Front Desk

Law of the Hotel Jungle

I've read a lot of press accounts lately of hotels in trouble. In fact, the pace of lodging assets going into distress seems to be quickening. One explanation of course is the convergence of a depressed hotel market with poor financing and development choices. In other words, some developers overleveraged themselves and opened properties just as the market was turning ugly.

That's true in many cases, but nearly as often it's plain bone-headed development decisions—not just the economy or shaky financing—that has doomed some properties. That light bulb turned on for me this morning as I read a press account of the Se San Diego, a boutique property that filed for bankruptcy this week. Reasons cited by the owner were poor timing of the opening (December 2008) and a “crushing debt load.” Those issues are severe, to be sure, but an observation from consultant Robert Rauch really tells the story. He mused that the property's real problems are more basic:

“It is a property that has an inferior location and no brand and a huge amount of debt in a terrible market,” he said to sum-up the situation.

Rauch provides a valuable lesson that hotel's developer either forgot or never learned: An ill-conceived hotel will probably never be successful, even in an up market, and it makes no sense to violate the laws of the hotel jungle. Of course, the kicker in this situation is the developer made another dumb mistake in tacking 23 condos—all unsold—onto the project, as though that would have made it a viable proposition.

As Forrest Gump said, “Stupid is as stupid does.”

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