Demand - While demand is improving, it is not overwhelming supply. Industry data and forecasts support modest growth— occupancy forecasts for 2011 and 2012 is to be less than 60% (58.5% and 59.5%, respectively), and the U.S. Travel Association predicts only a 1.8% increase in total domestic person trips for 2011. With $4 a gallon gas in some areas prompting travelers to cancel spring break trips and rethink summer vacations, lenders aren’t ready to loosen the purse strings for development projects.
Supply-The U.S. hotel market is still in the process of absorbing the more than 480,000 new rooms that came online between 2007 and 2010. Many of these properties are not yet stabilized because of the impact of the economic crisis on demand, suppressing the need for new supply.
Existing debt. Lenders still are dealing with many maturing hotel loans. Banks are focused on trying to free up their balance sheets by a) getting strong borrowers to refinance or pay down principal and b) modify or sell distressed loans. While the secondary market has returned, it is not as robust as in the past, meaning many lenders will be focused on the above for a while, limiting the availability of capital for new projects for another two to three years.
I believe this is the right time for acquiring existing properties rather than building more rooms in the market. One reason is you dont want to add another dimension to an already shrinking pie that hotels share, but also construction will cost more than an exisiting asset. Some of these hotels were built 2-3 years ago, so acquiring a newer product at a discount is even more beneficial.
Supply-The U.S. hotel market is still in the process of absorbing the more than 480,000 new rooms that came online between 2007 and 2010. Many of these properties are not yet stabilized because of the impact of the economic crisis on demand, suppressing the need for new supply.
Existing debt. Lenders still are dealing with many maturing hotel loans. Banks are focused on trying to free up their balance sheets by a) getting strong borrowers to refinance or pay down principal and b) modify or sell distressed loans. While the secondary market has returned, it is not as robust as in the past, meaning many lenders will be focused on the above for a while, limiting the availability of capital for new projects for another two to three years.
I believe this is the right time for acquiring existing properties rather than building more rooms in the market. One reason is you dont want to add another dimension to an already shrinking pie that hotels share, but also construction will cost more than an exisiting asset. Some of these hotels were built 2-3 years ago, so acquiring a newer product at a discount is even more beneficial.
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