Something odd happened on the way to the funeral for hotel deal making this year — at least a few investors refused to attend. Yes, many banks and other high-profile lenders have officially shut the door on the hospitality industry, and declining occupancies and soft room rates have left experts sour on the near-term outlook. But look closely at the lodging landscape, and it's not quite as barren as you might expect.

The holdouts include entrepreneurs like Patrick Denihan, co-CEO of family-owned Denihan Hospitality Group in New York, which he runs together with his sister Brooke Barrett. Early in the year the firm, which owns seven hotels in Manhattan, spent $119 million to acquire the 300-room James Hotel in Chicago. In August, Denihan spent another $65 million to buy out its majority partner in the 132-suite Surrey Hotel on New York's Upper East Side.

Denihan is hardly done. The company has raised more than $200 million in financing this year, and is sitting on $50 million in equity that could be leveraged to acquire another $150 million in hotels. Patrick Denihan reveals that he is looking at six more properties — two each in Chicago, New York and Washington, D.C. An asset in Miami also is under consideration.

“Everybody is talking about how the hotel acquisition market has been cut back,” Denihan says. “But if you look closely, you'll find there are a lot of sellers around. It's tough to close a transaction right now, but it can be done. We hope to buy another hotel by the end of the year.”

Revealing numbers

After five consecutive years of growth, global hotel mergers and acquisitions plummeted 76% in the first six months of 2008 to $14.7 billion, according to Chicago-based Jones Lang LaSalle Hotels. In the U.S., after four consecutive years of record hotel transactions, volume through June sank 81% to $6 billion.

This year's domestic numbers are close to the figures recorded in 2004 and 2005, and far above the 2000 and 2001 totals. The 2008 volume looks paltry only compared with the unprecedented bonanza of 2006 and 2007, the latter year racking up an eye-popping total exceeding $45 billion.

Because Jones Lang LaSalle Hotels only tracks deals valued above $10 million, the statistics don't tell the whole story. The small-deal market — in which limited-service brands such as franchised Red Roofs and Econo Lodges trade hands for a few million dollars — is holding up comparatively well.

Meanwhile, community and regional banks continue to make loans, albeit carrying recourse. Many of these smaller lenders have been unaffected by the collapse of the housing and bond markets that has pummeled big banks' balance sheets.

Even with the commercial mortgage-backed securities (CMBS) market in cardiac arrest, the big deals continue to close. A 50% stake in the 1,500-room Fontainebleau Resort in Miami Beach went for $375 million in April. In June, a Los Angeles private-equity group, Next Century Associates, paid a hefty $366.5 million for the Hyatt Regency Century Plaza in Los Angeles. There were four other deals priced above $100 million in the first half of this year.

Why the market jitters?

The slumping economy has beaten down hotel fundamentals and made many investors nervous. Aggressive U.S. hotel owners raised their average daily rate 4.2% during the first half of the year, but occupancy fell 2.6%. The end result was 1.5% growth in revenue per available room, the smallest increase since 2003, reports Smith Travel Research.