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Collapse of Subprime Home Mortgages and Falling Home Values
 Could Eventually Affect Hotel Financing
By Kimberly Pierceall, The Press-Enterprise, Riverside, Calif.McClatchy-Tribune Regional News

Aug. 13, 2007 - Developers haven't given up on building hotels, but they have slowed down as lenders become more choosy.

There are fewer hotel rooms under construction in both Riverside and San Bernardino counties in the first half of 2007, according to a midyear construction survey by Irvine-based Atlas Hospitality Group. Thousands more rooms are in the planning stages, including three large projects in Palm Springs.

The 344-room Agua Caliente Casino Hotel in Rancho Mirage accounts for almost half the rooms under construction in Riverside County. The largest property under construction in San Bernardino is the 136-room Aloft hotel in Rancho Cucamonga near Haven Avenue and Fourth Street.

However, economic issues, including the collapse of subprime home mortgages and falling home values could eventually affect the hotel industry.

"You're not going to be able to get low 6 percent (loans) on hotels like you have in the past," said Alan Reay, president of Atlas Hospitality Group. "As people no longer see home appreciation and start to see a lot of homes going into foreclosure, the lenders are turning off the spigot in home-equity loans and definitely turning the spigot on easy-credit loans," he said.

The almost constant rise of average daily hotel room rates is bound to slow by the end of the year, Reay said.

"(For) the vast majority of consumers, their biggest investment is their home," he said. "And if you feel that home is losing value I think you'll see a tightening of the purse strings."

Lenders are becoming more hesitant about other real estate investments, including offices, retail and hotels, one economist said.

"The bankers, the investors that were supplying funding to the residential market, are paying attention to the non residential sector," said Chapman University economist Esmael Adibi. "If somebody is building a hotel with the hope of selling the hotel or occupying the hotel, will they have enough money to pay off the loan?"

Travelers haven't thrown out their disposable income though, Adibi said. Unless a full-blown recession arrives, there will still be travelers needing a night or two at a hotel.

"At this point, I don't think anybody is calling for outright recession," Adibi said.


--Riverside County

Hotel rooms under construction

2007: 785

2006: 898

Hotel rooms planned

2007: 7,214

2006: 1,034

--San Bernardino County

Hotel rooms under construction

2007: 548

2006: 576

Hotel rooms planned

2007: 4,047

2006: 3,563

Source: Atlas Hospitality Group


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