Real Estate Forum - May/June 2009

Too Much
By Maria Wood

FOR HIS DAY JOB, RICK SWIG IS A hotel consultant. Occasionally, he does take an ownership stake in a particular property, succeeding in most of those ventures. Up until now, that is.

On May 6, a 170-room Sheraton Hotel in Pleasanton, CA in which he had a 2% ownership interest was scheduled to go on public sale as part of a foreclosure proceeding. “We never stopped paying our lender, but ours was a case where our loan came due and the lender choose not to refinance,” says Swig, president of RSBA & Associates, a hospitality industry consulting firm based in San Francisco. “Of course, there is no financing out there.”

Swig further describes a marketplace decimated by the sales of Washington Mutual (to JPMorgan Chase) and Wachovia (to Wells Fargo). “If two of the major demand generators in a market go out of business, it doesn’t matter how good your brand is, how good an operator you are or how smart you are—guess what? There is no business,” he says. “I now have personal experience. I just learned my lesson: I’m not bullet-proof.”

Judging by recent statistics that underline the revenue losses experienced by

the lodging industry and the credit erosion of loans backed by hotel properties, Swig’s experience will not be an isolated one. “Every hotel in the industry is in trouble,” he says. And his statement may not be hyperbole.

It would be easy to conclude that luxury properties are bearing the brunt of the recession. That’s true, but all segments are taking revenue hits. Take a look at the most recent numbers from Smith Travel Research: room revenues for all hotels in the US were down year-over-year by 15.1% in March. Leading the list are resort properties, down 21.7%, followed by luxury hotels, down 20.7%. Faring relatively better—relative being the operative term here—are mid-scale without food and beverage, only off 8.2%. Urban hotels have witnessed a 16.5% drop in room revenues, while suburban market properties have taken a 14.2% cut. More telling, Swig says, is that the top 25 markets in the US have seen a collective 17.3% drop in room revenues versus other locations, which are down 13.4%.

Another troubling aspect of this current downturn is the reduction in average daily rates. By way of comparison, back in 2001-02, the last time the industry wit-