 Where have you felt the greatest impact of a slowing economy? |
NATIONAL REPORT—Developers first discussed the "credit crunch" in HOTEL & MOTEL MANAGEMENT in September 2007. Fast-forward to more than a year later and fundamentals in the liquidity market have gotten exponentially worse. Many developers and owners remain in a stagnant state of business, either unable to obtain capital at reasonable rates or unable to work out deals with favorable returns.
All the while, experts have struggled to forecast when the industry will begin to rebound. They must be getting tired of repeating the phrases: "It's a cyclical industry," and "I don't have a crystal ball."
October's government bailout plan, technically named the Emergency Economic Stabilization Act of 2008, is intended to relieve some of the core issues hurting the economic and business climates: the availability of capital and consumer confidence.
"The hotel industry is right in the thick of things," said Jim Merkel, president of RockBridge Capital. "Certainly from the investment side, it's unlike anything we've seen in a long time."
Most agreed the bailout plan definitely won't hurt.
 Kenneth D. Simonson, chief economist, Associated General Contractors of America |
"The first goal is stabilization—to revive a market that Warren Buffet said was in 'cardiac arrest,' but to do so with prudence," said Kenneth D. Simonson, chief economist for the Associated General Contractors of America.
Availability of capital
The plan calls for the U.S. Department of Treasury to inject $700 billion into the lending market by issuing bonds for interested buyers, such as insurance companies and foreign countries. It will do this by purchasing bad assets off many banks' balance sheets. In turn, hopes are that major banks will again be free to lend to each other and to interested businesses.
 Aik Hong Tan, president, Richfield Hospitality |
"Residential real estate is on the front burner," said Phil Gordon, a partner in the Hotel & Leisure Practice Group at the law firm Perkins Coie LLP. "Most of their time will be focused on things that affect that market. But, it can only be helpful for the hotel business."
Gordon said the first step in unfreezing the credit market is to have lenders discover the true price of real estate assets.
"It's difficult at the moment to figure out what a property is worth with no debt, and it's also hard to determine what a structured deal is worth," he said.
Most say the commercial real estate market will benefit, but a timeline for when banks will be free to lend again is unknown.
 Phil Gordon, partner, Hotel & Leisure Practice Group, Perkins Coie |
"Eventually the banks will be back in the market to lend money; after all, that's their business," said Aik Hong Tan, president of Richfield Hospitality, primarily a management company that also facilitates hotel deals with capital groups. "Depending on how they implement it, that will determine the time frame."
