Jul. 23, 2009--After more than a year of declines for Orlando's hotel industry, the market is nowhere near recovering from the worst downturn that U.S. hoteliers have seen in decades, experts warn.

Across Orlando, hotels are showing signs of distress -- from giving up their brand names to closing their doors entirely.

Hotels such as the Legacy Grand Resort and the Knights Inn -- in the midst of Orlando's busy International Drive tourist corridor -- have shut their doors. And multiple hotels in the Orlando area are reportedly in foreclosure.

In June, Orlando hotels filled only 64.8percent of their rooms, a decline of 7.8 percent compared with a year ago, according to a report released Wednesday by Smith Travel Research. The average price for a hotel room in Orlando declined 11.7 percent to $89.53, while revenue per available room, a key industry measure, fell 18.7 percent. The data do not include Walt Disney World hotels.

Hoteliers are all too familiar with the causes of Orlando's hotel troubles: the recession. A travel scare initiated by swine flu. Anti-business travel rhetoric in Washington. Severe discounts that are driving down the area's hotel prices. And now, a so-called blacklist from certain government agencies that think Orlando is too leisure-oriented to host government meetings.

"When you put all that together, it's just really, unfortunately, the perfect negative storm over the last 12 months," said Richard Maladecki, president of the Central Florida Hotel & Lodging Association. "Everyone is telling me that it's the worst they've seen in Orlando."

Occupancy rates at Orlando hotels began their steady decline in June 2008, and a full year later, things are still eroding. Supply in hotel rooms is up. Demand is down.

It's "the worst possible combination that we could have," said Mark Woodworth, president of Atlanta-based PKF Hospitality Research, which tracks hotels in the top 50 U.S. markets, including Orlando.

Orlando ranks 254th out of 288 markets in terms of delinquent hotel loans, said Tom Fink, senior vice president of Trepp LLC, which monitors commercial real-estate loans that have been bundled into securities.

"From a delinquency perspective, things are poor in the Orlando market," Fink said.

Trepp tracks 58 hotel loans in the Orlando market, and of those, 10 are delinquent. An additional eight hotels are making their loan payments, even though they're not making enough money to cover them.

Perhaps the most alarming part is that, although some forecasters think the U.S. hotel industry is near its bottom, hoteliers still have to climb out of the hole they're in. That means the possibility of months -- or even more than a year -- of poor occupancy rates.

Jed Heller, president of The Providence Group, said he sees complacency in the hotel industry. Heller's hotel-management company, based in Duxbury, Mass., specializes in distressed hotels across the country.

"People need to get a sense of urgency in terms of the picture," said Heller, a 30-year hospitality veteran. "This is like no other decline that we've seen."

With billions of dollars in hotel mortgages coming due during the next two years, Heller predicts the U.S. industry will see far more foreclosures.

"Financial institutions have been pretending [loans are not in trouble] and extending," he said. "They can't do that anymore."

Upturn in 2010? Smith Travel Research, once optimistic that hoteliers would be able to hold their prices steady during the economic decline, recently revised its forecast for the U.S. industry as a whole.

The hotel-tracking company said the industry appears to be "bouncing along the bottom," but it predicts that U.S. occupancy and rates will continue their negative growth through 2010.

Though Orlando has historically filled about 71 percent of its hotel rooms, PKF Hospitality predicts Orlando-area hotels will end 2009 with record-low average occupancy of 57.2 percent. The low point, they forecast, will be in the fourth quarter of 2009.

The good news? Revenue per available room, a key industry statistic that can help gauge financial performance, could turn positive in Orlando at the end of 2010. That's a long way off, but Orlando's turnaround likely will come before the rest of the nation's, PKF's Woodworth said.

"In Orlando's case, the hole that you're in relative to the nation as a whole is deeper," he said. "But you're going to come out of it quicker."

Sara K. Clarke can be reached at 407-420-5664 or [email protected].

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