"A significant recovery from the downturn that began in early 2001 and became exacerbated by the tragedy of September 11, 2001 is not expected to occur until 2004," Mr. Lesser said, citing the added effects of a slow economy, reduced business and international travel and the SARS epidemic.

Despite the uncertain times, the hotel investment market is "relatively strong right now," according to Lesser. For example, Wyndham International sold a portfolio of 14 hotels to Sunstone Hotel Investors and Met Life sold a portfolio of four large hotels in the fourth quarter of 2002. In the first quarter of 2003, bidding for the acquisition of the 

2,567-room Aladdin Resort and Casino in Las Vegas (subject to bankruptcy court approval) has reportedly been strong. KSL Resorts sold the 660-room Grand Traverse Resort in Traverse City, Mich. to the Grand Traverse Band of Ottawa and Chippewa Indians. CNL Hospitality made an $89 million acquisition of the brand new 358-room Marriot Waterfront in downtown Seattle. In addition, a group of investors including Olympus Real Estate Partners, Rockwood Capital, Prudential Real Estate Investors, and HEI Hospitality agreed to purchase a portfolio of 14 "non-strategic" assets from Starwood Hotels & Resorts Worldwide for $312 million.

"Investors continue to be interested in the hotel market, because in certain geographic areas, hotels continue to be a great investment," Mr. Lesser said. "The market is also being helped by low interest rates and the availability of capital."

When the market recovers, the recovery will most likely vary by geography and market segment. Positioning the industry for a strong rebound is the fact that new hotel construction has slowed in recent years. Supply growth, which peaked in 1997 at approximately 4.3 percent, was 1.8 percent in 2002, with an even lower amount projected for 2003.

While some markets continue to suffer, others are poised for the rebound. Generally, it is still a struggle for properties in the top 25 lodging markets, which represent 23 percent of total supply. Fifteen of those markets experienced revenue per available room (RevPAR) declines of 5-15 percent in 2002. San Francisco, Boston and Miami experienced declines greater than 10 percent. St. Louis, Nashville, Philadelphia and Norfolk were the only major markets with positive RevPAR performance during that time. The performance of hotels in Manhattan, which bore the economic brunt of the effects of September 11, is generally improving. Occupancy for 2002 was 74 percent, up slightly from 2001, but down significantly from record levels (89.3) reached in 2000.

Cushman & Wakefield�s Hospitality & Gaming Group continuously monitors investor return requirements. The firm�s latest survey is illustrated below:
 

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