A recent conversation I had with Prism Hotels & Resorts CEO Steve Van really opened my eyes to what a strange time this is in the lodging industry. Not that it hasn't been obvious to everyone or that I hadn't noticed before, but the oncoming “train wreck” of hotel foreclosures Van predicts is in stark contrast to the strong and still improving operating results the industry has seen the past 18 months.
It's a great time to own a hotel — if you're not overleveraged — and it's a great time to buy a hotel if you can find the funding. But as Van points out, those owners and investors are few and far between. So many owners are fighting to survive looming maturities that originated from loans made in 2005 to 2007 when hotel values were at an all-time high, not to mention costly property improvement plans now being mandated by most franchise companies.
The economy once again looks shaky, mostly from concerns across the pond, but occupancy and now even rate continue to climb. Group business and corporate travel are looking better and better, and leisure travel continues to grow despite consumer confidence issues almost everywhere (up 4.7% globally in October, according to Pegasus Solutions). The industry's recovery has come quicker than many anticipated, and although STR and others' projections for RevPAR next year were lowered recently, growth is still the forecast.
Yet simultaneously, massive loans are coming due for so many owners who owe far more for their properties than they're currently worth. With the debt markets still in flux and CMBS lending only a shadow of what it was in the mid-2000s, replacement capital is scarce. Will those owners and their lenders be able to hang on until revenues and values return to 2005 to 2007 levels? Or is Van right that 2012 is the year the chickens come home to roost?
I don't know and I don't know what the full repercussions of that roost would be for the industry. So you're right, there's really no point to this post. Other than to say this is a crazy time in the lodging industry, and 2012 is sure to be a wild ride.