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5 things to know: 5 January 2012
January 5 2012
Highlights

• JLLH: Global deals market to be flat in 2012;
• North American airlines maintained on-time performance;
• hotel operators must abandon excuses in 2012;
• 2012 is the year of maturing debt for hotels; and
• early rate negotiations see increases.

The hotel industry likely won’t see a pickup in hotel deals in 2012, according to Jones Lang LaSalle Hotels.

Hotel deals will be upwards of US$30 billion globally this year, about equal to the volume seen during 2011. A lack of economic clarity and a wobbling debt market will challenge the transactions market this year.

So far, the dislocation in the financial markets has not impacted underlying trading fundamentals. This has reassured investors to a certain degree and has underscored the attractiveness of high quality, income producing hotel real estate as an asset class,” Arthur de Haast, chairman of JLLH, said in a news release. “Constraint will be driven by illiquid markets and the shrinking balance sheet capacity of international banks to lend significant sources of new money. Still, the market will be flush with equity capital that will come into play.”

Private-equity buyers will remain in the mix for assets this year, and joining them will be sovereign wealth funds and high-net-worth individuals. Banks are expected to be the biggest sellers of properties.

Good winter weather aided North American airlines in maintaining on-time performance in December, according to FlightStats.

A total 6,914 flights were canceled during the month, slightly above the 6,692 in November and flat percentage wise (0.84% versus 0.85% during November). On-time arrival performance for remaining operated flights was 78.94% in December, compared to 67.94% in December 2010.

The top five performing airlines in terms of on-time performance during December were:

• AirTran Airways (91.79%)
• Horizon Air (90.56%)
• Compass Airlines (90.38%)
• Hawaiian Airlines (90.29%)
• Mesa Airlines (89.09%)

Leaving excuses behind makes the list on this third day of HotelNewsNow.com’s look at what should be on hoteliers’ resolution lists for 2012.

“But we’re in a recession,” is a crutch hoteliers can no longer lean on, according to Adam Zembruski, chief hotel operations officer for Pharos Hospitality.

“In 2008, (guests) understood. 2009, they were forgiving. 2010, guests started to see the industry was improving, but were still patient. 2011, guests read the paper—they see that fundamentals are starting to return to 2006-2007 numbers,” he said.

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There’s a big bill coming due for hotels in 2012, reports HotelNewsNow.com’s Shawn A. Turner. Billions in debt is scheduled to mature this year.

In commercial, mortgage-backed-securities, for one, there is US$9.1 billion of hotel CMBS debt maturing in 2012; much of it originated in 2007, according to Trepp LLC, a company that tracks the CMBS market. It’s not clear how much balance sheet debt will mature in 2012, though Mathew Comfort, executive VP of global real-estate services firm Jones Lang LaSalle, puts that number at roughly twice the size of the CMBS market.

Bob Sonnenblick, principal of real-estate development firm Sonnenblick Development LLC, said all the debt coming due in 2012, particularly the CMBS debt, could prove a distraction to the industry as executives spend more time figuring out ways to refinance and less time focused on their own operations.

“It takes your eyes off the ball,” he said.

Hotels appear to have the upper hand during the early rounds of rate negotiations, as buyers see higher rates coupled with fewer amenities, reports BusinessTravelNews.

Bob Brindley, VP at travel management consulting firm Advito, said hotels are driving rate increases between 6% and 12%, though the rates likely are to come down to a range of 2% and 6% after negotiation.

GlaxoSmithKline sourcing group manager Paul Plank said the economy this year is prompting him to reach out to more hotels than usual. GSK  procures hotels through an auction program with set ceiling rates. The company plans to invite more than 2,400 hotels to participate in 2012, up from approximately 1,800 last year.

Plank said he hopes that strategy, combined with the leverage of GSK's volume, would stave off significant increases. "In 2011, we were told to expect a rate hike, and we took an increase, but it was marginal," he said. "We reduced costs in (U.S. headquarters city) Philadelphia, though they increased in (global headquarters city) London. I'm not going to say we're not concerned, but we're inviting more properties than we've ever invited before, so the extra competition should help."

Compiled by Shawn A. Turner.
 

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