A solipsistic industry?

The hotel industry is not given to solipsism – the philosophical theory that the self is all that you know to exist. Most lodging owners and operators are acutely aware of their external environment even if many don’t react appropriately or swiftly enough. While not necessarily a leading indicator despite room rates falling like dominoes when things appear to go wrong, the industry tends to get buffeted by the larger economy as surely as most others. The current roiling in the financial markets has pundits of all stripes turning on a dime and reworking their prognoses to a very bearish from a decidely bullish forecast less than a month ago! No revised forecast has, as yet, come about but given the turmoil it is a question of time before there is an arresting of the development cycle including in principal cities like New York (Manhattan). That may not be a bad thing given the forecast of nearly 14,000 rooms in the pipeline in a city where the current inventory is an estimated 72,000 rooms.

Walter Bagehot, one of the first editors of The Economist, in the nineteenth century noted that credit cycles like what we have in the housing market are an intrinsic component of the economic picture and are basically about two primeval emotions in humankind – fear and greed. Like the Utilitarians who measured anything in a dichotomous pain or pleasure fashion, dispassionate arbitragers sense fear as the dominant emotion in today’s times and likely will exploit it to their advantage.

When a full “repricing” occcurs of the credit markets occur, it is possible that many of the development deals in the pipeline will be pulled back on that account. When the “excesses” of the cycle are flushed out, there may yet be plenty of upside to the industry as the fundamentals of the economy, unemployment, inflation and productivity growth remain on target.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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