My friend Steve Van at Prism Hotels has a great Hotel Default Blog. His most recent article ("The Sky is Really Falling") sparked some perspective on whether the hotel industry is finally reaching a critical RESET point. Here are the latest thoughts.

Is the "RESET" at hand?

The hotel industry will not get better until we have a complete RESET, but maybe the conditions for that may finally moving into place. Here are the latest indicators:

1. The last optimist died. On July 7, 2009) Smith Travel Research threw in the towel on their formerly "optimistic" forecast and have adopted a "bleak picture" forecast for 2009, and continuing deterioration in 2010 for all three industry benchmarks (occupancy, average daily rate and revenue per available room). 

2. Lenders are recognizing that hotel loan defaults are imminent. We are starting to see lenders recognize that even though a mortgage has been extended, or is performing "today." it will not perform next month or very soon. They are preparing to deal with the assets now and finding some borrowers are sanguine, but others are not. It is better to act sooner. 

3. Owners aren't going to make up the shortfalls much longer. The report today that the Ilikai hotel has closed is just a high profile indicator of more closures coming. Delinquencies and foreclosures are skyrocketing, and hotels are going dark because neither the owner nor the lender will advance money to meet shortfalls to pay payroll, utilities and operating expenses. 

Unfortunately, the hotel industry won't start to get better until well after the economy bottoms and starts to make significant and sustained improvement. With the capitulation of Smith Travel's optimism yesterday, most industry experts don't see significant improvement for hotels until sometime in 2011. And things will get much worse before they get better. But at least a realistic view of immediate prospects sets the stage for the massive RESET that must take place before the hotel industry improves -- a RESET in leverage, values and expectations. Ouch!

About the Author:
Jim Butler is one of the top hotel lawyers in the world. GOOGLE �hotel lawyer� or �hotel mixed-use� or �condo hotel lawyer� and you will see why.  He devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders.  Jim leads JMBM�s Global Hospitality Group®�a team of 50 seasoned professionals with more than $40 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, they have brought their practical advice to more than 80 �hotel-enhanced mixed-use� projects, a term Jim coined to fill a void in industry lexicon.  This term describes one of the hottest developments in real estate-where hotels work together with shopping center, residential, office, retail, spa and sports facility components to mutually enhance the entire project�s excitement and success. Jim and his team are more than �just� great hotel lawyers.  They are also hospitality consultants and business advisors.  They are deal makers.  They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right �fit� for all parts of the capital stack.  Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.  Jim is the author of the Hotel Law Blog, www.HotelLawBlog.com.  He can be reached at +1 310.201.3526 or [email protected].