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Hotel Lawyer: How improving fundamentals make 2011 the year of
"Great Expectations" for the Hotel Industry

By Jim Butler and the Global Hospitality Group®, 
Author of
February 1, 2011

For the most recent update on this topic, click here

Hotel Lawyer on the state of the hotel industry. At the ALIS conference last week, Smith Travel gave a great overview on the final results for 2010 as well as its outlook for 2011 and 2012. The numbers are very interesting!

Jan Freitag made the presentation at the ALIS conference. According to him, at the end of 2010, there were 52,000 hotels in the United States providing a total room supply of 1.7 billion rooms (a 2% increase in supply over 2009).

Great increase in demand. The demand for room nights grew a staggering 7.8% returning to the pre-bubble peak of 1 billion room nights sold during 2010, but with an increased supply of hotel rooms taking a share of the demand, occupancy only increased 5.7% to 57.6%, below the magic 60% occupancy level. Smith Travel hailed the demand growth, but noted that it does not expect to see this outsized growth again in the foreseeable future. In fact, as noted below, demand growth for the next two years is projected to be below 2% per year.

Disappointing lack of any meaningful rate growth. Unfortunately, the dramatic demand growth was not accompanied by a comparable increase in the average daily rate or ADR. In 2010, ADR was flat (actually down -0.1%) at $98, and still below the important $100 level. RevPAR increased 5.5% to $56.50 and room revenues increased 7.6% to $99.5 billion.

But 2011 and 2012 look to be years with strong ADR and RevPAR growth as shown below.

Coastal markets were hit harder and are recovering faster. While all markets have suffered and recovered on the demand side of the ledger, it is notable that the coastal markets have been hit harder and have recovered faster on ADR. The following charts demonstrate this point, with the red line showing the Boston-New York City-Miami-LA-San Francisco markets.

Change in scale segmentation. Smith Travel announced that they are updating their chain scale segmentation. They are dropping "Midscale with F&B" and "midscale without F&B." The new segments will be called "Upper Midscale" and "Midscale."

What lies ahead? The Smith Travel forecast.

For the total US Outlook, Smith Travel projects the following for 2011 and 2012:

And here is how Smith Travel sees the future by chain scale segment.

Forecast by industry segment. As we have discussed many times, all hotels will not benefit or suffer equally. Chain scale segmentation is only one of the factors helpful in evaluating investment prospects, along with many other critical factors such as the specific geographic market the hotel is in, and the size, nature, condition, branding, and management of the property itself.
But here is what Smith Travel projects for the next two years by chain scale.

What's it all mean?

We continue to believe that 2011 will be a pivotal point in hotel investment with accelerating workouts, purchases and sales, and financings. The worst is behind us. Fundamentals are improving. Liquidity is returning to the marketplace and capital is poised for investment.

This will be a busy year with strong increases in hotel values and performance.

Other anticipations of Great Expectation!

Many of the currents above have been reflected in prior interviews and articles on the Hotel Law Blog, such as the following:

Ask the Hotel Lawyer: 2011 is starting as the year of "Great Expectations" for the hotel industry!
Hotel Lawyer: So, You Think You Want to Buy a Hotel?
BLOOMBERG interview with Jim Butler, Hotel Lawyer
New York Times: Hotel Sector May Lead Economic Recovery

This is Jim Butler, author of and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from troubled hotel transactions. Who's your hotel lawyer?

Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at [email protected] or 310.201.3526.

Jim Butler is a founding partner of JMBM and Chairman of its Global Hospitality Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.

JMBM's troubled asset team has handled more than 1,000 receiverships and many complex insolvency issues. But Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. For example, they have developed some unique proprietary approaches to unlock value in underwater hotels that can benefit lenders, borrowers and investors. (GOOGLE "JMBM SAVE® program".)

Whether it is a troubled investment or new transaction, JMBM's Global Hospitality Group® creates legal and business solutions for hotel owners and lenders. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.

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]


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Also See: Ask the Hotel Lawyer: 2011 is starting as the year of "Great Expectations" for the hotel industry! / Jim Butler / January 2011

Hotel ADA Defense Lawyer: How a recent ADA case affects all hotels but particularly conference centers and meeting hotels / Jim Butler / January 2011

Hotel Lawyer: So, You Think You Want to Buy a Hotel? For savvy investors, the time could be right / Jim Butler / January 2011

Sheraton Universal Hotel Sale Facilitated by JMBM's Global Hospitality Group® / Jim Butler / January 2011

New York Times: Hotel Sector May Lead Economic Recovery / Jim Butler / December 2010

ADA Defense Lawyer: California's Certified Access Specialist program -- Does it provide all of the intended ADA protections? / Jim Butler / December 2010

How "Standards" Can Protect Your Hotel Mixed-use Assets . . . / Jim Butler / November 2010

Hotel Lawyer: Checklist for Negotiating Hotel Management Agreements/Hotel Operating Agreements - The HMA PRO™ Checklist / Jim Butler / November 2010

Distress Continues for Hotels and Commercial Real Estate: New Data Suggests 8 year Downturn, Dismal Prospects and Increased Foreclosures / Jim Butler / October 2010

Atlas 2009 Year End Hotel Survey . . . and What it Means / Jim Butler / February 2010

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