Axe Falls on 40% of Texas' October Conventions

The state's hospitality industry was strained before Sept. 11 and it's gotten far worse, Keeling says. Concern is such that he has spent the better part of the past two days comparing hospitality industry data from the Desert Storm and Gulf War days to the present. At best, he's got his fingers crossed that the key indicators of RevPAR, occupancy, room rates and demand will brighten when the calendar flips to 2002. Until then, it's going to stay a severely depressed market, he forewarns.

Overall, the Texas hospitality market of today is off 7% from first quarter 1991, but 5% of that is a direct result of more supply. Some 49,000 rooms have been brought on line in the past five years. Before the year's out, "it will decrease substantially below two points," Keeling predicts as current building projects come on line to swell supply far in excess of demand.

The short term, Keeling says, "is very bad." Occupancy statewide is expected to drop another 10% to 20%. That's a hefty hit in the pocketbook. As for the long term, it too is shaky. There will be staff reductions and expense slashing in the hotel industry statewide, but he doesn't foresee a high number of foreclosures.

Convention center projects ongoing in every major Texas market will escape the fury of the economic downturn. "The good news is they're not open now. Any property that's just opened or about to open is going to have a rough go of it," Keeling says.

He believes San Antonio could benefit from the downturn as more organizations and vacationers opt to stay within driving distance yet still avail themselves of all the trappings of a destination spot. As of July's close, San Antonio's hotel occupancy was 69.4%, down from 70.5% a year ago. The nightly room rate was up slightly, $88.29, as was RevPAR, $61.25.

So far this year, the state's sole bright spot was Houston, where occupancy was up 2.1% to 69.8%, room rates stood at $90.85 versus $89.28 a year ago, and RevPAR came in at $63.45 or a 5% gain. But, says Keeling, that will change in the final months of the year, calling for it too to decline or at least be flat.

It's a far different tale in Austin and Dallas, where even room discounts have failed to keep the market alive. The high-tech shakeout, more supply and the economic roller coaster have made for a disastrous triple play. It's worse in Dallas, says Keeling, because it's an "off convention year" for the Big D, which has added 17,500 rooms in five years--a high-stakes play equal to the total count in Ft. Worth. At July's close, the Dallas-Ft. Worth occupancy stood at 61% in comparison to 64.2% for the same period last year. Room rates were $84.78 per night, down from $86.09. RevPAR dropped 6 1/2% to $51.70. Austin's occupancy was 68.9% at the end of July, down from 76% the prior year. The nightly room rate has dipped to $92.94 from $95.67. As for RevPAR, it's 12% lower at $64.

Sellers and buyers alike are being forced into limbo by "a lending environment that is beyond hostile, it's militant," says Keeling. "The boom in hotels is over." Buy-sell conditions have been choked for some time and now the parties are "spooked," he assesses. Hotel investors usually realize a 20% to 25% return. If it drops to 5% or 6%, the inclination would be to sell but, he asks, "who's going to buy them and at what price."

Mark McDermott, a vice president of hotels for Colliers International in Dallas, believed the transactions activity was going to hold steady--until Sept. 11. The buy-sell-invest headwind stopped dead in its tracks with the attacks in Washington, DC and New York City. "Prior to last week, there was a fair amount of activity. People were doing business as usual to list or purchase properties in anticipation of a recovery," he tells GlobeSt.com. "Now, there's a lot of reassessment and re-evaluation going on.