The ALIS conference this year was as glum as I can recall. You would have to go back to 1991 and 1992 at the old UCLA and NYU conferences to find a similar mood. Compared to the record attendance of more than 3,200 at last year's ALIS conference, the attendance of 1,700 was a good showing, but obviously reflected a lot of cutbacks.

Soundbites from the experts

Five hospitality lawyers from our Global Hospitality Group attended the conference this year, and here are some soundbites that we gathered. We aren't "verifying" any of these matters as fact, just passing on what you might've heard if you attended the conference:

• Debt financing is dead, at least for anything over $20 million. Smaller transactions are happening through local banks.

• It looks like there is at least a 10% RevPAR decline coming in through the pipeline which is likely to depress NOI by 20 to 25%. 

• A lot of money continues to sit on the sidelines. Sellers are waiting for things to get better, but they are not. Buyers don't think the discounts are deep enough yet. "Everyone is afraid that today's 10 cap is really an 8." 

• With the recession hitting Europe and currency exchange rates changing, the United States is no longer "on sale" so foreigners do not find coming to the U.S. such a bargain anymore. 

• Construction costs and replacement costs are becoming less relevant to value and financing of hotels. 

• This is a great time to renovate hotels. 

• The optimists look for recovery in late 2009. The moderates hope for recovery in late 2010. More people are talking about recovery in 2011 and beyond. 

• Smith Travel's Mark Lomanno thinks that Lehman going out of business was an equivalent "event" to 9/11 in terms of its impact on the lodging industry. 

• Hotel equities were decimated in 2008. Even the most bulletproof names are trading at 60% off their 2008 highs. Some are down 99% from $30 to $1.00 or $1.50. Public stocks are trading at cap rates of 10.25 after 4% reserve. By this formula, some stocks should be trading at less than zero, but that is impossible. 

The crux of the current crisis is: no one is prepared to lend or make a significant move until they understand valuations. Everything seems to be in freefall. It is not even possible to predict when we will understand valuations again.

The value of assets is likely to be determined by government action through the TARP or the bailout. None of the bailout money has yet gone to buy assets. It has all gone to shore up the capital of major banking institutions after the write downs they had to suffer at the end of 2008.

What private equity wants to bet against the government's hundreds of billions or even trillions of dollars? How will the government programs value assets? That is a crucial issue that needs to be resolved. Some think it will take something like the "Resolution Trust Company #2" to jump in and clean up all the assets before we can find a new base to understand values.

These are "interesting times." 

Jim Butler
Chairman, Global Hospitality Group
Jeffer, Mangels, Butler & Marmaro LLP
1900 Avenue of the Stars, 7th Floor
Los Angeles, CA 90067-4308
(310) 201-3526 direct
[email protected]
www.HotelLawBlog.com