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Hospitality Lawyer: PKF says 2009 worst year in lodging history. Robust recovery likely but years away

16 June 2009

This is one of many articles on the subject of “troubled hotel loans – workouts, bankruptcies & receiverships” in the rich library at www.HotelLawBlog.com.

This is one of many articles on the subject of “troubled hotel loans – workouts, bankruptcies & receiverships” in the rich library at www.HotelLawBlog.com.

Hospitality Lawyer with the latest update from PKF on what lies ahead for the hotel industry.

Mark Woodworth and his colleagues at PKF Hospitality Research have released PKF’s latest report on the U.S. lodging industry, it’s turning points and prospects. I thought you might find it useful as you consider options for dealing with troubled hotel assets, and hope you will keep us in mind as you face coming challenges.


Highlights of the PKF updated forecast

The PKF report is a little startling. I found the following points noteworthy:

  • With Moody’s increasingly pessimistic projections of unemployment, PKF has revised its RevPAR forecast accordingly. They now expect a 17.5% RevPAR decline in 2009 and a further 3.5% RevPAR decline in 2010.
  • 2009 will be the weakest year on record in the U.S. lodging industry, and 2010 will not be much better.
  • Hotel industry pricing power has collapsed. There will be nine consecutive quarters of the year-over-year reductions and ADR continuing through the fourth quarter of 2010. RevPAR growth will not begin until 2011.
  • PKF projects that “the typical U.S. hotel will suffer a 37.8% decline in NOI in 2009 and an additional 9.2% in 2010.”
  • It has been 72 years since PKF recorded unit-level profit declines in excess of 20%. “Needless to say, profit declines in excess of 30% have a wide ranging impact on hotel values, debt coverage, default covenants, insolvency.”

The operative word for the Lodging Industry is “RESET”

As expert after expert told us in May at our Meet the Money® 2009 conference, the operative word for the hotel industry today is “reset” (see Hospitality Lawyers present JEWELS from Meet the Money® 2009). This means a complete reset in hotel values, leverage and financing structure.

While Steve Rushmore of HVS is projecting a 45% decline in hotel values, bottoming out in 2010-2011 with a recovery in 2014 (see Hospitality Lawyer: What lies ahead for the hotel industry? When do values bottom? When do they recover?”), the de-leveraging of hotel investments, increased cap rates, and scarce financing will make hotel investments problematic for some time.

Good news for those who can last to 2011 and 2012

The PKF report forecasts an exceptionally robust recovery when it finally comes in 2011 and 2012. PKF foresees an average annual increase in RevPAR of 9.2% for those years, with profits rising 17.8%. They conclude with: “If you are an owner, investor, or lender that can weather this year and next, the return to prosperity should be strong and quick.”

Other articles on State of the Hotel Industry

Other recent articles that relate to the state of the industry paint a pretty consistent picture of data and trends. Here are a few links to articles for your convenience:

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from troubled hotel transactions. Who’s your hotel lawyer?

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Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim Butler is a founding partner of JMBM and Chairman of its Global Hospitality Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why.

JMBM’s troubled asset team has handled more than 1,000 receiverships and many complex insolvency issues. But Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. For example, they have developed some unique proprietary approaches to unlock value in underwater hotels that can benefit lenders, borrowers and investors. (GOOGLE “JMBM SAVE program”.)

Whether it is a troubled investment or new transaction, JMBM’s Global Hospitality Group® creates legal and business solutions for hotel owners and lenders. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.