News for the Hospitality Executive
Jim Butler, Hotel Lawyer, at Phoenix Lodging Conference:
State of the
Lodging Industry - Is the party over? Or is this just the intermission?
|By Jim Butler, Hotel Lawyer | Author of www.HotelLawBlog.com
September 26, 2007
Morris Lasky's Phoenix Lodging Conference is always one of my favorite hotel gatherings each year, and last night the 13th edition of this event got underway with more than 1,400 people registered -- up from 1,200 last year.
There is something about the beautiful setting at the Biltmore, the casual atmosphere (with many in shorts -- or at least chinos -- and short sleeve shirts) in the baking Arizona heat that fosters a comfortable, no-nonsense exchange of thoughts. But I do miss the early days when Morris "capped" attendance at 400, and you actually were able to move around and see all the people you wanted to in a more intimate environment. That is one unique compelling advantage that The Hotel Developers Conference™ and Meet the Money® still offer! Oh well, enough nostalgia. Here is my first take on mood of the Conference.
What is everyone focused on?
Although today will be the first real day of sessions and meetings (who goes to the sessions anyway?) with the grand poolside reception tonight, there is an interesting mood amongst the conference delegates. The number one fixation is on the state of the capital markets and financing. Those given to dramatic exaggeration might be tempted to say that "the party is over" and after the binge, we are about to wake up with a terrible hang over.
Number one issue: What's happening to the debt and equity capital
availability for the hospitality industry?
Many think that the turmoil in the debt and equity financing markets for hotels will have to sorted out over the coming months -- perhaps up to 6 months. A few doomsayers are actually using the "R" word (as in recession). Everybody is in rapt attention for an omen or a sign of movement.
Potentially staggering implications of the Commercial Mortgage Backed Securities (CMBS) markets.
And there are so many circumstances in the mix and factors that could come into play! Will any capital sources welch on their commitments? Will all the CMBS loans coming due be able to get refinanced? What is the impact of the CMBS market confusion? What will happen in tightening capital markets as the $166 million of CMBS debt which matured in 2006, climbs to $932 million due in 2007, peaks at $2.7 billion in 2008 and levels to a little under $2 billion in 2009?
An issue we identified many months ago on www.HotelLawBlog.com was analyzed so well by Steve Van, head of Prism Hotels & Resorts based out of Dallas, Texas. At his annual conference --the best in the country on the concerns of CMBS lenders--Steve gave us some great information which I discussed in an article, appropriately named: CMBS Hotel Loans: Is that a train wreck ahead or just a "pig going through the python"?
Will higher interest rates and equity yield requirements drive higher cap rates and lower valuations justifying lower loan to value calculations that justify inadequate capital to roll over debt coming due? Will new projects be able to get financing at any price or one that works? Will a tightness in the capital markets drive down property values? There are some tremendous complexities, and it looks to be too early to call.
Issue number 2: How do our industry fundamentals look?
The other big focus of attention at the Conference is on the health of the hospitality industry, and the fundamentals still look good there -- perhaps with a little softening, but of course there is such a direct relationship between the performance of our hospitality industry and the economy, that any significant downturn will undoubtedly have an effect on the industry as well.
And of course, ironically, if the slow down in capital markets also slows supply growth of new hotel rooms, that will bode well for long term industry prospects, though it may not be enough to offset a significant downturn in the economy.
About the Author
|Also See:||Ali Kasikci, Hotelier of the World, Leaving Peninsula Beverly Hills Hotel for New Challenges / Jim Butler / July 2007|
|How Will You Finance Your Hotel Project in 2007? / Jim Butler / January 2007|