The Hotel Industry Is Finally StabilizingThere is growingevidence from many of the people I speak to in the hotel industrythat revpar is beginning to stabilize. By late this year it ishighly likely there will start to be some signs of smallimprovement, although for the full year the numbers will still beslightly down or flat at best. Next year will start to see someimprovement and 2012 will be a good year for revpar growth.However,some appraisers are already going way over board projecting overoptimistic value increases and revpar growth that has no connectionto reality. I have written other articles which demonstrate whyhotel appraisals usually have no connection to reality and themethodology is totally flawed. They make assumptions that thingsonly go up and at growth rates and to levels that are silly. Onemajor appraiser now assumes that there will be 7% debt at 70% ofsome make believe value in 2012 and he uses this to justify a refiat excessive levels in order to make the cash flows unrealisticallyhigh in the early years.Hotels will do better over the next severalyears, and values will improve, but we need to be realistic and notget carried away with euphoria. Buying hotels or lending to hotelsnow will prove to be very good, and profitable so long as the goingin value is realistic and you do not assume wild increases as someappraisers and brokers project. If there was ever a time to lend onhotels it is now. If well underwritten, and properly levered, youcannot lose on loaning to hotels now. I do believe there willbe debt available in 2012 and sooner in some cases, but it will becarefully underwritten and no more than 65% on the A piece portion.There will be higher leverage available, but only in the form of aB piece at far higher spreads. The source of funding for manysmaller deals was always the local and regional banks. Thosesources are now very restricted due to many are out of business orseverely restricted by regulators. There will simply not be theready availability of loans for the smaller- under $15 milliondeal.There will be a lot of hotels coming out of banks andservicers over the next two to three years. They are buried indefaulted and foreclosed properties. It will simply take time forthese to show up in the market, but when they do cap rates willlikely rise due to a far greater supply and higher interest rates.The frenzy right now to buy hotels is over blown due to the tinynumber of properties offered and too much money chasing them.As atotally side note, the obscene activities of bribery, corruptionand outright lying on the part of Pelosi and the administrationregarding health care has sunk Washington to a new low in ourhistory. This is a new entitlement we cannot afford, and it willadd to the deficit which is already way out of control. The wholeconcept that they know better despite clear polling against thebill, and no bipartisan support, defies everything this country isabout. Whatever happened to the voters get to have their say. NancyPelosi knows better than we do what our healthcare should be, andit is OK because we will learn to love it after they shove it downour throat. Medicare has proven that the country is not able toafford these mass spending programs and we are headed to the cliffin ten years or less.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.