Small Inn and Bed and Breakfast Industry Articles

By ALEX FRANGOS and KRIS HUDSON
June 4, 2008

Airlines are cutting back capacity, and that spells bad news for hotels, which rely on folks jetting from place to place.

Carriers are curtailing the number of flights they run in response to record-high fuel costs and slackening travel demand. American Airlines alone is planning a 12% cut by year's end.

John Arabia, analyst at Green Street Advisors, wrote in an investor note last week that he expects revenue per available room, a common hotel-industry measure, to drop 3% to 4% in 2009.

"Nimble investors are cautioned to reduce their exposure to hotels in the interim as the market digests the impact of the airlines' problems on the lodging industry," Mr. Arabia wrote.

Executives attending this week's hotel conference sponsored by New York University were understandably glum about the trend. "It will negatively affect business," said Michael Depatie, chief executive of closely held Kimpton Hotels, the operator of 43 boutique hotels.

Some were more philosophic about it. Barry Sternlicht, chief executive of Starwood Capital Group, conceded that cheap airline tickets in the past may have inadvertently subsidized the hotel industry. Meanwhile, David Kong, chief executive of Best Western International Inc., took pains to make a distinction between the hotel industry, where "people must come first," and the airlines, which he described as "one of the most hated industries."

Tough Sell

It's difficult to sell any property these days, but Glimcher Realty Trust faces an especially rough road in unloading Eastland Mall in Charlotte, N.C. If it can't, the company may give it to its lenders, sticking them with the problem.

Columbus, Ohio-based Glimcher, which owns 27 malls and shopping centers, bought the 80% of Eastland Mall that it didn't already own from a joint-venture partner for $4.75 million in 2003. The 33-year-old mall has lost two of its five anchors, a Belk department store and J.C. Penney, an ice-skating rink and some small-shop tenants. Its sales per square foot of roughly $230 falls well short of the industry average of $350. The mall is located in a slow-growing, relatively low-income area, and new shopping centers built within a five-mile radius of it have siphoned away shoppers.

The $42 million left on the mall's mortgage, which was sliced up and sold as bonds, must be repaid by mid-September or its interest rate will rise significantly. "Management appears ready to hand the keys over to the lender, since the value of the property likely falls well short of the outstanding mortgage amount," Green Street Advisors analyst Jim Sullivan wrote in a May 15 research report.

Glimcher said it is talking with its lenders to restructure the loan. If that fails, "the company would not expect to continue owning the property at the end of 2008." The special servicer on the loan, Cerberus Capital Management's LNR Partners Inc., declined to comment.

Meanwhile, the city of Charlotte is attempting to find a developer to lead a public-private redevelopment of the mall. Worried about the property becoming an empty eyesore, city officials have earmarked $16 million in public funds for infrastructure at the site. No white knights have committed yet. "We are working on it, and that's all I can really say," said Tom Flynn, Charlotte's director of economic development.