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Commercial agents await the great hotel sell off, maybe, in 2010-11

Hospitality industry in the dumps

According to industry statistics, up to 10 percent of the nation’s hotels/motels are in serious trouble, and could be in bankruptcy or foreclosure within the next 12 to 18 months. That’s a potential inventory of 4,000 properties that could be up for sale or on the auction block in the next year and a half.

In an April 29 report by The Journal Record in Oklahoma City, the state has some serious hotel/motel issues.

The newspaper quoted a hotel broker: “Our hope is that you don’t see the market just flooded with foreclosed hotels, because it will drive down the values and is sort of a self-fulfilling prophesy,” said Holmes, chief operating officer of Oklahoma City-based HotelBrokerOne. “The more hotels you put on the market at bargain-basement sale prices, the more it drives down the value of the other loans. It’s a cascading effect you don’t want to have. ”

95 percent decline in transactions

One huge problem with the increased inventory is that the volume of transactions have seriously declined: Hotel and Motel Management stated that the industry saw a 95 percent decline in number of transactions from 2007 to 2009. Some regions saw a 50 percent drop in values. When industry experts were polled how long it would take for the market to rebound to 2007 levels, as a whole the group was not optimistic for a fast recovery, citing 5 to 8 years.

The sharp decrease in transactions leaves brokers with very few — if any — comps to use to value properties. And declining revenues just add fuel to the downward spiral in pricing. Valuation of properties and making it through the underwriting process remain serious concerns in financing deals, as with all commercial sectors.

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Commercial lending problems, of course

Add to the mix the scarcity of commercial lending right now, and you have a witch’s brew of problems.

In properties where the lender has ownership, deals seem to be easier to push through (which makes sense), as frequently the lender/owner will help finance the deal to get it closed. REO’s and short sales are expected to be a major source of hotel purchases in the next 18 months.

Cautious optimists

Some industry experts scoff at the idea that thousands of properties will flood the market in 2010, citing the fact that the first four months of the year have not seen the predicted deluge emerge.

These “cautious optimists” cite increased bookings in hotels for January and February of 2010, compared to the same month statistics for 2009. Despite higher occupancy rates and some operating revenues, in year-over-year comparisons, the transactions are not moving as quickly as hospitality insiders would like.

Investors with money to spend are slow to purchase right now. Many are sitting on the sidelines, waiting for the great deluge of hotels/motels forecast to hit the market in the next year and the drop in prices that would logically follow — that may or may not materialize.

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Have we bottomed out?

Some say with a 95 percent drop in transactions — how could we not have hit bottom? They are forecasting an increase in transactions as 2010 moves along, and eventually an increase in prices for sellers.

Image courtesy JRwooley6 at Flickr

Written By

Erica Ramus is the Broker/Owner of Ramus Realty Group in Pottsville, PA. She also teaches real estate licensing courses at Penn State Schuylkill and is extremely active in her community, especially the Rotary Club of Pottsville and the Schuylkill Chamber of Commerce. Her background is writing, marketing and publishing, and she is the founder of Schuylkill Living Magazine, the area's regional publication. She lives near Pottsville with her husband and two teenage sons, and an occasional exchange student passing thru who needs a place to stay.

11 Comments

11 Comments

  1. Ryan Martin

    May 10, 2010 at 12:12 pm

    We are currently working with several clients that are looking to purchase small to medium sized motels. The two major hurdles that we keep running across are financing and sellers being unrealistic on their price. It is incredibly difficult to finding lending sources that are willing to finance these properties at a competitive LTV and rate. Clearly the trends that you have indicated above are a reason for much of the concern and limited lending sources.

  2. kristin terry

    May 10, 2010 at 12:36 pm

    Commercial agents await the great hotel sell off, maybe, in 2010-11: Hospitality industry in the dumps
    According t… https://bit.ly/csL5mO

  3. Nelbee

    May 10, 2010 at 12:36 pm

    Commercial agents await the great hotel sell off, maybe, in 2010-11 https://bit.ly/cuS56F @AgentGenius

  4. Real Estate Feeds

    May 10, 2010 at 12:37 pm

    Commercial agents await the great hotel sell off, maybe, in 2010-11: Hospitality industry in the dumps
    According t… https://bit.ly/aGGpRd

  5. RealEstate Babble

    May 10, 2010 at 1:21 pm

    AgentGenius: Commercial agents await the great hotel sell off, maybe, in 2010-11 https://bit.ly/aZ3gtX Full https://bit.ly/dpeyKH

  6. realdiggity

    May 10, 2010 at 2:28 pm

    Commercial agents await the great hotel sell off, maybe, in 2010-11: comments https://bit.ly/9EeVhQ

  7. ericaramus

    May 10, 2010 at 2:53 pm

    @agentgenius Commercial agents await the great hotel sell off, maybe, in 2010-11 https://bit.ly/aCojfW

  8. CBC Metro Brokers

    May 10, 2010 at 2:59 pm

    Commercial agents await the great hotel sell off, maybe, in 2010-11 https://ow.ly/1J6rP

  9. HAR

    June 1, 2010 at 7:28 pm

    Interesting prediction about possible hotel property sell-off coming: https://bit.ly/coRfe5

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