Hotel Online Special Report
Wall Street Funding Has Created More Volatility in the Lodging Industry / HVS
Boulder, Colorado…December 22, 1998 – While Wall Street saved the lodging industry after the market collapse of the early 1990s, it did not create a “perfect market,” according to Dan King, vice president of HVS International in Boulder, Colo. In fact, rather than making the industry less susceptible to the excesses and market plunges characterized by the 1980s to early 1990s, the public markets have made the peaks higher, the valleys lower and the cycles shorter.

“Now that the era of rapid REIT expansion and ‘easy deals’ is over, it remains to be seen if Wall Street will make the sale of a hotel simpler, or subject to less market imperfection,” says King. “At the moment, it appears that the market has given us the illusion of efficiency, and rather than providing discipline, the market may have made the industry more susceptible to fluctuating volatility, quarterly earning reports and the ‘madness of the crowds.’” 

King compares the hotel industry over the past 15 years and the problems of the early 1990s resulting from overbuilding, the 1990 recession and the coup de grace of the Gulf War forcing national occupancy levels to drop to 61 percent. Delinquent loans, loans in foreclosure and owners selling properties at liquidation prices resulted in values dropping precipitously low and a total loss of value over a two-year period of 35 percent, or 17.5 percent per year, says King. “The loss of value during the early 1990s was a debacle during which the industry painfully demonstrated its undisciplined and inefficient nature.”

Tierra Centre
4730 Walnut Street
Suite 201
Boulder, Colorado 80301
(303) 443-3933
(303) 443-4186 FAX
Occupancy levels started to recover as early as 1992, and by 1994 many markets had reached robust occupancy levels and hotel managers responded by increasing room rates. Beginning in 1992, the public markets through C-Corps, Real Estate Investment Trusts (REITs) and commercial mortgage-backed securities (CMBSs) became the primary source of both equity and debt for the lodging industry.

The REITs and C-Corps had virtually insatiable appetites for existing lodging assets, said King, but in 1998 the lodging industry’s financial fortunes entered into a transitional period. Stock prices of the

 REITs dropped as it became apparent the opportunities for rapid expansion had been depleted, and a change in the tax codes that would specifically impact two of the highest flying lodging REITs -- Starwood Lodging Trust and Patriot American Hospitality. Additionally, the purportedly low leveraged REITs had indeed found a way to leverage their future through complex forward equity  schemes. 
Mona Mesereau 
(1) 303-841-1511
Also See: Full - Service Properties Battle for Market Share / HVS / Nov 1998 
HVS International / Hotel Online Ideas and Trends

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