(Maria Wood is senior editor of Real Estate Forum.)

PHOENIX-Even with uncertainty in the debt markets due to the fallout from the subprime mortgage sector, lodging executives speaking at the 13th annual Lodging Conference here on Wednesday were fairly optimistic that any impact on the economy and therefore the industry would be short-lived. Indeed, some expressed the view that a correction was long overdue.

During the opening general session power panel entitled “Hot Topics and Hotel Trends,” a group of executives weighed in on the probable impact of the credit crunch on the economy and the possibility of a recession. “There will definitely be a slowdown,” said Walter Isenberg, president and CEO of Sage Hospitality Resources LLC. “The question is when. RevPAR doesn't go up forever, but I'm cautiously optimistic for 2008.”

Jay Shah, CEO of Hersha Hospitality Trust, said that once the uncertainty in the debt market has settled, there may be a re-pricing of asset values. “Will it move cap rates? I don't know it has yet,” he said. Yet, Shah estimated that within six to eight months, cap rates could move up 25 to 50 basis points.

Shah also said there will continue to be consolidation in the REIT sector, but not at the fervent pace of recent years.

With higher debt costs, there will be less inclination to build, said Douglas A. Kessler, COO and head of acquisitions for Ashford Hospitality Trust Inc. Consequently, he said he expects many projects in the planning stages to fall by the wayside, thus keeping supply growth in check.

Those same themes were echoed in another panel, “Public and Private Debt and Equity.”Tom Arasi, president of Portman Holdings LLC, said the recent pullback in the capital markets was a “healthy correction. It shaved off a lot of the incremental deals that shouldn't have gotten done.”

Kessler, who spoke during this panel as well, said the newfound discipline in the market is good. “Too much financing leads to bad deals and bad developments that were based on financial engineering and not the fundamentals,” he said.

Peter C. Krause, chairman of Barrow Street Real Estate Fund LP, said that spreads have indeed widened and more equity is required in deals. Lenders are now quoting spreads 50 basis points higher than three to four months ago and loan-to-value ratios are 65% to 70% rather the previous 80% to 70%.

Carl B. Lee, partner and chair of the hospitality group at Akin Gump Strauss Hauer & Feld LLP, said that loan covenants are getting stricter. LTVs are lower and interest-only periods have shortened, he said. “But the market hasn't come to a grinding halt,” he said. “Certain deals are not getting done on marginal properties.”

Kessler pointed out that not many lodging assets have traded within this new debt environment. “There's no proof assets values have dropped. It's just chatter,” he said. However, he ventured a guess that plain-vanilla full-service hotels that once sold at 7% to 7.5% cap rates might now trade at 7.5% to 8% cap rates.

The Lodging Conference, which concludes Friday, drew some 1,400 attendees.