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Hospitality Lawyer’s take on The Panic of 2008. Financial Crisis impact on the Lodging Industry.

28 September 2008

The Panic of 2008 and the $700 billion “bailout” — now called TARP (Troubled Asset Relief Program) — are events of historic proportion. As one Hospitality Lawyer, here’s my take.

At the Phoenix Lodging Conference this past week, Mark Woodworth was among the first I have heard to cite the dictionary definition of “panic” and use it to describe the recent bank runs, near collapse of money market funds, and distrust that banks have on lending each other money. CNN, Fox News and other wire services were not far behind using “PANIC” to describe our current financial crisis.

These times are important to all Americans for a broad spectrum of reasons ranging from the impact on our personal and business taxes to the stability and liquidity of our entire financial system. But we also wonder what is happening to our hospitality industry. Here is the introduction to a series of articles on about where we are and where we are going.

The “Panic of 2008”

These are scary times. We all know the headlines:

  • Mortgage defaults skyrocket
  • Bear Stearns closed and sold to JP Morgan
  • Lehman Brothers forced into bankruptcy
  • Merrill Lynch sold to Bank of America
  • Goldman Sachs converted to commercial bank holding company and raised $5 billion of capital with a 10% preferred from Warren Buffet
  • Morgan Stanley also converted to a commercial bank holding company and sold 20% to Japan’s biggest bank, Mitsubishi UFJ Financial Group Inc.
  • A U.S. bailout of AIG, one of the world’s largest insurance companies, which will give the U.S. an 85% control position
  • 13 bank failures for the year to date including two of the biggest in history — IndyMac closed and WaMu seized and branches sold to JP Morgan
  • SEC ban on short sales for 799 stocks
  • Nationalization of Freddie Mac and Fannie Mae with more than $5 TRILLION in mortgages
  • Federal insurance for money market funds
  • Wachovia on the block for capital impairment reasons
  • . . . and now, in record time for such a big move, a $700 billion package to bailout the bad assets dragging down the balance sheets of U.S. financial institutions. The impact on the hospitality industry may be profound.

    The Wall Street Journal has started comparing our current financial crisis with 4 of the all-time prior financial disasters: The Panic of 1792, The Panic of 1907, The Great Depression, and Savings & Loan Crisis. By the sheer size of the bailout legislation or rescue legislation, or whatever you choose to call it, this is certainly a situation of “historic proportions.”

    Additional stresses on the hospitality industry

    On top of the “financial crisis” the hospitality industry faces additional stress factors, declining GDP and travel, sagging consumer confidence, high oil prices, reduced airline capacity, and new supply growth of hotel rooms now projected to increase at about 2.5% per year — well above 20 year norms. Unfortunately, there is a well-established negative correlation between these factors and deterioration in the hospitality industry.

    For a fuller discussion and documentation on how the hospitality industry’s prospects are affected by these factors, see

  • Hospitality Attorney with pearls from NYU, Part 5: Whither Lodging Demand, GDP and the Cost of Gasoline?

  • What’s the price of gasoline have to do with the future of the lodging industry?

  • Hotel Lawyer: As goes the economy, so goes the hospitality industry — the ineluctable elasticity of demand!

  • Hospitality Lawyer with the top Quips, Quotes and Insights from the 2008 NYU hotel conference.
  • In the next few postings, I will share with you some of the data I picked up last week at the Phoenix Lodging Conference and the implications for both our short- and long-term future in the hotel business.

    This is Jim Butler, author of and hotel lawyer, signing off. We’ve done more than $87 billion of hotel transactions and more than 100 hotel mixed-used deals in the last 5 years alone. Who’s your hotel lawyer?

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    Jim Butler is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.

    Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $87 billion of hotel transactional experience, involving more than 3,900 properties located around the globe. In the last 5 years alone, Jim and his team have assisted clients with more than 100 hotel mixed-use projects — frequently integrated with energizing lifestyle elements.

    Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.

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