The latest Atlas report on new hotel construction for the firsthalf of this year shows that the number of new hotel rooms underconstruction and planned has climbed considerably throughout thestate. Reay says that Atlas still anticipates an increase in thenumber of hotels under construction in 2008, but he adds, "we arealso cautiously watching the fallout from the subprime lendingmarket that is impacting commercial loans as well."

Reay explains that over the last four or six weeks, with themeltdown in the CMBS markets that was caused by the subprimelending market, "there has been a ripple effect" in the hotellending market. "We have deals where the lenders quoted us rates inthe low 6% range and now the lender has either pulled out of themarket completely or has retraded into the 7% or higher range," hesays.

At the same time, however, Reay points out that the economicfundamentals of the hotel market in general and California inparticular are very strong. Hotel daily rates are increasing,occupancy is rising and RevPAR is trending upward.