NEW YORK— Kudos to Melinda McKay of Jones Lang LaSalle Hotels for cutting to the heart of the nation’s financial situation by noting “economists were created in order to make weather forecasters look good.” McKay, senior vp/research, and the company’s Executive VP Alan Tantleff offered their observations on the likelihood and timing of an economic recovery at a day-long session here sponsored by Jones Lang LaSalle and Proskauer Rose. The theme of the discussion was “Handling A Hostile Hotel Environment.” About the only thing the nearly two dozen lodging-sector leaders at the session seemed to agree on was that they could disagree on the impact as well as the duration of the current recession. Opening the conclave, McKay and Tantleff pointed to numerous actions and trends to explain why they believe the national economy should continue to contract through the first half of 2002 before picking up again in 2003. With specific reference to capital markets and the hotel sector, they claimed “opportunistic investors abound… but there are [comparatively]no sellers.” Moreover, the Jones Lang LaSalle Hotels duo maintained that “capital flows to real estate are declining and conservatism pervades underwriting,” despite the contention hotel markets are largely in good shape, certainly in better shape than they were in 1990. (See table, this page). Accordingly, they suggested a wholesale capital shutdown, the likes of that witnessed in 1991 to 1993, “will not recur.” In contrast, Tantleff and McKay admitted the hotel industry has struggled following Sept. 11. However, given a late-2002 performance rebound, they claimed room supply should show roughly a 1.5% uptick for the new year, thereby slightly outpacing year-over-year demand growth estimated to come in around 1%. In the end, Tantleff and McKay delivered a markedly positive prognosis, suggesting the industry “probably won’t see a wave of distressed sales [in 2002], and, as such, the marketplace likely won’t be dominated by a glut of vultures, [a.k.a. opportunistic buyers].” Shedding further light on this near-term outlook was Trepp LLC President/CEO Carl Kane, who supported Tantleff and McKay with his perspective on commercial mortgage-backed securities (CMBS) hotel debt. Couching his interpretation of market conditions from the vantage point of a database tracking some $300 billion in CMBS deals— and $27 billion in hotel debt spread across 2,850 hotels— Kane noted the monthly percentage of lodging loan-delinquencies doubled between October 2001 and November 2001 from roughly 2.2% to nearly 4.4%. When viewed over a three-month time-frame, one-month delinquencies in Kane’s database moved from 15 loans at the end of September 2001, to 20 loans at the end of October, to 69 loans as of Nov. 30, 2001. Additionally, while the number of one-month delinquencies have been shown to be on the upswing, the vast majority of these loans— 55 out of 69 total— involve balances under $7.5 million. Furthermore, a peek at Kane’s “Problem Loan Profile” projects cumulative defaults— spurred to a great extent by Sept. 11— should climb precipitously from some 50 loans in the first quarter of 2002 to more than 140 by the fourth quarter of 2003. As such, while seemingly echoing the short-term observations voiced earlier, they don’t bode nearly as well for the industry more than a year out. Subsequent sessions on the day’s agenda assessed such concerns as: the present, and future, state of the industry; the condition of capital markets; operational impact of the current economic downturn; and the likelihood of work-outs and restructurings. Demonstrating that “money matters” command a considerable share of the industry’s attention, a pair of program sessions addressed financial well-being: a “Capital Markets Update,” exploring whether hotel investments and loans can be underwritten, as well as when liquidity can be expected to return to the industry; and a presentation on “Workouts and Restructurin
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