Conditions for Hotel Industry "RESET" May be Coming into Alignment

Great article from Hotel-Online headlines today. Reminds me of "Tipping Point" by Malcolm Gladwell, at what point will the Hotel Industry hit it's "tipping point" and get back on track.

http://www.hotel-online.com/News/PR2009_3rd/Jul09_ButlerReset.html

By Jim Butler, July 14, 2009

My friend Steve Van at Prism Hotels has a great Hotel Default Blog. His most recent article ("The Sky is Really Falling") sparked some perspective on whether the hotel industry is finally reaching a critical RESET point. Here are the latest thoughts.

Is the "RESET" at hand?

The hotel industry will not get better until we have a complete RESET, but maybe the conditions for that may finally moving into place. Here are the latest indicators:

1. The last optimist died. On July 7, 2009 Smith Travel Research threw in the towel on their formerly "optimistic" forecast and have adopted a "bleak picture" forecast for 2009, and continuing deterioration in 2010 for all three industry benchmarks (occupancy, average daily rate and revenue per available room).
2. Lenders are recognizing that hotel loan defaults are imminent. We are starting to see lenders recognize that even though a mortgage has been extended, or is performing "today." it will not perform next month or very soon. They are preparing to deal with the assets now and finding some borrowers are sanguine, but others are not. It is better to act sooner.

3. Owners aren't going to make up the shortfalls much longer. The report today that the Ilikai hotel has closed is just a high profile indicator of more closures coming. Delinquencies and foreclosures are skyrocketing, and hotels are going dark because neither the owner nor the lender will advance money to meet shortfalls to pay payroll, utilities and operating expenses.

Blessing in disguise?
Unfortunately, the hotel industry won't start to get better until well after the economy bottoms and starts to make significant and sustained improvement. With the capitulation of Smith Travel's optimism yesterday, most industry experts don't see significant improvement for hotels until sometime in 2011. And things will get much worse before they get better. But at least a realistic view of immediate prospects sets the stage for the massive RESET that must take place before the hotel industry improves -- a RESET in leverage, values and expectations. Ouch!