Hotel & Motel Management - October 20, 2008 - (Page 16) 16 On Finance IN THE details Downturn will stick around How we got here How we get out How to finish deals H&MM October 20, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Upswing will come, but may take some time resh into the fourth quarter, we’re still waiting for a turnaround in the capital markets. Hold tight—it isn’t coming soon. Our industry is in the midst of a classic, economy-driven downturn further exacerbated by the credit crunch, and there is much to be done before the tide begins to turn. F A one-two punch Many financial institutions are paying the price for their decision to write questionable loans backed by the drive to get deals done at any cost. Lenders were taking equity risk but getting debt returns. This massive leveraging—in the hotel industry, some lenders were making loans at 90 to 95 percent loan-to-value By James Merkel H&MM Columnist ratios—weakened the markets, contributing to the commercial mortgage-backed securities lending crash and a sub-prime mortgage disaster. It seems not a day goes by that another investment giant doesn’t collapse under the weight of its failed strategy. Wall Street’s reaction to the market instability obviously has not been positive, as evidenced by wild swings in the stock market. Unemployment shot up in August. Food, energy, construction and travel costs also are escalating. As a result, we’ve seen a loss of consumer confidence. These problems are raising a red flag in hotel development. We’re finally seeing industry fundamentals—which had been so strong—weaken under the strain. Turn it around A host of events will need to occur before we start to see a stabilization in the economic landscape, including: Financial institutions need to de-leverage their assets. More stringent credit standards, more conservative underwriting and tighter industry regulation and oversight are needed to ensure this doesn’t happen again, and to further restore confidence in Wall Street. The airline industry needs to check itself so we can get people moving and spending again. me Welco oin We Lodging J rs Trucke iation. soc As s rucker Have T o your dt Directe erty. Prop tel developers are taking a waitand-see approach: We’re in a lenders’ market, which is seeing more recourse, lower LTV ratios, higher debtservice coverage ratios, higher interest rates and a continued struggle with debt pricing. Seasoned developers with existing relationships with small banks on firmer footing are getting deals done. Balance sheet lenders are leading the charge in hotel financing, providing opportunity for capital providers to fill the gap with mezzanine debt that until recently had been void from the capital stack. Higher construction/materials costs and difficult-to-obtain debt financing have made many new developments cost-prohibitive, and we’ve seen a significant fall-off. The market for repositioning existing properties remains attractive. The bid-ask disparity between hotel sellers’ and buyers’ expectations, combined with tighter loan requirements and lack of financing, resulted in a sizable drop in transaction volume in the first half of 2008. This stomach-churning downturn won’t last forever. Those left standing, who have aligned themselves with lenders and patient investors who understand the industry, will be poised to lead the resurgence. hmm@questex.com James T. Merkel is managing director of Columbus-based RockBridge Capital LLC. He can be reached at (614) 246-2505. Let’s make a deal With so much instability and economic uncertainty, many ho- Green Focus The four-diamond Heathman Hotel in Portland, Ore., is undergoing a project to renovate each of its 155 guest bathrooms as part of a zero-landfill remodel. The hotel joined with Pental Granite & Marble to install Kerlite tile over the existing flooring and wall coverings to avoid the destruction of any existing substrate. One thousand employees were pledged in September by Fairmont Hotels & Resorts for the 24th Annual California Coastal Clean-Up Day. The event took place over 750 sites of beaches, bays, rivers, creeks, parks, roadsides and highways. Compiled by Jennifer Kovacs jkovacs@questex.com CIRCLE NO. 111 http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition
Table of Contents Feed for the Digital Edition of Hotel & Motel Management - October 20, 2008 Hotel & Motel Management - October 20, 2008 Contents Event Empowers Property-Level Leaders Boutique Bonanza Perspective Legal FAQ Consultant's Corner AAHOA Update Sales Clinic HotelWorld Update On Finance Trends & Stats Surprise Guests by Predicting Their Needs Transactions Worse Than Most Predicted Electronic Safes Housekeeping Services Marketplace Events Ad/Edit Index Classifieds Checking Out Hotel & Motel Management - October 20, 2008 Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page Cover1) Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page Cover2) Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page 1) Hotel & Motel Management - October 20, 2008 - Hotel & Motel Management - October 20, 2008 (Page 2) Hotel & Motel Management - October 20, 2008 - Contents (Page 3) Hotel & Motel Management - October 20, 2008 - Boutique Bonanza (Page 4) Hotel & Motel Management - October 20, 2008 - Boutique Bonanza (Page 5) Hotel & Motel Management - October 20, 2008 - Perspective (Page 6) Hotel & Motel Management - October 20, 2008 - Perspective (Page 7) Hotel & Motel Management - October 20, 2008 - Consultant's Corner (Page 8) Hotel & Motel Management - October 20, 2008 - Consultant's Corner (Page 9) Hotel & Motel Management - October 20, 2008 - AAHOA Update (Page 10) Hotel & Motel Management - October 20, 2008 - AAHOA Update (Page 11) Hotel & Motel Management - October 20, 2008 - Sales Clinic (Page 12) Hotel & Motel Management - October 20, 2008 - Sales Clinic (Page 13) Hotel & Motel Management - October 20, 2008 - HotelWorld Update (Page 14) Hotel & Motel Management - October 20, 2008 - HotelWorld Update (Page 15) Hotel & Motel Management - October 20, 2008 - On Finance (Page 16) Hotel & Motel Management - October 20, 2008 - On Finance (Page 17) Hotel & Motel Management - October 20, 2008 - Trends & Stats (Page 18) Hotel & Motel Management - October 20, 2008 - Trends & Stats (Page 19) Hotel & Motel Management - October 20, 2008 - Surprise Guests by Predicting Their Needs (Page 20) Hotel & Motel Management - October 20, 2008 - Surprise Guests by Predicting Their Needs (Page 21) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 22) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 23) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 24) Hotel & Motel Management - October 20, 2008 - Transactions Worse Than Most Predicted (Page 25) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 26) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 27) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 28) Hotel & Motel Management - October 20, 2008 - Electronic Safes (Page 29) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 30) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 31) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 32) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 33) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 34) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 35) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 36) Hotel & Motel Management - October 20, 2008 - Housekeeping Services (Page 37) Hotel & Motel Management - October 20, 2008 - Marketplace (Page 38) Hotel & Motel Management - October 20, 2008 - Events (Page 39) Hotel & Motel Management - October 20, 2008 - Ad/Edit Index (Page 40) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 41) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 42) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 43) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 44) Hotel & Motel Management - October 20, 2008 - Classifieds (Page 45) Hotel & Motel Management - October 20, 2008 - Checking Out (Page 46) Hotel & Motel Management - October 20, 2008 - Checking Out (Page Cover3) Hotel & Motel Management - October 20, 2008 - Checking Out (Page Cover4)
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