Small Inn and Bed and Breakfast Industry Articles

1/30/2008 4:24:27 PM
By Glenn Haussman

Jubilance regarding the overall state of the lodging industry is quickly fading. It’s getting overtaken by a swelling sense of pessimism. The significant attitudinal shift is in response to a softening economy that is dampening industry expectations that reached a high watermark just several months ago.

At this year’s America’s Lodging Investment Summit (ALIS), about 3,000 attendees were on hand to network and make deals. The general consensus from these industry insiders is though some deals will get done, the reality of a sinking economy is making it more difficult to make some projects happen.

Making the prognosticating more complex is the fact that industry wide, rooms are still getting filled at great rates. But since the hotel business typically experiences a lag of up to six months after an economic swing, it’s difficult to peg how far reaching a dip may be. That is, if one even materializes.

Many experts here at ALIS seem to be fence sitting, safely taking the perspective that the good times experienced during the last two years are over, but mitigating the potential downswing with hopes that 2008 will remain a strong year for rates. Major deals, however, will most likely be shelved for the time being as getting capital for the largest of projects has essentially dried up.

“I have to believe that we are in for some fairly difficult times. All of us in the hotel business realize this is a cyclical business,” said Steve Bollenbach, the former and recently retired Co-Chairman & CEO of Hilton Hotels Corporation, who then backed off the gravity of the downturn. “I don’t expect it to be dramatically bad, but things will slow down.”

Bollenbach said upsets in financial markets are going to make it difficult for the next 18 months to two years. He said the deal business has shut down for some time there is no financing available for larger deals. “New multi billion transactions have closed down for the time being, but there is a great opportunity for single transactions and those under $1 billion. But market for big deals has shut down.”

Bollenbach indicated that it’s highly unlikely another deal of the magnitude of Blackstone’s $26 Billion purchase of Hilton Hotels Corporation last year will take place for the foreseeable future.

Mark Lomanno, President of Smith Travel Research said it’s obvious to everybody there will be a little bit of a slowdown, but said the industry was actually in a worse spot six months ago then it is now from a performance perspective. “The second half of [2007] was better than the first. The current level of supply growth is below the 20 year average so the industry wouldn’t have to work off excess supply if things go down,” he said. “From the demand side over past 20 years it’s grown on average of 1.8 percent a year. When the industry starts to get in trouble occupancy is around 62 percent We are still a way away from that. While there is some concern over overall economic health, it has not affected the industry yet.”

Meanwhile, R. Mark Woodworth, President, PKF Hospitality Research thinks the industry should not fear slipping into recession. Instead he thinks a downturn will actually be a benefit. “We are very much in the healthy correction mode. Once we get past 2008 we will see more normal times. Demand will kick in during 2009 and we’ll see occupancies staying above long-term average into 2010,” said Woodworth. 

Woodworth also said the relative lack of supply coming into the market will help the industry bounce back more favorably. The last two major industry recessions were in part caused by massive oversupply. “Based on the current economic outlook we are not seeing any type of decline like the past two times around. It is very clear from looking at the data what led up to last two downturns were significant increase ins supply. That is not in the cards this time around.”

A broader economic perspective was given by Gene Sperling, Former White House National Economic Advisor and Former Director of the Economic Council. In speaking to ALIS conference attendees Sperling said economic fears are being created by ongoing sub-prime mortgage crisis.  

“Most foreclosures are hitting people that could stay in a 30-year mortgage at a more fixed level. This will not be the biggest bailout in the world,” said Sperling who noted that widespread foreclosures could have a devastating effect. “Concentrated foreclosures have terrible effect on home prices for everyone else.”


Glenn Haussman, Hotel Interactive's Editor In Chief, has been specializing in the hospitality industry for more than 10 years. He often speaks at lodging industry events, is quoted frequently as an expert source by newspapers and is an adjunct professor at New York University.