GlobeSt.com: The survey indicates that costs are going to rise at twice the rate of inflation. How typical is that?

Corgel: It's not too atypical, but when we have occupancy increasing in the hotel industry, expenses start building back as well to at an accelerated rate as managers start employing more people and adding more features that they may have cut during the economic downturn. So you're more likely to find these kinds of growth rates and expenses when occupancy is increasing rapidly.

GlobeSt.com: But is it rising so fast that it's jeopardizing profit margins?

Corgel: No, once you hit a long-run natural occupancy rate, which we've now hit in many markets and are approaching in others, you build back the level of service that's required to manage the hotel successfully. The fear, though, is that once a hotel reaches that level of occupancy, the competitive pressure sets in to add the additional amenities that may not have been there before or that appear only during peak periods. That's when profit margins get squeezed. We haven't seen evidence of that yet, but this is the time when it would normally occur.

GlobeSt.com: Where are we in terms of reaching the market peak?

Corgel: Some markets are moving rapidly toward the same level as, let's say, New York. The tech-wreck markets and the middle of the country are a little behind and have room to grow. In both cases they're still building occupancy and haven't started charging higher room rates.

GlobeSt.com: Is it a service-sector thing?

Corgel: Clearly the full-service segment has been preferred in this cycle. It's ahead of the limited- or what people are calling the select-service market, and this is a bit different from the last cyclical run-up--after the '91 recession until about 2000--when we had a tremendous increase in limited-service supply. This run-up is a little different. In this market there seems to be a recognition of the wealth that was built during the '90s, and we have a lot more customers running around who can afford the upper-upscale and luxury product. So we're seeing that phenomenon play out in the RevPAR growth rate and the asset pricing of the two highest segments.

GlobeSt.com: How long can we continue at this pace?

Corgel: This can go a while. There are three things that could ruin this market. A catastrophic event, such as bird flu, would cause people to start withholding their travel budget. An economic depression could do it, as could abnormal supply growth. It's a coin toss as to which one of those three will damage this market and right now none are on the horizon. Who knows what will happen with bird flu, and the recession's a wild card.

GlobeSt.com: What about the supply-growth picture?

Corgel: Supply growth is fairly well under control, given that there's a lot of market vigilance on the part of lenders who got burned in the '80s and '90s. Plus, the increase in construction costs has raised the bar on making developments feasible. So supply is moving along at a disciplined pace and demand still outpaces it. We may have what I describe as peak persistence, which means we could go for awhile at this pace. That's great for investors because the returns are going to be there.

GlobeSt.com: How does the past year of M&A activity factor in?

Corgel: The privatization of the industry, if it is a trend, eliminates some of the transparency and liquidity, neither of which are a good thing. Along with this is the bifurcation of the plays on cash flows. We have operating companies disposing of assets and focusing more on management and franchising businesses. Now we have Cendant carving itself up into five pieces, and doing a pure play on Wyndham, so the companies are becoming more specialized and ownership is in a state of flux between private and public. From an academic standpoint I think it's preferred that we have sufficient levels of public trading in the companies that own assets, which are pure plays on those ownership positions, because it does give you a pricing point you can rely on. It provides the public market's consensus of what these assets are worth. When you get them in private hands all of this becomes a big secret and we don't have day-to-day pricing on these assets and frankly I don't like it. Whether that will have any affect on capital flows is up in the air, but it does cause concern.

GlobeSt.com: What about all we hear concerning private firms taking on public-like reporting styles for the sake of their clients?

Corgel: I don't think there's any comparison between what private entities like Blackstone and Colony would do compared to what the public companies are required to do. We'd be hard-pressed to find out much about Blackstone's assets.

GlobeSt.com: Any other worries?

Corgel: Maybe lending criteria are becoming a bit too relaxed. If there is some correction maybe we're setting ourselves up for some loan problems down the line. It's a concern across the entire real estate industry but hotel investors have one of the highest exposures.

GlobeSt.com: But despite bird flu and underwriting woes, it's clear sailing?

Corgel: By next year, we're going to be at the peak in most markets across the country. We'll be moving along at a rate that's above the rate of inflation, but we're not going to see the huge double-digit increases that we've seen in the last couple of years. We'll be leveling off at 30,000 feet. While we won't reach 40,000, it will continue to be a nice, smooth ride.