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PHOENIX-The 15th annual Lodging Conference concluded last week, and the consensus was that until capital returns to the sector, the hotel business will remain in a state of inertia

However, several companies interviewed by GlobeSt.com indicated they are continuing with growth plans, even in this dour economic environment.

In its summary of the three-day event, held at the Arizona Biltmore, analysts from Robert W. Baird & Co. wrote that meetings with key industry players “failed to provide us with a more optimistic outlook for the credit issues and fundamental operating challenges facing the industry today.”

Furthermore, the report states that RevPAR is unlikely to turn positive until the second half of next year with growth in bottom-line performance not on the horizon until 2011. And despite talk of attractive acquisition opportunities, few deals have been transacted.

Nevertheless, the otherwise gloomy outlook has not deterred companies from pursuing expansion plans. Hilton Garden Inn is on track to open 60 hotels this year, with its 500th slated to come on line next year. A sizable portion of the growth of the upscale brand is outside the US, with 34 hotels scheduled to open by year’s end in Europe, Turkey, Saudi Arabia and India.

Mark F. Nogal, vice president-hotel performance and sales support for HGI, says there is more money available overseas for development, although it remains difficult to build outside the US. “There are more regulations internationally,” he finds. “In India, you need 53 licenses to open a 116-room property.”

Another Hilton brand, Home2 Suites, was launched in January and currently has 50 signed franchise agreements with another 25 close to being signed and 40 more moving through the system, according to Dawn Koenig, vice president, hotel performance and support for Homewood Suites and Home2 Suites. “We’ve exceeded expectations,” Koenig states. Home2 is the mid-tier offshoot of Homewood Suites. Both are extended-stay brands.

Koenig says the first Home2 Suites will open in July 2010 in a suburb of Indianapolis. The brand is also poised to enter Canada and Mexico.Koenig says that three-quarters of Home2 Suites franchisees were already partners with Hilton on other projects. With a development cost of between $15 million to $20 million, financing can be obtained from regional and local sources, she says. A unique attribute of the brand is its emphasis on sustainable design that includes use of recycled materials and energy efficient appliances. Koenig says that although transient business is down in the extended-stay segment, government entities and training groups still generate demand for the product.

Meanwhile, Hersha Hospitality Management recently added more 1,000 rooms to its management portfolio, which now stands at 70 hotels. Just recently, it oversaw the opening of three hotels, with a total of 582 rooms, in Times Square in Manhattan. Naveen Kakarla, HHM’s executive vice president, says there is “more energy” on the part of owners and construction lenders to pick new managers so the properties can open in the fourth quarter and generate cash flow. “Lenders are more actively engaged in the outcome of a project,” he states.

Kakarla says that HHM is talking with lenders and special servicers about troubled hotel properties. The firm would manage a lodging property with the aim of one day owning it. New development is difficult in today’s financing climate, even though construction costs are down, Kakarla concedes. However, HHM will open two hotels within its Independent Collection, a luxury lifestyle concept, next year in Manhattan: the Union Hotel in Greenwich Village and 48 Lex in Midtown. “I think we got the last [construction] loan of this cycle for 48 Lex,” Kakarla notes.

However, RevPAR International, an advisory firm, has seen an uptick in due diligence services for new ground-up construction projects, according to the company’s principal, Richard E. Pastorino. He says that there are well-capitalized, disciplined developers who prefer to build during a down cycle, while construction costs are cheaper, so the property can open in better times. “I’m surprised at the volume,” Pastorino says. “That’s not to say we are doing hundreds of them, but when you can essentially purchase for less, I’m surprised that there are still people out there preferring to do ground-up development.”

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