MAY 29, 2008 — Hyatt Regency La Jolla
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AGENDA TOPICS FOCUSED ON CENTRAL ISSUES:
Town Hall Meeting: How Will San Diego Fare in 2008?
RealShare SAN DIEGO Pardon the Interruption
Mixed Use: What is the “Right Mix” of Property
Types?
The Million Dollar Question – What Does it Take to
Get Deals Done in the Current Capital Markets?
Identifying Prime Opportunities in the San Diego
Investment Sales Market
Leasing Market Forecast
KEYNOTE ADDRESS
Kelly Cunningham
Economist & Senior Fellow
San Diego Institute
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components,” Hanson adds. “It makes
more sense to be building residential as
part of luxury or upper upscale than
economy, so those segments benefited.”
Geographically, the top six cities for
supply additions are Phoenix (a 32.6%
increase, based on current room census); Las Vegas ( 30.3%); San Antonio
(30%); New York City ( 29.3%);
Washington, DC and Houston (both at
26.7%), reports Lodging Econometrics.
The fact that New York City, long considered a high-barrier-to-entry market, has
such a substantial pipeline is somewhat surprising. The experts concede the Big Apple
will soften a bit, though any dip must be
put in the context of the phenomenal
growth it experienced in recent years.
Hanson points out that ADRs in
Manhattan have increased 51.2% in the
past three years, and this year’s occupancy
will drop to a “disappointing” 83% after
hovering at 85% for the past two years.
Ford notes that the hotels scheduled to
come on line in New York City are not
“mega structures,” but more modest upscale
properties of between 150 and 200 rooms.
“New York City is one of the strongest markets in the world. But are you going to have
more supply coming on line? Yes, considerably,” he says. “But it’s like everything else
in the hotel economy—you are starting from
a very high performance level, so you are
going to have some softening. Is that going
to be a major problem? I don’t think so.”
Indeed, most hotel insiders contend the
current economic downturn, while painful
in the short run, is nothing the industry
hasn’t experienced before—and survived.
“We are long-term players, and we’ve
been through cycles,” says Robert Hazard.
“If we open in the bad times, we’ll weather
it until it gets better. We’re glad that there
has been a correction and all these
‘Johnny-come-latelies’ got washed out of
the marketplace. It also means pricing will
come down, which is a good thing. It helps
us gear up for the next cycle.”
Moreover, Hanson says that overbuilding is in the eye of the beholder. “If you
happen to own an older hotel and there are
three new ones being built in your market,
that is overbuilding,” he says. “But from an
industry-wide perspective, the term ‘
overbuilding’ doesn’t apply. Individual hotels
and the industry are achieving record profit
levels and returns on invested capital. Also,
break-even occupancy, which is about 54%,
is near a record. We could absorb substantial amounts of additional inventory before
profits are affected.”
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