For instance, Arnold Levy's firm, Stone-Levy LLC, cannot find enough opportunities in the hotel sector for its pension fund clients. Not that it would help Levy's clients, hotel broker Steve Marx of Hotel Source has seen an uptick in markets within a half-day's drive of the city, such as Wisconsin Dells, Grand Rapids, MI and West Des Moines, IA. "People are canceling their trips to Disney World and their cruises," he notes.

However, the industry that was in decline before Sept. 11 remains on the ropes one year later. Revenue per available room fell 15% last year, reports Scott K. Steilen of Warnick & Co., with gross operating profit for Downtown properties off 21%. For the first seven months of this year, he adds, REVPAR is down 12%.

"Group business is the biggest driver in this market, and group business is off 20% to 30%," Steilen says.

Steilen forecasts Downtown occupancy will be relatively flat at around 67% the rest of the year, with an average daily rate of $153, off 6% from a year ago. For the suburbs, he foresees occupancy at 60% with an ADR off 7% at $109.

Meanwhile, Jones Lang LaSalle Hotels reports airport hotels have been among the poorest performers nationwide, with REVPAR off 10% over last year.

Even Marx, who specializes in the mid-market properties, sees storm clouds for hotel operators. "There's an awful lot of hotels out there that aren't going to rebound," he predicts. However, lower debt loads might save the day for some. "A lot of people thought there'd be a lot more foreclosures, and that's not happening," Marx says.

Price-cutting is, though, with Marx noting a room at the elegant Drake Hotel on the Gold Coast able to be had for $95 a night, about 50% off. "That's really frightening," he adds.

Among the expenses that have increased are insurance premiums, notes Jones Lang LaSalle Hotels, with jumps of 58% to 280% reported.

Still, Levy notes that one pension fund still saw an 8% return on the hotel portion of its portfolio last year, far outpacing the performance of its equities. Over the long term, Levy tells GlobeSt.com, hotels produce returns in the low teens with internal rates of return often hitting the high teens.

"The returns for hotels over time are clearly within the parameters that as institutional investors, we look for," Levy says.

Marx adds buyers have been looking, too. "We see a lot of people looking right now, which is different than a few months ago," he says.

Jones Lang LaSalle Hotels also reports the bid-ask spread has narrowed nationwide to produce sales volume of nearly $1 billion.

Instant Insights /

Hotel Market Down, Though Not Out of Favor

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