Times are still tough for the hotel sector these days, which means more lodging properties are likely to fall into distress in the coming year. The forecast for the remainder of 2010 isn’t much brighter, with hotel occupancy expected to remain flat at 55%, average daily rate decreasing 3.2% to $94.39 and revenue per available room dropping 3.2% to $51.99, according to Smith Travel Research.
Last week’s GlobeSt.com Quick Poll, with approximately 200 votes cast, shows that 60% of readers think things will get crazier for hotel distress, while the other 40% believe we’ve seen the worst. Paul Sexton, vice president with Hospitality Real Estate Counselors in Orlando and a 20-year veteran of hotel real estate, gives his thoughts on the matter.
“On the operations side of the equation, we’ve probably seen the worst of it. Rooms sold actually rose 2.6% in January, occupancies have bottomed out and there is a realistic expectation that revPAR will swing positive by the third or fourth quarter of this year. Because most operators did an excellent job of cutting costs, cash flow will show huge improvements once revenues go positive.
“If you are on the transaction side of the equation, however, things will definitely get crazier. The simple truth is that that the industry was over-financed during the boom years, values have fallen off significantly and only a very small fraction of distressed properties have cleared the market.
“Add to that the fact we that there are still over 700 banks on the FDIC’s troubled list, CMBS hotel delinquency rates are at 17%, loan maturities will rise each year through 2013 and we are likely to see higher interest rates by the first or second quarter of 2011. Crazy has only just begun.”
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