SAN FRANCISCO— Lenders became learners here last month as PKF Consulting hosted more than 35 bank representatives for a daylong seminar that dissected the current state of the regional lodging industry and what they should look for when evaluating hotels from a financial perspective. Joining PKF in the effort was Pacific Coast Bankers Bank, a consortium of member banks serving seven Western states, headed by president Tim Leveque. “Many of these banks had hotel loans or credits in their files. The federal reserve has made a pronouncement that among various types of real estate credit or loans, hotels are viewed as one of the more risky in the marketplace today,” said Tom Callahan, evp and head of the PKF Consulting office here. “So that warrants additional scrutiny by lenders that have hotel loans out.” PKF set out to give the lenders some tools to evaluate such loans. Robert Mandelbaum, research director for the Hospitality Research Group, PKFs research affiliate, reported that last year in the lenders’ region, RevPAR declined by 11.8% in the Mountain and Pacific states— the second largest drop in the nation— surpassed only by the New England/Middle Atlantic region, which dropped 17.8%. Mandelbaum added the overall drop in RevPAR last year for U. S. hotels was more than 10%, the steepest drop in more than two decades. This year’s projections show RevPAR falling by 11.7%, with a return to 2000 levels by 2004, he told the lenders. “We were providing them a sort of Hotel 101 course on how to evaluate hotels, particularly to evaluate financial issues,” said Callahan. “We were also helping them to understand some of the dynamics that are changing in the marketplace. Most of these companies probably aren’t going to be lending new money loans on hotels, so it’s really important to give them a good education on the businesses of their existing borrowers.” Callahan’s lecture expressed his companys view that lodging product now at greatest risk are older properties, independent hotels and hotels with weak chain affiliations, and luxury hotels. Interestingly, the luxury segment— at least in the old economy— was thought resistant to weakness in the economy; however, that paradigm seems changed. “Luxury was never recession-proof, but the vision in the ‘90s was it had the best upside because in most markets there hadn’t been any new luxury supply built. Now, the people who stay in those luxury hotels— from the financial-services industry, entertainment industry, investment bankers, attorneys— that market has really constricted quite a bit. As a result, a lot of people who would have stayed at a luxury property now are trading down to a good, first-class property. We’re seeing a lot of compression to the middle where everyone’s moving down a notch. There’s no place to move down if you’re a luxury property.” PKF Consulting analysts Ken Kuchman and Chris Kraus gave the bankers snapshots of several markets in the PCBB’s purview. For example, they expect San Francisco occupancies to remain basically flat for 2002, in the 68-70% range, with room rates dropping 3%-5% to the $155-165 range. Rates and occupancies are expected to grow again by mid-2003. Also, the San Jose/Peninsula area— “Silicon Valley”— is expected to lag other local markets, due to its reliance on the tech sector; Oakland hotels, which rely on more a mixed market, are expected to have rates and occupancies remain flat through 2002, but show an uptick in 2003; the Sacramento market did not fall as far in 2001 as others in Northern California due to government activity and its drive-in market. The analysts told lenders its expected to remain stable through this year with a definite upturn projected for 2003 and 2004. “Drive-to markets are doing much better here in California,” said Callahan. “They really haven’t been rattled too much by the downturn in the market and the issues post-Sept. 11,” unlike San Francisco, where the international inbound tourism has been cut b
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