S. Florida Market-Watcher Sees Tough Hotel Year Ahead

MIAMI, FL— It looks like 2003 will indeed shape up as a “key” year for hotel owners; specifically, the coming 12 months could see industry lenders abandoning their alleged largely forgiving stance and step up their taking back of keys on financially troubled properties. While admitting this projected scenario is not necessarily etched in stone, Thomas O’Neill— managing director of the appraisal/brokerage/consulting firm HCI Hotel Consulting International here— maintained such a turn of events is eminently plausible… particularly in light of the fact there wasn’t as much of an industry recovery this year as many had hoped and/or expected. “We see 2003 as being the year economic reality may well return to the marketplace,” O’Neill said. “This [past]year, lenders were uncharacteristically forgiving. Next year, we expect [they]will be looking to take more keys back as the recovery proves too far off for many.” On the other hand, the coming tough times might be enough to spur more property sales; certainly, more than seem to be in the hopper for calendar year 2002. “Since the beginning of 2000, we’ve tracked about 650 hotel sales over the $3-million mark,” O’Neill said, “with about 250 each in 2000 and 2001.” By his reckoning, that means hotel sales (at this level) on the books this year could well be down some 40%. “Of course, it’s difficult to tell how accurate our calculations are at this point,” O’Neill admitted, pointing out it’s not unusual for sales reporting to be delayed. In terms of why there appears to be such a slowdown in transaction activity, the HCI executive contended: “Financing [availability]has been a big issue… but so, too, has been a sizeable buyer/seller gap. In quite a few cases, buyer expectations have bordered on the ridiculous, suggesting a 12 cap… or even higher.” But that’s not to say no properties were changing hands over the past year. “Though we don’t really track them, it seems there was continued solid sales activity at lower price levels, perhaps demonstrating that part of the market was not so severely impacted by the current economic conditions.” On the other hand, in the realm of bigger hotel deals— especially those approaching $100 million (or more)— O’Neill said the year has proven particularly noteworthy by the conspicuous absence of such mega transactions.