"The development pipeline for U.S. full-service hotel construction was up a whopping 16 percent in the third quarter of 1998," Ader notes. "Meanwhile, typically rampant construction of limited-service and extended stay hotels was virtually flat in the third quarter of this year -- up just one percent each."

New flows of development capital to the full-service segment explain the segment's construction uptick, Ader says.

"Capital found its way to the full-service segment of the hotel industry after several years fueling the limited-service and extended-stay categories," Ader notes. In fact, from 1992 through the end of the third quarter, the supply of limited-service hotel rooms increased 53 percent, and the supply of extended-stay rooms rose 270 percent. But the supply of full-service rooms increased a mere 8 percent during the period.

In the third quarter of 1998, the largest leaps in construction starts were in the deluxe and luxury hotel components of the full-service lodging segment, according to the Bear Stearns report. "Financial returns in the full-service sector were so compelling that the industry's `buy versus build' debate shifted to `build' full-service," Ader observes. Luxury room starts rose 32 percent, and deluxe building rose 179 percent, Bear Stearns says.

But these third-quarter hotel room construction figures do not reflect the hotel industry's recent capital crunch, according to the Bear Stearns report. Ader says that as much as 40 percent to 50 percent of all planning-stage projects were shelved during the third quarter, and those declines will be apparent in fourth quarter construction figures due out soon.

Bear, Stearns  Co. Inc., a leading worldwide investment banking and securities trading and brokerage firm, is a major subsidiary of The Bear Stearns Companies Inc. (NYSE: BSC). With approximately $18.4 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, asset management, correspondent clearing, securities lending and custody services. Headquartered in New York City, the company has approximately 9,400 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles and San Francisco; and an international presence in Beijing, Buenos Aires, Dublin, Geneva, Hong Kong, London, Lugano, Paris, Sao Paulo, Shanghai, Singapore and Tokyo.