The Decline of US Hotel Asset Prices

NEW YORK CITY-The economic slowdown of the past year and a half now appears to be gaining momentum and dramatically deepening into what some are labeling as the Great Recession. This downturn appears on its way to being as long–if not longer–than any of the 11 economic slowdowns that have occurred since the 1930’s. The seeds of today’s recession sprouted in the summer of 2007 as the subprime mortgage crisis exposed pervasive weaknesses in both financial industry regulation and the overall global financial system. The rapid rise in unemployment throughout the nation, further eroded consumer confidence, which in turn exerts further negative pressure on businesses–truly a vicious circle.

The operating metrics in the US hotel industry held up well during the first nine months of 2008. The collapse of Lehman Brothers six months ago appeared to be an inflection point after which businesses started to dramatically cut costs. Corporate and group meeting/convention travel, the backbone of demand for US hotel rooms, was severely curtailed. The “AIG effect”–i.e. the negative public image of business entertainment–dealt an additional blow to the US hotel industry, as it became politically incorrect for corporate America to travel and attend meetings and conventions. Smith Travel Research is reporting astonishing weekly declines in RevPAR (Revenue Per Available Room) throughout the nation’s major markets as well as in many of the world’s major cities.