Although the theme for the 18th Annual The Lodging Conference in Phoenix is “Accelerating Towards New Opportunities,” “Cautious Optimism” better describes the prognostications of the experts and mood of the crowd. With the second largest turnout in its 18 years history, the Conference buzz is sharply contrasted with the “ghost town” feeling of just three years ago. The industry is reporting occupancy and rate numbers around the peaks of five years ago, but financing is still constrained and deal flow has slowed. Many hotel suppliers, such as Best Western International Supply, are reporting record years, but designers and builders are not back to full productive capacity.
According to economist Bernard Baumohl, who started the day’s presentations, the tables have been set for robust economic growth. Bank balance sheets are in great shape, corporations have stockpiles of cash and consumers have deleveraged. Yet high unemployment, Eurozone uncertainties and Iran’s nuclear ambitions remain. Nonetheless, Mr. Baumohl is predicting a most likely scenario of three percent growth, new jobs and new spending, with stubbornly high unemployment due to more job market entrants (or re-entrants). That prediction changes dramatically for the worse if Congress does not step back from the fiscal cliff and sequestration, ideally through a combination of balanced government revenue growth and spending reductions.
Good news for developers is that supply continues to lag demand nationally, but every market tells its own story. Don’t build unless the metrics for your site are good. If they are and your project is big, look to new construction lending at attractive interest rates and new equity from attendees BMO Capital Markets, Apple REIT Companies, Lowe Enterprises Investors and Apex Companies among others. Smaller project developers complain about being ignored by the big equity players, who claim that fixed placement costs result in better yields for large investments, with less than $10 million being inefficient. Here, small private offerings or friends and family raises can fill the equity gap.
Today brings “A View from the Top,” followed by a political analysis sure to tackle last night's Presidential Debates. And if you are interested in building or buying your first hotel, join me at this morning's Think Tank Five panel discussion, moderated by Michelle Finn, senior vice president Hospitality Brands, at ST Media Group International.