Hotel & Motel Management - September 15, 2008 - (Page 12)

12 On Finance IN THE details Hotel industry suffering Financing unstable Consumer conﬁdence falling Demand sluggish H&MM September 15, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Economy weakening industry fundamentals t was only a matter of time before the hotel industry would really begin to feel the trickle-down impact of the crisis enveloping the housing and ﬁnancial markets. While we had been seeing deals slowing and access to capital tightening, industry fundamentals remained strong and many closed ranks just waiting for the storm to I pass. Unfortunately, the storm isn’t abating; instead, it’s gaining strength. By James Merkel H&MM Columnist Don’t bank on capital The ﬁnancial landscape, to be blunt, is a mess. It seems not a day goes by without another lending institution announcing millions—or even billions, in the case of reeling investment giant Merrill Lynch & Co.—of dollars in asset write-downs on bad loans incurred in the ongoing housing bust. Investment banks got burned by paying too much for far too much risk. Private equity investors who initially jumped in to provide an infusion of capital are no longer stepping up. The capital markets are running scared, and until the write-downs stop and struggling lenders legitimately assess the risk, carefully balance their portfolios and restore conﬁdence in the marketplace, uncertainty will prevail. Stressing out All of this economic doom and gloom is beginning to take its toll on the industry. Current trends are showing cracks starting to form. So now, not only are the capital markets holding back, but industry performance is lagging. Businesses are curtailing travel and more families are apparently staying home. According to Smith Travel Research, occupancy is falling and revenue per available room growth is tepid. We’re also experiencing a different market contraction in this cycle. Historically, the luxury segment is hit hardest in downturns; but we’re now seeing the economy segment suffering. While construction for those hotels already in the pipeline continues to pump supply into a sluggish market, demand is falling and forecasts indicate negative growth for the year, which would be a ﬁrst since 2001. Lack of available capital and sagging performance have put developers in reactionary mode. The recovery from this cycle will take time. Who’s dealing and where? “If anybody can tell you how to control energy bills, it’s me.” “My guests are always opening the windows to look at the ocean, so I need to do everything I can to keep my energy bills low,” says Marcus Lewis, Vice President of Development, Tidewater Hotels & Resorts. “That’s one reason I use only GE Zoneline® units in all nine of our oceanfront properties. They help keep rooms comfortable, are very quiet and help me control energy costs…even if I can’t control my guests’ behavior.” GE Zoneline®, the most efﬁcient line of package terminal air conditioners and heat pumps in the industry I’ve said it before—the people getting deals done are developers with the best balance sheets, established relationships and solid projects; but even they aren’t immune to ﬁnancing problems. A colleague in the industry, who is well capitalized and is part of a great organization, recently had a bank back out of a loan because it had overcommitted capacity and couldn’t ﬁnance the transaction—something he said hadn’t happened to his company in more than 15 years. I am hopeful that the industry is on track for a 2010 turnaround, but I’m not seeing a break in the clouds quite yet. hmm@questex.com James T. Merkel is managing director of Columbus-based RockBridge Capital LLC. He can be reached at (614) 246-2505. CIRCLE NO. 119 http://HotelMotel.com http://www.HotelMotel.com/digital_edition

Table of Contents Feed for the Digital Edition of Hotel & Motel Management - September 15, 2008

Hotel & Motel Management - September 15, 2008 Contents Microtel, Hawthorn Settle in at Wyndham Is it Black or Red for Green Hotels? New City on the Strip When in Doubt, Purchase some Seashells Legal FAQ Consultant's Corner Sales Clinic On Finance Travel Trends Franchise Law Guest Column Events Cornell Insights HotelWorld Update Trends & Stats Top Hotel Companies Survey Awards Lending Requires Knowledge, Preparation Casegoods Minibars Historian to Keynote Leadership Forum at IH/M&RS Fitness Equipment The Lodging Conference Preview Accent Lighting Awards Vacuums Supplier News Transactions People Ad/Editorial Index Marketplace Classifieds Checking Out

Hotel & Motel Management - September 15, 2008

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