It appears that the hotel industry has at least bottomed andlately has seen rising revenues in many markets. Values are down40%-50% from the 2007 peak and they have barely begun to rise yet.The decline of 19% peak to trough of Revpar was the worst inhistory of the US. In short, it appears we are at the bottom of theworst downturn hotels has ever experienced and it is the right timeto be getting back in so long as you understand this is not a quickhit, but a 4-5 year cycle play.

Unlike office and retail, which are still suffering spacereductions by major tenants and rent reductions which will lastseveral years due to the longer leases, hotels can turn on a dime,good or bad. If you believe that this is the bottom, or even closeto it, then hotels offer a better return than office or retail, andresidential over the near term. The investors who will harvest highreturns, are those who team up with top quality highly experiencedmanagers, who have the cash to fund PIPs-renovations. The brandshave been allowing owners to defer the property improvement planrequirements for the past two years, and it will be those who havethe cash now to upgrade their properties, who will reap the biggestrewards over the next several years.

Many owners have depleted the FF&E reserve just to pay debtservice, and they are not able to replenish it even with a loanmodification because NOI is still not nearly at a level whichallows sufficient cash to be set aside. As the economy recovers andas hotel occupancy improves, it will be the renovated propertiesand those bought at discounts that win the competitive battle. Ifyou buy a hotel at a lower cost than the owner down the road paidin 06-or 07 to build or buy his hotel, and you have the cash to dothe PIP, then you can attract the guests and charge competitiverates to the nearby hotel which is saddled with the high leverageloan and unable to do the PIP