Despite Slowdown, Spike in Hotel Defaults Has Not Occurred.(Industry Overview)

Between the drop-off in travel following last September's terrorist attacks, and a general decline in hotel occupancy as businesses cut back on travel, the hotel sector has been hard hit in the current economic downturn. The good news is that there are fewer delinquencies on hotel properties in this cycle compared to the downturn of the early '90s. However, an expected turnaround in the hotel sector has not materialized yet.

Jim Butler, chairman, global hospitality group, with the Los Angeles-based law firm of Jeffer, Mangels, Butler and Marmaro, said, "9/11 in a sense was the realization that the industry had been cooling off for a while anyway as part of a general recession that was affecting the country and particularly the lodging industry. Initially, folks were hopeful that there would be a quick and significant turnaround perhaps even by the third or fourth quarter of 2002. But the industry remains significantly down from a year ago - 2001 and 2002 are both going to be down years. And I think now, as people try to assess the future, they're saying that 2003 is likely to be flat or down again and hoping that maybe 2004 will be the turnaround. So there is no immediate relief from the situation in sight."

Hotel markets in some parts of the country are "very deeply depressed" according to Mr. Butler, with San Francisco in the lead, followed by Boston, Washington, D.C. and Orlando.

However, an anticipated upspike in delinquencies has not materialized. And by and large, the "troubled properties were smaller, either unbranded or at the very low end of the food chain." They also "tended to be more in rural areas or tertiary markets and tended to be products that were either old, a little run down and maybe frayed at the edges." Mr. Butler believes that there could be more delinquencies on the ...