If you were looking for clarity on the short-term prospects for the U.S. hotel industry, this week’s Americas Lodging Investment Summit in San Diego wasn’t the place to be. Perhaps it was Marty Collins of Gatehouse Capital who best summed up the prevailing mood of attendees when he announced, “I’m cautiously pessimistic.” While plenty of speakers and attendees believe the hotel industry has touched bottom—if not turned the corner toward renewed prosperity—many others confessed their uncertainty.

“At last year’s ALIS, we had little sense of where the business was headed,” said Ed Walter, president & CEO of Host Hotels & Resorts. “This year while I don’t have a true fix, I feel a sense of optimism, and that means opportunity.”

Others, like Tom Baltimore of RLJ Development, are bullish but cloudy on the timing of a rebound. “It’s hard to argue we’re approaching at least a muted (hotel industry) recovery,” he said. “But what I don’t see is some kind of springboard event that will jump-start the rebound.”

CONFLICTING DATA
The tsunami of data presented at the conference also yielded mixed messages. While a pre-event survey of attendees showed 75 percent believe an industry turnaround will happen this year, Mark Lomanno of Smith Travel Research was less cheery. His 2010 projections call for flat occupancies (55.1 percent), a small decline in average rate and a further decline in RevPAR (projected to fall another 3.2 percent).

Although transient business travelers are hitting the road again, Lomanno says group demand remains troublesome: “Last year, between five and seven million less group rooms were sold each month than in ’07 and ’08,” said Lomanno. “And group rates were down, too.”

Gary Mendell, CEO of HEI Hotels & Resorts, affirmed STR’s numbers, saying group business is down 18 percent for his company, versus a one-percent drop in transient business. Choice Hotels President & CEO thinks at least part of the problem is education: “The hotel industry needs to arm the CEOs of their customer companies with data that show the ROI that results from group meetings and incentive trips,” he said.

A lot of business, groups included, is booking on a short-term basis, a development that makes forecasting difficult, if not impossible. As Vasant Prabhu, Starwood’s CFO, remarked, the signs are good for 2010 but the outlook could change quickly.

“A lot of 2010 will depend on late-breaking business, bookings made in the month for the month or in the quarter for the quarter,” he said. “As a result, it’s very difficult to predict performance as that trend can evaporate quickly.”

Despite the industry’s ailing fundamentals, developers are still finding ways to develop new hotels. “Supply growth is a stubborn problem for the industry,” said Lomanno. “We’ve had very little demand growth in the past three years, but in 2009 50,000 new rooms went into the ground and right now there are 97,000 rooms under construction,” he said.

As usual, PKF Hospitality Research is a little more optimistic than STR in its projections for the industry. PKF’s Mark Woodworth told the crowd hotel demand should begin to expand in the early part of 2010, followed by gains in occupancy, and by the third quarter, RevPAR will begin to grow. His best news: Growth in industry profits will resume next year with double-digit gains.

Still, most executives at ALIS concede average rate will be the difficult metric to move upward in the coming months, perhaps years. Wary consumers, armed with superior Internet bargain-hunting skills, will continue to seek and find good deals on hotel rooms.

“At least for the mid-term, and that’s probably five years, the pressure on the hotel industry will be on providing value,” said Joyce of Choice. “Also, if we have a jobless recovery, our industry will have no pricing power. Tell me where jobs are going and I’ll tell you where we’re headed.”

WHERE ARE THE TRANSACTIONS?
While hotel transaction activity has picked up some, many speakers and attendees pondered why the pace has been so slow. Accepted wisdom is that a lot of private equity, REIT and other money is sitting on the sideline waiting to acquire hotels, portfolios of properties and companies. As Lori Raleigh of the International Society of Hospitality Consultants pointed out, “We’re assuming there is $25 billion in distressed hotel assets, yet there appears to be $40 billion in equity looming out there,” she said. “The potential for a lot of transactions is there, even though it has yet to begin in full force.”

Part of the problem is the foot-dragging by banks and other lenders holding loans on hotels in or near distress. Many have apparently chosen to wait before foreclosing or otherwise pressuring borrowers into action.

“It may be that banks are content to continue to kick the can down the road and wait for industry fundamentals to rebound, at which time values should also increase,” observed Chuck Henry, president of Hotel Capital Advisers.

The corner may be turning on transactions velocity, however. Mark Elliott of brokerage firm Hodges Ward Elliott says the intensity of hotel transactions has picked up since Labor Day, and he expects it to continue.

“We’ve seen pricing increase five to ten percent since Thanksgiving alone,” he said. “The problem is there is very little product available for sale versus a lot of equity available for deals. Despite the increases in volume, transactions volume this year will still be down by two-thirds from 2007 levels.”

A HAPPY HOTELIER
While Laurence Geller has the reputation as the hotel industry’s curmudgeon, he was surprisingly upbeat during a panel discussion among members of the Industry Real Estate Financing Advisory Council.

“I’ve got no bad news, and I’ve seen an increasing amount of good news in the past eight to 10 weeks,” said the president & CEO of Strategic Hotels & Resorts. “There is optimism among consumers and business is beginning to pick up. We’ll have a better year than we expected.”

The IREFAC members were asked when they think industry RevPAR will turn positive. While most panelists said later in the year, Geller predicted May.