Wall Street Journal: As Hotel Vacancies Rise, So Do Risks of Default
We talked about the 'staycation' (due to $4 gas) in the summer; now we are facing the staycation due to economy (but not to worry, people in staycations will soon revive the auto and housing market with the cheap money Uncle Ben B is handing to them) Yes...
many more future workers for the steel toed future of the infrastructure laden Obamaconomy as hotels go half empty. Keep bidding up those commercial real estate stocks; certainly all that future unoccupied land won't effect supply/demand or prices. Not in the peaceful bliss of the Obamaconomy.
I'd be worried about this but as the 2nd half recovery begins in 5 months, all our problems disappear into the ether.
- The downturn in the U.S. hotel industry is becoming so acute that it has thrust the sector into crisis, leaving vacancies at a 20-year high and putting many properties in danger of missing payments to lenders. In the wake of cutbacks by business and leisure travelers alike, U.S. hotels this month are expected to post their 15th consecutive month of declining occupancy, longer even than their 12-month losing streak after the Sept. 11, 2001, terrorist attacks.
- That occupancy drain, coupled with declining room rates as hotels compete for customers, is expected to result in the hotel industry's steepest decline in revenue per available room since 2001, according to market-research company PKF Consulting Inc.
- If conditions are as weak as expected, PKF estimates that nearly 20% of a sample of 1,500 U.S. hotels that it studied won't generate enough cash flow this year to cover interest payments on their mortgages, up from nearly 16% last year.
- U.S. hotels now carry roughly $250 billion in cumulative mortgage debt, according to Foresight Analytics LLC. Many hotel owners who can't generate enough cash to cover their debt service in this recession will avoid default and foreclosure by digging into their own or partners' resources to make up the shortfall or by negotiating a compromise with their lenders. ($250 Billion? PEANUTS! Just put it on the tab. To the printing presses Ben!)
- Exacerbating the industry's troubles is a flood of new rooms hitting the market because of development projects started during the real-estate boom of recent years. .....estimated 125,000 net new rooms projected to debut in each of this year and 2010.
- Among commercial real-estate categories, the hotel industry rises and falls the most dramatically in reaction to economic cycles. That's because, unlike office buildings and shopping malls with long-term leases, hotel occupancy and rates change on a nightly basis as customers come and go at will. In a downturn, the fallout is significant; PKF expects the average occupancy among U.S.
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