Tuesday, April 14, 2009


According to the NY Times, hotels of all stripes, low end, high end and ultra luxury are suffering due to declining occupancy. I first posted a few months ago about the issues that luxury resort properties are facing as corporate outings are now more rare than a Chicago Cub playoff win.

In 1990 the hotel industry hit a wall and a number of hotels and their owners went into bankruptcy. We should expect to see a number of bankruptcy filings over the next several months just like in 1990 and 1991. Quite simply, the first wave of hotels are those that cannot service the debt on the property. Many of these hotels are owned by third party investors and the hotel management companies will be scrambling to control the damage to their brands. The next wave will be those properties with lower levels of debt but whose operations are so dire that there is little prospect of generating positive cash flows.

Hotels and resorts will be closing and investors and lenders will take more hits to their balance sheets. While some see the markets bottoming out, I see commercial real estate as the next problem area for banks and investors. Only time will tell.

Cheers, Mike

No comments:

Post a Comment