By Jim Butler, Hotel Lawyer | Author of www.HotelLawBlog.com
27 September 2007
Hotel Lawyer at the Phoenix Lodging Conference. The 13th edition of The Lodging Conference in Phoenix is very unique. For the first time in many years, there does NOT seem to be an overwhelming consensus about what is happening -- at least as to the credit markets, and that is the big news here. Lodging fundamentals continue very strong, although occupancy may slip a small amount in 2008, and RevPAR growth will likely slow down (but it will continue to grow).
For many years there has been a clear and prevalent industry "mood" for hotel industry conferences (see for example, last year's reports on www.HotelLawBlog.com on The Lodging Conference ("Ebullient Foreboding"), The January 2007 ALIS Conference, or even the NYU Conference in June 2007 ("forecast of 'sunny skies' for the hotel industry.")
But this week's conference has a fair number of knowledgeable people sounding like Chicken Little warning about the sky falling, and others claiming that we are just returning to a more normal scenario. The only clear consensus is that -- for at least a while -- this will NOT be "business as usual" for credit markets. Interest rates will be higher -- at least 100 to 150 basis points. Loan to value (LTV) and debt service coverage (DSC) will be tougher -- LTVs are likely to be more in the 65 - 75% range, and DSCs of 1.0 will more likely be 1.2 to 1.4. Construction lending will be very difficult to find in the near future, and underwriting will likely be much stricter. Here is what some industry leaders have to say.