Bottom in sight?

A mere month ago economists were still debating whether the US is in recession or not but given the unprecedented turmoil on wall street most view a classical definition of recession as put out by the NBER as mere semantics.

Now, PKF has come out with a forecast that calls for two years of declining lodging demand based on a new study by their hospitality research division released today. The study notes that “compounding the negative impact of declining
demand is a projected concurrent increase in supply”. The difference between the forthcoming downturn and prior ones is that “the U.S. lodging industry was in good financial shape entering the current trough in the business cycle. Unlike other forms of real estate, lodging was not experiencing any material amounts of foreclosures”. Further “This implies that most U.S. hotels can withstand a fairly substantial decline in
NOI and still have the ability to meet their debt service obligations”. That should give pause to some of the vulture funds that are being bandied about as a reflexive reaction to an economic crisis.

Predictably, the financial crisis has already threatened development in some markets as the study notes “the current credit crisis may be unfairly punishing developers with sound market and financially justified projects.”. The silver lining, of course, is that “the lodging industry will eventually benefit from the near-term development difficulties” as the, presumably, the constriction in supply caused by the credit squeeze will (eventually) likely result in strong ADR and Occupancy growth as the economy picks up.

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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