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Meet the Money® – What is really happening with the recovery and how will it affect the hotel industry? Insightful perspectives from the experts at Meet the Money®

4 May 2009

What is really happening with the recovery and how will it affect the hotel industry? Insightful perspectives from the experts at Meet the Money®


It is hard to walk down any office corridor or sit in any restaurant in the county and not hear a discussion that boils down to the following:

“Thank goodness! The recession is over and the recovery is here!”
“No, it’s not!”
“Yes it is!”
“No it’s not!”
Everyone wants to know when the recovery is coming and the participants at Meet the Money® are no exception. Here is our take on this subject, as well as some of the comments by participants at the 20th annual Meet the Money® conference, taking place this week, May 3 – 5, at the Sheraton LAX. See www.MeetTheMoney.com.

So what is happening — really? And how will it affect the hotel market?

If it walks like a recovery and talks like a recovery, is it a recovery?

Consumer confidence is up and look at the Stock Market! Inventories are low. Houses are selling. Jobs are being added. Isn’t this the beginning of sustainable recovery?

According to the special presentation given today at Meet the Money® by Richard Green of the USC Lusk Center for Real Estate: “Everything is better than a year ago. We’ve had 3 Quarters of positive GDP growth, and unemployment is not getting worse.”

“If employment doesn’t get better, consumption won’t increase. Personal consumption as share of GDP has decreased significantly during the recession. People are spending less. This has profound implications for the hospitality industry,” said Green.

Lawrence Summers, director of the White House National Economic Council, said Friday, April 30, 2010, that progress against unemployment will be very slow. As reported in the Wall Street Journal by Sara Murray, “The correlation economists typically rely on to gauge employment relative to gross domestic product… has broken down in the recession. During the downturn, the unemployment rate rose higher than expected in comparison with the slowdown in GDP. Coming out of the recession, either productivity will continue to rise or the model will “snap back” and employment will grow faster than GDP growth would indicate, Mr. Summers said.”

Does this sound like the “broken correlation between GDP and hotel room demand” that we discussed in this blog on 27 July 2009? (See Hospitality Lawyer: The “amazing relationship” between GDP and hotel room demand. When the recovery comes, what will it look like for the hotel industry?) http://hotellaw.jmbm.com/2009/07/hotel_demand_and_gdp.html
The Wall Street Journal article went on to say that, (according to Summers) . . . “even on optimistic assumptions, there is going to be substantial unused capacity in this economy.” Mr. Summers noted that 40 years ago, one in 20 men between the ages of 25 and 54 in the U.S. was unemployed at any given point in time. That is now one in five men. Even in five years if the economy has reached a point of recovery, one in six men in that age range will not be working, Mr. Summers said.”

This is not unlike the 4 to 1 anomaly in room demand drop during the Great Recession compared to the usual 1 to 1 correlation we discussed in the 27 July 2009 blog.

What do some Meet the Money® participants say about the recession and the recovery?

Executives from a public REIT, a privately-owned luxury brand, a successful chain of boutique hotels as well as significant capital providers all reported significant gains in metrics in the past 3 months. Their views on the recovery?

Patrick Deming, Eastdil Secured: We have seen a remarkable improvement in the debt market in last 90 days. A year ago we were talking about TALF. By the time we figured out what the heck it was, we didn’t need it anymore.

John Arabia, Green Street Advisors: Is the worst behind us for hotel transactions? Yes, I believe it is. And hotel values are considerably higher than they were 6 – 9 months ago.

Tom Corcoron, FelCor Lodging Trust: It looks as though we all avoided the whole “mark to market” issue which was a good thing.

Marty Collins, Gatehouse Capital: Yes, think how much the U.S. government saved by not selling low.

Michael Depatie, Kimpton Hotel and Restaurant Group: I think we reached bottom and we are now in the upward slant of the “V”. How long does it go up? Who knows? Is it a big V or a small V? Last year at this conference, there was a lot of fear about where things were headed. You don’t feel that now. We are seeing people traveling again.

Tom Kennedy, UrbanAmerica LP: For a market like Orlando, it’s all about job recovery. People will take their families to vacation in Orlando if they are employed and not fearful of losing their jobs.

Depatie: That is the big question — can the recovery be sustained if we don’t get people back to work?

There was more than just talk about the recovery at Meet the Money® today. In addition to the great presentations that we will cover later this week, there was talk about transactions, restructurings and investment. Real deals. The mood is definitely one of optimism … cautious optimism, to be sure, but there is a genuine feeling among participants that things are getting better, that the worst may be over.

We’ll cover presentations that will include forecasts by Smith Travel Research and PKF Consulting, “lessons learned” from the recession by executives, new investment strategies, what’s happening in CMBS and more.

Until then, this is Jim Butler, author of www.HotelLawBlog.com asking, “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.