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Opinion Article

July 13, 2009

Update to the HVS Employment-Hotel Growth Index

The market has changed substantially since we first published our research on the relationship between employment levels, office space absorption, and hotel room night demand via the HVS Employment-Hotel Growth Index in August of 2008. Led by the bust in the housing market, performance in the commercial sector took a sharp downturn in the fall of 2008, and the current recession has negatively impacted all sectors of the commercial real estate market. With this update, we set out to see whether the relationships between employment and hotel performance held true through year-end. Specifically, within the greater Washington, D.C. market, did the change in the employment picture have an impact on the health of the office market, and, if so, does the correlation between office market demand and hotel room demand still hold true?

Opinion Article

July 10, 2009

Hospitality Lawyers: Conditions for hotel industry "RESET" may be coming into alignment

Hospitality Lawyers with some perspective on recent developments. My friend Steve Van at Prism Hotels has a great Hotel Default Blog. I you haven't seen it, you should take a look at www.hoteldefaultblog.com. His most recent article ("The Sky is Really Falling") sparked some perspective on whether the hotel industry is finally reaching a critical RESET point we have been talking about on www.HotelLawBlog.com for months. Here are the latest thoughts.

By Jim Butler, Partner & Co-Chair Hospitality Practice, Blank Rome LLP, Blank Rome

Opinion Article

July 7, 2009

The distressed debt conundrum

Everyone expected floods of distressed debt and foreclosed commercial real-estate properties coming to market, and many bankruptcies. Here are things that have actually happened. In almost every loan agreement for the past 16 years, there’s a carve out that says if the borrower files voluntary bankruptcy, he’s personally liable for the entire loan amount. Several borrowers who’ve filed and challenged this clause have lost in court. Judges have upheld the lender’s right to enforce this provision. The result: There are few commercial real-estate bankruptcies. There also were changes to the bankruptcy law for real estate that make it easier for lenders to prevail. Many of the legal problems present in the early 1990s have been dealt with.

By Joel Ross, President, HotelNewsNow

Opinion Article

July 2, 2009

When being hospitable can land you in trouble (part 2)

In our previous article, we introduced the Foreign Corrupt Practices Act, discussing its basic provisions, its growing importance as a law enforcement tool by U.S. authorities, and its broad potential application to hotel industry vendors in the context of the government’s prosecution of York International, a global heating and air conditioning company. As we noted, the FCPA generally prohibits giving “anything of value” to a foreign official to acquire an unjustified benefit. The nature of the offence, and hence the penalty, is measured more by the amount of the benefit obtained than by the size of the payments.

Steptoe & Johnson LLP

Opinion Article

June 29, 2009

Cap Rates Continue Their Trend Downward in Q2 Summary

As the next installment to my March 2009 article published in Hotel News Now, I thought it best to literally pick up where I left off on that date. In the last paragraph of that article I concluded that because Strategic Hotel Capital (BEE on NYSE) has a cap rate below 10%, over 200 basis points below the next lowest, its share price may still have potential for further declines. At that time, cap rates ranged from 9.6% (for BEE) to 15.4% (for Host) and averaged 12.8% for all seven REITS based on their March 2, 2009 share prices and 2008 year-end statistics. My final sentence read, "So whether you are lowering your income on a TTM basis or forecasting 2009, you can safely anticipate most of those cap rates to trend downward through 2010."

Opinion Article

June 5, 2009

NYU: CFOs say risk management top priority

Companies that find themselves in really tough spots as the hotel industry’s recession enters its 18th consecutive month simply didn’t do their homework. Assessing risk management should have been part of standard operating procedure leading up the current economic environment, according to four CFOs who participated in a general session at the 31st NYU International Hospitality Industry Investment Conference. The key to surviving a recession is that risk management is an ongoing task—regardless of the economic situation.

Opinion Article

June 5, 2009

Hotel Real Estate Owners Face a Brave New World

With 2009 nearly half over, the hotel sector is clearly in a brave new world. The trends for the first few months of the year showed average national declines of 10.5% in occupancy and 6.5% in average daily rate. This decimated gross operating profits and related EBITDA by at least 30%, even with significant and successful efforts by hotel operators to cut expenses. Few owners today actually know the value of their individual assets. Those that do are part of a minority who were actually able to sell.

RSBA & Associates

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Opinion Article

June 1, 2009

Hotel Valuation and Transaction Trends For the U.S. Lodging Industry

Presentation made at 2009 NYU Conference, June 2-3, 2009. The Bad News: Severe recession, Rapidly declining hotel demand, Falling occupancies, Declining room rates, Large loss of RevPAR, Erosion of hotel values, Mortgage defaults, Lack of new financing | The Good News: Minimal new hotel supply, Recovery will be rapid and strong, Huge buying opportunities.

By Stephen Rushmore, Hotel Valuation Expert and Founder of HVS, Hotel Valuation Software

Opinion Article

June 1, 2009

The HVS Employment-Hotel Growth Index: A New Tool for Projecting Hotel Room Night Demand | David Fuller and Caitlin McKenna

The market has changed substantially since we first published this research in August of 2008. Led by the bust in the housing market, performance in the commercial sector took a sharp downturn in the fall of 2008, and the current recession has negatively impacted all sectors of the commercial real estate market. With this update, we set out to see whether the relationships between employment and hotel performance held true through year-end. Specifically, within the greater Washington, D.C. market, has the change in the employment picture had an impact on the health of the office market, and, if so, does the correlation between office market demand and hotel room demand still hold true?

Opinion Article

May 29, 2009

Terminating hotel management agreements when things don't work? Not easy, but not impossible either

What is one of the nicest acknowledgements of professional accomplishment a hotel lawyer might receive? In my book, being recognized by the New York Times as an expert in a core aspect of my legal and advisory practice is pretty close, and that is what happened yesterday in a Times article by Jonathan D. Glater about the increased friction between hotel owners and operators now erupting into litigation in the case of the Four Seasons Aviara and the Fairmont Turnberry.

Opinion Article

May 28, 2009

What Kinds of Public- Private Hotel Projects Are Underway Now and What Kinds of Public Financing Are Available Now to Build Hotels

Public - Private Hotel Development Financing - What kinds of public- private hotel projects are underway now and what kinds of public financing are available now to build hotels. JMBM's Catherine Holmes moderated a panel of diverse experts in the field of public-private financing. Here are their insightful comments into this growing area of hotel finance. What kinds of hotel projects are you working on now that involve public financing or incentives?

Opinion Article

May 25, 2009

Is It Time to Buy Hotels?

"Now is the time to buy debt. We have close to $2 billion of capital to put out, but we are challenged because even at historically low interest rates, the assets are not covering debt. Borrowers are saying, "what are we going to do now?" There are also confusing messages from the federal government on down as to what is going to happen. We are looking to buy debt at a discount. We are seeing a capital stack that has been over-levered and it needs to be de-levered." / Jonathan Roth Principal Canyon Capital Realty Advisors

By Jim Butler, Partner & Co-Chair Hospitality Practice, Blank Rome LLP, Blank Rome

Opinion Article

May 25, 2009

Insights emerge behind closed doors

Participating in a planning meeting for next year’s Hunter Hotel Investment Conference (17-19 March 2010) on Thursday provided a good opportunity to catch up on interesting industry tidbits. There’s more belief the economic recovery will take the shape of a W, and the industry has to endure another downward slope before heading into full recovery mode. The savings-and-loan crisis in 1988 was a doozy but pales in comparison to the current situation. The focus at the property level is market share and margins. The anticipated buying spree for distressed hotel assets that was expected to occur beginning in the second quarter of 2009 looks like it’s not going to happen until late this year or early next year.

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Opinion Article

May 20, 2009

Recovery and Reinvestment | Analyzing the tax implications of the stimulus legislation

Normally, in the April column, we discuss some of the tax issues impacting the hospitality industry. This year is no exception. However, while the size of the recently enacted American Recovery and Reinvestment Act of 2009 is unprecedented, the business tax breaks are not large in the grand scheme of things and few will benefit hospitality directly. In fact, the lodging industry as a whole was disproportionately impacted by some of the moves made during the enactment of the bill. Part of the Act restricts corporate travel for companies accepting bailout money. In addition, whether receiving any funds or not, companies are canceling or scaling back conferences to avoid an image of conspicuous consumption. Combining a decline in corporate travel with a reduction in leisure travel ensures that the hospitality industry will have a difficult 2009.

By Kevin Reilly, CBRE Hotels

Opinion Article

May 18, 2009

Six things to consider before approaching lenders

You’d never buy a hotel without finding out about its operating history, the market and the seller’s motivation to sell. So why is it that when hotels face financial difficulties, their owners request modifications from their lenders without analyzing the factors that might influence the lenders to give them what they want? Too often, hotel owners figure they have a good relationship with their lenders and all they have to do is explain the difficult times facing the hotel industry and their hotel and the lenders will grant modifications. Instead, owners need to do more due diligence before approaching the lenders to modify their loans. They need to understand how their lenders will view their modification requests and what will happen if they don’t agree.

Opinion Article

April 30, 2009

Future hotel values and the impact of capital markets

While demand, supply and the economy impact hotel values, it’s the capital markets that are the true arbiter of value. The economy sets the revenue per available room levels, while the normal issues such as location and competitive set are factored in. Jo However, the level of leverage and the accepted cap rates determine true value. Cap rates are a direct reflection of the return equity rates investors demand to earn on their investment and their view of future earnings and valuation. So, at a 7-percent cap, investors assume strong growth and high future values because of cap-rate compression, which is what we had the past five years. At 12 percent, they expect slow growth in values and demand a much higher risk adjusted return.