Articles Posted in Outlook and Trends

25 September 2011

Hotel lawyers: Are we at a turning point in the industry?

Our hotel lawyers were at The Lodging Conference in Phoenix last week, taking the measure of the hotel industry. It was pretty interesting. Some said August was a “turning point” and they were not referring to a good thing.

At the Hotel Law Blog, what happens in Phoenix does not stay in Phoenix. Here’s what we heard.

“It’s not just me. The market has changed in just the last 60 days!”

While many people at the Lodging Conference said recent market volatility had no impact on them, their transactions or their deals, this was clearly not the case for all.

A widely-held view was that it seems like someone hit the “PAUSE” button on hotel finance and purchase-sale transactions. Some fear a “reset” button may also have been tripped. The global market turmoil of the past 30-60 days triggered by the inability of our politicians to resolve deep U.S. budget issues, along with questions about political resolve by European governments to deal with their own problems continue to raise major issues.

And there are all the usual specters of big increases in taxes, continued high unemployment, sagging consumer confidence, rising labor costs, rampant inflation to deal with $14 trillion of debt, operating costs rising faster than RevPAR as well as war, plague and pestilence.

So here are some insights from industry leaders and vignettes JMBM’s hotel lawyers gathered at the Phoenix Lodging Conference. In many cases we have omitted the speaker’s names because I was not certain that the comments were intended for attribution.

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15 August 2011

Hotel Lawyer on brokers, agents fiduciary duty and charges of trust betrayed as laid out in the high-profile lawsuit of Host Hotels & Resorts against Robert T. Koger (personally) and his brokerage firm Molinaro Koger, Inc.

I was recently interviewed by Jason Freed of HotelNewsNow (a division of Smith Travel Research) about three high profile lawsuits in the hospitality industry. One of these cases was Host Hotels & Resorts v. Robert T. Koger. In this litigation, Host Hotels & Resorts sued a number of defendants, including Rob Koger and his firm, Molinaro Koger, for breach of fiduciary duties, breach of contract, fraud and other serious claims.

Lawsuits between sellers and brokers are not particularly common in the hospitality industry. And lawsuits alleging fraud are even less common.

One of the reasons I enjoy working in the hospitality industry is the optimism, openness and collegiality that exists throughout the hospitality community. Developers, owners, operators, lenders, brokers, lawyers, consultants, advisors, trade media — we all depend upon each other. Although I am a rigorous advocate for my client’s position in negotiations, there is an understanding, including with those on the “other side”, that we are working together for the success of making the deal or completing the project.

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05 June 2011

Flying en route from LA to New York for the NYU Hospitality Industry Investment Conference yesterday, I exchanged some emails with Michael Murray of the Mortgage Bankers Association. (I am a big fan of wi-fi on aircraft — no more downtime on those long flights!) He wanted my take on what’s ahead for the hotel industry and asked me the kind of questions that bankers ask — the ones that help you gauge risk and reward.

I told Mike that my view, whether cruising at 35,000 feet or with feet planted firmly on the ground, is clear: sunny skies ahead, with occasional clouds (and light showers), but no storms on the horizon as far as we can see.

Hotel industry fundamentals are improving, there is little new supply and there is virtually unlimited equity on the sidelines. Hotel values increased 10% to 15% in 2010 and prices are trending upward.

Here is how I see it now. I will let you know if anything I hear at NYU in the next couple days changes my view …

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31 January 2011

Hotel Lawyer on the state of the hotel industry. At the ALIS conference last week, Smith Travel gave a great overview on the final results for 2010 as well as its outlook for 2011 and 2012. The numbers are very interesting!

Jan Freitag made the presentation at the ALIS conference. According to him, at the end of 2010, there were 52,000 hotels in the United States providing a total room supply of 1.7 billion rooms (a 2% increase in supply over 2009).

Great increase in demand. The demand for room nights grew a staggering 7.8% returning to the pre-bubble peak of 1 billion room nights sold during 2010, but with an increased supply of hotel rooms taking a share of the demand, occupancy only increased 5.7% to 57.6%, below the magic 60% occupancy level. Smith Travel hailed the demand growth, but noted that it does not expect to see this outsized growth again in the foreseeable future. In fact, as noted below, demand growth for the next two years is projected to be below 2% per year.

Disappointing lack of any meaningful rate growth. Unfortunately, the dramatic demand growth was not accompanied by a comparable increase in the average daily rate or ADR. In 2010, ADR was flat (actually down -0.1%) at $98, and still below the important $100 level. RevPAR increased 5.5% to $56.50 and room revenues increased 7.6% to $99.5 billion.

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