If we better understand the distinct nature of the current economic recession, we can also better understand how and when conditions will improve in the hotel industry and when hotel values will begin to increase. There continues to be more positive than negative economic signs suggesting, while we're still somewhere near the bottom of an economic cycle, we're positioned for a significant upswing. Whether we're at the absolute bottom, in the middle of a double-dip recession, or truly on our way up isn't clear, but it’s clear a number of things need to happen before conditions return to anything considered normal. What's also clear is this recession is unique relative to previous recessions.

This recession is unique because it's "CRUD." Specifically, uniquely, and simultaneously (and unlike previous recessions), the current down-cycle has affected:

C, Consumer spending. Consumers continue to be leery of making major purchases, opting instead to squirrel away some savings for the winter. This new personal fiscal conservatism may very well be the most prudent thing for consumers to be doing. A recent Wall Street Journal article recommended people "establish a cash stash for everyday needs" and "hoard some for retirement" (Karen Blumenthal, "Saving Again? Here's a Way to do it Right," Wall Street Journal, Sept. 23, 2009, pp. D1-D2). In fact, with its Cash for Clunkers program, the federal government may even have trained consumers to stall for the possible availability of government assistance programs before making significant purchases.

R, Residential market. Home values have hit historical lows in most markets, wiping out any positive equity growth many homeowners recorded over the past few years. The loss of this cushion has made people cautious about spending on travel. This trend has left homeowners in shock and has created frequent reports about all of the negative ripples it's created in the country's financial system.

U, Unemployment. As unemployment rates have moved into double digits in many areas where such a statistic was unthinkable a few years ago, leisure travel has been seriously affected. Of course, unemployed people are unlikely to spend significantly on travel, but also, those who remain employed are concerned about the prospect of becoming unemployed, and are also cautious about leisure travel.

D, Debt availability. Many business owners wanting to expand simply can't because there exists no feasible mechanism for them to obtain debt. Of all the economic changes we've seen, this one has probably been the most drastic—it's as if Niagara Falls has been shut off. Any debt that is available comes with unwieldy personal guarantees and extremely high equity ratios requiring an availability of cash that many business owners can’t or won’t commit. Along with this limitation on business expansion, business travel has been significantly curtailed, as well.

One good thing about analyzing the recession this way is it provides guidance about the factors for us to watch to know that conditions are truly poised to improve both nationally and locally. Ultimately, the federal government has thrown a lot of economic interventions at the wall; some should get traction, and the economy will significantly improve. Specifically, I’d watch for:

C, Consumer spending. If consumers spend more on Christmas gifts in 2009 than 2008, big spending on discretionary travel won't be far behind.

R, Residential market. If the upswing in home sale transactions we've seen in some markets results in home value increases, consumers will feel the comfort of knowing their home is once again an important component of their nest egg, and Americans' great and pent up desire to travel will be unleashed.

U, Unemployment. Once we see multiple consecutive months of employment gains, not only will leisure travel begin to increase, other business conditions will improve, causing business travel to rebound.

D, Debt availability. For many functional reasons, and some dysfunctional ones, debt providers have a herd instinct that should cause the debt flood gates to open, even if under tighter regulation and scrutiny. As a result, overall business conditions, and business travel, will increase.

When these trends occur, we can stop discussing CRUD, and I look forward to that.

The Penn State Index of U.S. Hotel Values econometric model currently projects overall hotel values will have declined 17.8 percent this year, but that these declines will begin to level off next year. With an approximate $73,000 per-room decrease in value, luxury hotels can be expected to have the largest value decreases for 2009. Economy hotels are expected to register the largest percentage drop in value, with about a 26-percent decline this year.

John W. O’Neill, MAI, CHE, Ph.D., is Managing Director of Hospitality Advisory Services, LLC, and Associate Professor in the School of Hospitality Management at The Pennsylvania State University. He can be reached at jwo3@psu.edu or 814-863-8984.