The Year of Hotel Consolidation

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One by-product of the current hotel recession we're in will certainly be a spate of mergers, acquisitions and other types of consolidation. The world of commercial real estate is a high-stakes game of musical chairs, and those developers, owners and speculators caught with large or ill-conceived debt related to development or acquisition of properties, portfolios or brand companies may have found themselves with no place to sit when the music stopped last fall. Put another way, some companies and entrepreneurs are facing mountains of debt that will come due this year or next. They may opt instead (or be forced) to sell their positions at unfavorable terms.

The brand companies, particularly the publicly traded ones, are also under intense pressure. The public glare of reporting sinking occupancies, RevPARs and profits has severely dampened most hotel stocks. As of this morning, Starwood stock is down 63 percent from its 52-week high. Similarly, Wyndham shares are off 68 percent, and Marriott is down 47 percent. Last week's speculation that vulture investor Sam Zell may increase his eight-percent stake in Starwood boosted its stock by 16 percent in one day. It's all a sign that those companies in trouble may quickly become targets for opportunistic investors.

One also has to wonder about the fate of Hilton Hotels, which The Blackstone Group took private following its stunning $26-billion purchase of the company in 2007. Blackstone bought Hilton at the top of the market and, like most companies, has sailed into rough waters in recent months with all of its investments, not just hotels.

The urge to merge or at least sell is not limited to brand companies or portfolios. CSX, the Florida-based railroad, announced last week that it may sell The Greenbrier, the venerable luxury resort in the mountains of West Virginia. The property lost $35 million last year and has had a series of management changes and labor unrest. Although it's owned the property for a long time, CSX probably realizes it needs to stick with what it knows and get out of the hotel business.

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