There’s a different kind of vibe at this year’s Americas Lodging Investment Summit—one that goes well beyond the fact this the event moved to San Diego after spending its first six years in Los Angeles.
The crowd of about 2,000 has the feeling of a punch-drunk boxer trying to right himself in the eighth round against an opponent that came out of nowhere. The challenger, a little thing called a global economic meltdown, has presented the champion its most formidable match ever.
It’s clear that conference attendees aren’t sure whether to laugh or cry over the current state of the hotel industry. It is a complete mess from the fundamentals of key measurements to an oncoming glut of maturing debt that has no place to call home.
Listening to some attendees gave me shivers down my spine as they spin tales of substantial doom. Others seem to have a Pollyanna approach and could be accused of burying their heads in the sand. During one interview, a source told me that if the conference were a movie, it would be called “Night of the Living Dead” and some of the main characters weren’t aware that zombies were around the corner.
It’s evident that this downturn is like no other, and it’s not going to magically go away over night. Even the most optimistic attendees agreed that the next six months are going to be brutal for the hotel industry. It’s time to batten down the hatches and try to ride out the storm.
But this is like weathering a severe storm without radar. No one, and I mean no one, knows when we’re going to hit bottom or how long the pain is going to last. It really is unpredictable.
After the first day of ALIS 2009, I know that lending as the hotel industry has known it for at least the past 15 years (and probably much longer than that), is forever changed. When lenders do begin lending again—it will happen at some point during the next 18 months—it is going to be a different environment. It’s safe to say that the days of deals with 90 percent leverage are gone. When the spigot is turned back on, it will be a trickle. Borrowers shouldn’t expect any more than 55 percent of a deal’s financing to come from a lender.
So, Day One of ALIS ’09 is history. As bleak as it was, there are still people smiling. One CEO told me that industry veterans have been preparing for this downturn for the past 12 months; it’s the newbies that are in big trouble because they just didn’t know what they were getting into.
The truth is that there’s not much to do but grin and bear it. They’re going to keep taking it on the chin for the rest of the year, so they might as well get used to it.
