2012: A good year to buy a hotel (and a bad year, if your hotel note is due)

While no one has a crystal ball to accurately predict the future of the hospitality industry, Eric Stossel, Managing Editor of Lodging Hospitality has the next best thing: access to experts and insiders who have their fingers on the pulse of the industry. I was recently interviewed by Eric, along with other hospitality practitioners, for one of his articles that forecast the year ahead (see Capital Markets Key to Hotel Real Estate Rebound).

There was plenty of prognosticating going on by pundits at the ALIS conference in Los Angeles this week, as well, and I took a lot of notes. Here's what the experts think the hospitality world will look like in 2012.

Opportunities

• The fundamentals are looking good. Three top industry researchers presented information at ALIS that forecast positive growth for the hospitality industry in 2012: STR's Jan Freitag estimated growth at 4.2 percent growth, PKF's Mark Woodworth pegged it at 5.4 percent and Suzanne Mellon, with HVS at 6.5 percent.
• Supply growth is at an historic low, lifting occupancy and rate across the board.
• Experienced investors will continue to buy notes and distressed assets.
• The transactions market is stabilizing -- equity funds, existing owners, and people with strong financial relationships will begin to do more acquisitions.
• The top 25 and top 50 markets will begin to look attractive again, as recovery and purchases move down the food chain and into secondary and tertiary markets.
• For those who are positioned correctly, it will be a very good year to buy a hotel.

Challenges Remain

• The flagging debt market is hampering developers who are straining at the bit, and borrowers desperate for replacement capital.
• The specter of defaults and foreclosures is looming larger for those that borrowed in the abundant years of 2006 and 2007. Those CMBS loans will begin to hit the market this year.
• Franchisors are demanding that long-delayed PIP (Property Improvement Plan) requirements are implemented, but financing for these improvements is difficult to obtain.

While these challenges are real, and will affect some hotel owners more than others, the overall trends point to steady growth and improvement throughout the industry. As I told Eric Stossel, "We're nowhere near the peak, but we are approaching some long term norms in 2012 and beyond."

You may want to read the following Hotel Law Blog articles:

Hotel Lending: "NOW" could be the best time for hotel lending in 20 years

Hotel Lawyer: So, You Think You Want to Buy a Hotel?

With a team of hotel veterans who have been through every cycle since the 1980s, have been through more than 1,000 workouts, bankruptcies and receiverships, and wrote the book on troubled hotel loans (The Lenders Handbook), we have a few thoughts to guide you safely on this journey.