Cautionary Tales
While there was a lot of uplifting talk about improvements in the hotel market—occupancies and RevPARs are unquestionably on the rise—in nearly equal measures speakers talked of the considerable challenges ahead—a weak financing environment, little growth in average rates and the looming specter of hundreds of millions of dollars of real estate debt that comes due in the next 24 months.



Sanjay Patel of Midwest Hospitality Group, an owner and operator focusing in the Midwest, said his revenue began dropping in September 2008 and it hasn’t stopped falling yet: “We haven’t hit bottom.”

Doug Geoga, former head of Hyatt, and Laurence Geller of Strategic Hotels & Resorts, prepare for their keynote addresses.

The recovery won’t be fast enough to save some of the hotels already in default and the many more headed that way on a collision course with looming CMBS loan maturities in 2012, a panel of experts said during a session titled “Hotels in Default: What’s Next?”

“There is no way for the economy to recover by 2012 to avoid those maturities,” said Steve Van, president & CEO of Prism Hotels. “RevPAR just doesn’t get back fast enough.”

Overleveraged and now with undervalued properties, many owners and banks are left with an impossible challenge. “Why would we quit extending and pretending when no one wants to say ‘Remember that loan we made for $100 million?’” said Van. “’It’s worth $40 million now.’”

Biff Hawkey, senior vice president of development for Hostmark Hospitality Group, said the lack of any resolution to all the distressed assets has been slower than anyone expected because there’s such a large volume that even the ones worth buying and saving get lost in the shuffle.

“I kept thinking we need an RTC,” Van said. “That unclogged the market (in the 1990s), but the difference is: The last time this was a $200 billion problem and now it’s a $2 to $3 trillion problem. It’s so big it can’t be dealt with the same way. The losses are too big because the bubble was so big.”

Hawkey pointed out the economy took about six years to stabilize and for the RTC to clean out the system during that recession, so maybe the modern-day solution is still a few years away.

“Maybe that five- to seven-year time frame is good,” Van said. “We’re going to be in the ditch a while, we might as well learn how to make a living in it.”

First Hospitality Group’s Robert Habeeb, left, and Abacus Lodging Investors’ Barry Bloom listen to a question from moderator Dan Sheline of Chartres Lodging Group during a panel discussing the role of asset managers.

Robert Habeeb, president of First Hospitality Group, which develops and operates hotels and provides asset management services, said the industry has undergone a day of reckoning.

“We’re like the person who woke up in the emergency room after a bad heart attack and the first thing we told the doctor is that we’re going to lay off the cigars, the cognac and that we’re going to take off 20 pounds,” said Habeeb.

“We’ve been forced into a place where we are running our businesses very efficiently. Our challenge is to keep that up. If we return to our old lifestyle and habits, we’re destined to go through this cycle again,” added Habeeb.