us to wonder whether even the most careful and focused planning, property-level or corporate-level � will guarantee strong results in the face of the unknown and unknowable. It�s hard to plan for what you can�t anticipate.

At the same time, there is comfort in the old philosopher�s words � and in knowing that as an industry and a country, we are better positioned to tackle what tomorrow brings than we ever have been before.