Articles Posted in Outlook and Trends

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July 9, 2014

LOS ANGELES—The Global Hospitality Group® and the Chinese Investment Group™ at Jeffer Mangels Butler & Mitchell LLP are pleased to announce the launch of a Chinese-language version of the Hotel Law Blog. It is available as a new tab on or it can be accessed directly at


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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
15 June 2014

Concerns over a real estate bubble in China

For decades, China was referred to as the “sleeping giant.” This reference is to the great potential impact of the country, its vast population, and its economy, but also to the fact that this potential was largely unrealized for hundreds of years. Well, the sleeping giant is awake! And the world financial press is now full of analysts following China and the international ramifications of its every action on the world economy.

Recently, great concern has been raised by some over the impact of the stalling Chinese economy as it drops from double-digit growth in GDP to 7.5% or less. Alarm has been raised about the bubble in the Chine real estate markets, particularly the housing, and now commercial real estate as well. And most recently, financial analysts worry about the shadow banking system (financing and loans by non-banks) and Chinese real estate companies’ interest in purchasing banks or substantial interests in them.

Some suggest that Chinese construction companies’ investments in banks may be with a view to getting easier loans on more questionable deals, and that when real estate projects sour, they could take down both the construction companies and their banks. Is this reminiscent of the S&L crisis and the Japanese bubble of the 1980s?

Let’s separate the issues — real estate company investment in banks and shadow banking

To begin with, one must clearly define the activity being analyzed, who the players are, and the market in which the activity is taking place. For example, current reports detail investments by Chinese real estate development companies in banks located in mainland China, Hong Kong, Australia, the United States, and elsewhere. Some of these investments are modest. Some of them are significant. Some of them appear to be newly capitalized banks with IPOs financed largely by the real estate construction companies (taking the “p” out of “IPO”).

Each country has its unique set of government and regulatory controls. It is difficult to generalize the motivation of the Chinese real estate companies in making banking investments, whether and how they will attempt to deal with the banks they have invested in, and how regulators will respond in each affected jurisdiction as to particular investments and related activities.

Will this be like the Japanese investment bubble of the 1980s or the S&L crisis?

At least two situations may serve as case studies to provide some historical perspective on the new phenomenon of Chinese real estate companies investing in banks, and the shadow banking situation. One is the US real estate bubble of the 1980s followed by the Savings and Loan (S&L) and banking crisis with more bank failures than any time since the Great Depression. The other somewhat intertwined event is the Japanese investment (by banks and related Japanese construction companies) of up to $120 billion in United States real estate (primarily in Hawaii, California, and New York), and subsequently “disinvestment” in the collapse of the early 1990s. Many believe that the Japanese investment was made at what otherwise would have been the peak of the US real estate bubble (carried by loose S&L lending and tax-driven investments that made no economic sense). The Japanese investment propelled the U.S. real estate bubble even higher for several years until the it finally became unsustainable, and collapsed in a worse crash than might otherwise have resulted.

Both the S&L crisis and the Japanese investment phenomena displayed cozy relationships of real estate companies and lenders. The Japanese banks owned significant holdings in their borrower clients, and encouraged them to buy market share with below-market loans. When the real estate market soured, the Japanese banks were hit with the double whammy of huge loans on real estate now worth a fraction of its cost, and stock investments in companies with huge losses. The leverage increased the pain for everyone participating and the lost decade (or two) has followed for Japan.


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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
2 June 2014

2014 NYU Hotel Investment Conference

Last night (Sunday, June 1, 2014), the NYU hotel conference kicked off with its gala grand opening party. With about 2,300 people attending this year, the energy is high and a grounded optimism prevails. The increased conference attendance generally reflects the health of the hotel industry, and these numbers do not count the hundreds of “lobby lizards” who hang out at the conference hotel for meetings without registering.

Mike Cahill of HREC, co-chairman of the Lodging Industry Investment Council (“LIIC”) summed it up well at a pre-conference meeting of the hotel industry think tank. According to Cahill, the best way to describe the hotel industry right now is “The window is wide open and it is beautiful outside!”

According to Jan Freitag of STR, who made a special presentation to the LIIC members, life in the hotel industry is good or very good. “STR has been surprised by the continued growth in demand and has increased its projections of RevPAR growth for 2014 and 2015.”

According to Freitag, the room supply/demand ratios are still in balance and RevPAR growth for the US is hitting 7%, until the last few weeks when it spiked to 9%. He says, “We just did not see that room demand would be that strong.”

Chart after chart of STR’s data blinked green lights for continued improvement in the hotel industry: occupancy growth has kicked back up, the RevPAR growth situation is very healthy, supply growth is still well under control in most markets, group business is rebounding, hotels are getting more pricing power with group business.

Is 2014 “ground hog year”?

On another positive note, Cahill observed that in the most recent LIIC survey of its members announced a few weeks ago at JMBM’s Meet the Money® conference in Los Angeles (see “Lodging Industry Investment Council’s Top 15 Member Quotes“), most LIIC members felt that the hotel industry is in the 5th or 6th inning of the ballgame, in terms of how much longer the good times continue. CONTINUE READING →

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
28 May 2014

The Lodging Industry Investment Council (LIIC) is the hotel industry “think tank” whose membership includes the hospitality industry’s most influential investors, lenders, corporate real estate executives, REITs, public hotel companies, brokers and significant lodging equity sources. More than 80% of surveyed LIIC members have purchased a hotel in the last 12 months. Together, the members of LIIC represent ownership, control or disposition of well over $20 billion of lodging real estate.

Along with Mike Cahill of Hospitality Real Estate Counselors (HREC) and Sean Hennessey of the Lodging Investment Advisors, I am privileged to be one of the co-chairs of the Lodging Industry Investment Council (LIIC).

LIIC Annual “Top Ten” Survey

LIIC’s annual survey of lodging investment trends and challenges is a highly-regarded profile of investment sentiment and attitudes for the hotel industry for the next 12 months.

The 2014 LIIC Survey was compiled by Mike Cahill and he presented the results to more than 350 attendees of the 24th annual Meet the Money® conference in Los Angeles earlier this month. What do LIIC members think about hotel property values, transaction volume, access to capital, and hotel development?

The complete presentation of the LIIC Top Ten is available on Click on “RESOURCE CENTER” and then “Hotel Industry Presentations.”

By the way, all the other presentations from our 24th annual hotel conference are also available at on that same page (RESOURCE CENTER/Hotel Industry Presentations).

In addition to the LIIC Top Ten Survey, this year we are publishing the “Top 15 Member Quotes” collected in connection with the survey. There are some interesting thoughts here. Please see below.

The 2014 LIIC Top Ten Survey’s Top 15 Member Quotes

By Michael Cahill, CEO & Founder, and Michael Torres, associate; HREC- Hospitality Real Estate Counselors

Behind the scenes of the annual LIIC Top Ten Survey, lies an extensive and comprehensive survey filled in by the leading hotel investment executives in North America.  In addition to the many multiple choice questions, optional space is provided for “write in” comments.  For the first time in the history of the Survey, we have decided to publish some of these quotes.  As will be seen in the quotes, LIIC member thoughts range widely, from pithy “tongue-in-cheek” to prophetic.  Attitudes range widely from “Polly Anna” to “Negative Nelly.” Clearly, the views of today’s most influential hotel investors (the people with great influence on all our professional lives) range widely in terms of seeing the “glass as half full or half empty.”


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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
26 April 2014

Some are calling it the “distressed real estate gold rush in Europe.” Others who have been expecting 1990s-style opportunistic investment opportunities for several years, now are seeing a change in European banks’ willingness to sell distressed loans at discounts to clean up their books. Several significant deals have been announced with big name investors and more are underway.

What is happening? And what is the opportunity for investors? Is it too late already?

Troubled European banks with soured real estate loans

Following the U.S. economic crash, Europe fell into recession and largely remains mired in a sluggish economy, high unemployment and depressed real estate values. European banks have suffered greatly along with their customers as real estate loans have soured.

According to a recent PricewaterhouseCoopers report, European banks were finally recognizing approximately $1.4 trillion in nonperforming loans at the end of 2013, up from $715 billion in 2008. For years after the financial crisis, the European banks were not marking down the loan collateral and classifying their loans. They took no decisive action to deal with their bad loans.

But now that is changing. European banks are at an inflection point. According to the PwC report, in 2013, banks sold $90.5 billion worth of troubled debt to investors, compared with $64 billion in 2012, an increase of more than 40%. The European Central Bank is the driving force in this new development and 2014 is likely to set new records.

Troubled loan purchases or restructuring deals are on a dramatic rise. Deals have been announced by the likes of Oaktree Capital Management, Apollo Global Management, Centerbridge Partners, Angelo Gordon, Kohlberg Kravis Roberts and Goldman Sachs.


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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
15 April 2014

DTLA against the San Gabriel Mountains - WSJThe coolest new downtown in America

If you haven’t been to what the cognoscenti now call “DTLA” (downtown Los Angeles) for a while, you might not recognize it. Gone are the days the sidewalks were rolled up at 5:00 pm and you had to go to Hollywood or Santa Monica for drinks or some fun. Earlier this year, Brett Martin of GQ magazine dubbed it “the coolest new downtown in America.”

In fact, the introduction to Brett Martin’s article is a great summary of the miraculous change in the demographics of DTLA that provide part of the reason that everyone seems to want to buy or build a hotel in Los Angeles today. Here is what it said:

America’s Next Great City Is Inside L.A.

For decades, Downtown has been the dark center of L.A.: a wasteland of half-empty office buildings and fully empty streets. But amid the glittering towers and crumbly Art Deco facades, a new generation of adventurous chefs, bartenders, loft dwellers, artists, and developers are creating a neighborhood as electrifying and gritty as New York in the ’70s. Brett Martin navigates his way through the coolest new downtown in America.

What does this “renaissance” mean in terms of the LA market for hoteliers?

Expanding markets are good for the hotel business. DTLA has become a destination and a hub of activity and excitement. Los Angeles has had so little hotel development over the past few decades, that it is one of the most underserved markets in the US now. And as hotel room rates jump, it is suddenly feasible to buy or build hotels that made no economic sense just a little while ago.


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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
17 January 2014

The article below was first published by (© 2014) and cannot be republished without permission.

Hotel Industry Outlook: Jim Butler’s Top 10 for 2014

Jim Butler | Chairman, JMBM’s Global Hospitality Group®

Top 10 for 2014 — Hotel Executive Annual Outlook
A lot of exciting things are happening in the hospitality industry as 2014 opens. Based upon more than $68 billion of hotel transactions, JMBM’s Global Hospitality Group® has made its “top 10″ pick of the events, issues, trends, and developments that will have the biggest impact on the hotel industry.

1. 2013 will prove to be better-than-expected, but 2014 will get even better. Sunny times ahead.

Better-than-expected results for 2013 will lay a solid foundation for continued growth and profitability over the next several years. Supply growth will be only about .8% – well under the long-term average of 2%. Demand growth will exceed projections, probably reaching 2.2% to 2.4%. Most importantly, ADRs have been increasing at about 4.4%, bringing disproportionately greater profit straight to the bottom line. And finally, RevPAR growth will be somewhere in the range of 5.6% to 5.9%. The numbers for the upper end of the market segments are even better.

Depending upon whose numbers you select (STR, PKF and Pwc), 2014 just gets better. Supply growth will edge up to 1.1%. Demand will grow at somewhere between 2.1% to 3.1%. Occupancy growth will approach 2%. ADR growth will range up to 5.2%, with RevPAR growth between 6.0% and 7.2%. At the luxury end of the market, RevPAR growth is projected to grow at 8.3% in 2014.

These sound industry fundamentals are reinforced by the improving American economy. Recently revised GDP growth for the third quarter 2013 is at 4.1% — the strongest advance in nearly two years and only the third time the economy has expanded that quickly from one quarter to the next since 2006.

Although this is expected to moderate in the fourth quarter of 2013, GDP growth for 2014 is expected to be strong, accompanied by lower unemployment, increased consumer spending, more exports, revitalization of the home building industry and weaning the economy off of Fed bond purchases.

There is a remarkable relationship between growth in GDP and growth in employment on the one hand and the health of the hospitality industry on the other. The confluence of strong industry fundamentals and an improving economy signals a forecast of more sunny days ahead for some time to come.

2. This will be a great time to buy and sell hotels.

Transactional activity has been building and will continue to do so. In 2013, the industry will record about $18 billion of hotel transactions, compared to $13 billion in 2012 and $19 billion in 2011. This is not close to the frothy levels of $23 billion in 2005, $31 billion in 2006 and $27 billion in 2007. But it represents a vibrant, and probably more sustainable level of activity – well up from the $2 billion nadir of transactions in 2009 – without the risks of a bubble market.


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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
14 January 2014

Hotel Lawyer: The growing problem of security breaches with sensitive customer information.

The recent headlines about the Target and Neiman Marcus security breach with customer credit cards highlights a growing crisis that concerns owners and operator of hotels as well as retailers. In this article, Bob Braun, one of the senior members of our Global Hospitality Group® who focuses on data security — when he is not working on hotel management or franchise agreements — gives us some thoughts on what to do about this problem.

The Target and Neiman Marcus breaches:
What hoteliers need to know
Robert E. Braun | Senior Member, Global Hospitality Group®

The Target and Neiman Marcus problem. The massive security breach of Target’s customer data may affect more than 110 million Americans — potentially about 1 in 3 persons living in the United States. Followed in quick succession by another 40 million customers of Neiman Marcus (and more disclosures expected soon from other retailers), it is time for us in the hotel industry to look at our own policies and procedures, and to think about how we should respond to these malicious attacks.

Hoteliers beware. Hotels are obvious targets for identity and financial theft for many reasons. Hotels transact business through credit cards, and those credit cards are kept on file and can be accessed multiple times during a guest’s stay. The possibility that a credit card charge will be recorded occurs with each night’s room charge, room service, bar or restaurant bill, spa charge, and so on. Every charge is another opportunity for an identity thief to access the information using sophisticated computer hacks and other malicious software, generally without the hotel’s knowledge.

The need to respond to guest demands is another source of insecurity. The Identity Theft Resource Center noted, “The ability to connect to the Internet is an integral part of many individual’s daily life. This has led to the increased demand for public WiFi.” As a result, hotels find themselves compelled to offer wireless internet, and that service is almost always unsecured. But an unsecured wireless network is “just as dangerous as leaving files of your most important personal documents on a street curb for all to see. Hackers can easily get into an unsecured wireless network and get financial information, business records or sensitive e-mails.” (PC World, “Got Wireless Security”). At the same time, hotels have little say in the matter. Guests demand wireless internet service.

Finally, hotels have employees — lots of employees — and many of them have access to the credit card and other personal information of guests. No matter how well trained and supervised, more personnel correlates to greater risk. The fact that low-level employees typically have access to key guest information, and that there is, historically, a high turnover in hotel employees, exacerbates the problem.

What happened to Target? While investigations are continuing, sources have reported that investigators believe the attackers used similar techniques and pieces of malicious software to steal data from retailers. One of the pieces of malware is a RAM scraper, or memory-parsing software, which allows cyber criminals to grab encrypted data by capturing it when it travels through the live memory of a computer, where it appears in plain text, the sources said. While the technology has been around for many years, its use has increased in recent years as retailers have improved their security, making it more difficult for hackers to obtain credit card data using other approaches.

The lesson? Even as merchants become more vigilant and focus on the security of their systems, criminals have become more sophisticated and are investing more time and effort in crafting their own systems.


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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of
13 December 2013

Hotel Lawyer with some insights on buying and developing golf courses.

Hotel investors suddenly seem to be buying or building more golf courses. With the right expectations and circumstances, golf courses can make sense — particularly as an amenity for hotels, residential development and other real estate. But as more hospitality clients look at golf courses, it seems appropriate to consider the drivers of this renewed interest, and some of the similarities golf courses share with other hospitality investments such as hotels. And finally, we want to look at some of the big factors that make golf courses very different from other hospitality investments, so you can avoid some unnecessary pitfalls.

Why the increased interest in golf courses?

Interest in golf courses has likely increased for a number of reasons, including the continuing overall improvement in the economy, favorable projections for the hotel industry, the return of home builders to the active market, and the likely surge in new development in 2014 and beyond. In addition, it is now well proven that “mixed-use” really works, and that includes adding a golf amenity for hotels, condos, residential and other real estate product. On top of all this, there is a wave of Asian investment and tourism — particularly Chinese — that favors golf.

Many of these investors and developers are familiar with hotels, and have established teams of experts that are familiar with hotels — but they often don’t have golf course-specific experience and capabilities.

That is why it is important to realize that hotels are different (from golf courses) though they share a number of characteristics and are often both regarded as “hospitality” product. Recognizing the similarities and the important differences will enable investors and developers to fill in potential gaps of expertise to avoid unnecessary problems.