US Lodging: Fall 2011 Report Card

There is no shortage of recent news and events which have cast dark clouds on the future of the world.   A global economic crisis, rising tensions in the Middle East, and U.S. political uncertainty and rancor have all contributed to a broad crisis of confidence.  If the U.S. economy is not currently in a recession, it is certainly at the cusp of slipping into one.   On the positive side, despite high unemployment and a largely languishing real estate market, U.S. corporate profits are strong.   The 2012 election will produce either a reinvigorated Obama administration, or a new government in Washington DC.  Either way, many believe a new era with positive momentum will unfold after the balloting, with American corporations finally deploying cash from liquid balance sheets. 

Despite a sluggish economy, U.S. hotel operating metrics have remained positive and many prognosticators anticipate a continuation of this trend.  I believe that if in fact we experience another recession, the macroeconomic effects of a double dip will not bode well for short term industry metrics.  However, development of U.S. hotels will remain relatively muted for the foreseeable future as economics do not justify new building, and with the exception of EB-5 Immigrant Investor financing and public/private partnership opportunities, construction debt capital will be difficult to obtain for such initiatives.    Until the middle of this past summer, the perceived long term upside in the lodging sector resulted in heighted transaction activity and pricing of all types of hotel assets.  In particular, major hotel assets situated in gateway U.S. markets were highly sought after by lodging centric REITS that enjoyed the ability to raise relatively low cost capital through IPO’s and follow-on offerings. Recent turmoil in world capital markets and a hyper-sensitive stock market has resulted in significant declines in hotel REIT share prices, that subsequently led to the inability to now acquire assets.  Several hotel REITs including LaSalle Hotel Properties and Ashford Hospitality Trust have recently been trading at large discounts to unlevered asset value, and have announced stock repurchase programs.  Management of these entities perceives a strategic opportunity to create shareholder value by selling assets and reinvesting in their own portfolios.