Report: Hotel sector’s downturn will deepen in 2002

The doldrums affecting the nation’s hotel industry will intensify before the sector begins to recover along with the national economy around the end of 2002. That’s the conclusion of Marcus & Millichap Real Estate Investment Brokerage Co.’s recent report on the hotel industry.

The hotel sector already was suffering the effects of an economic downturn and the resulting cutback in corporate travel before the terrorist attacks of Sept. 11. Before the attacks, Marcus & Millichap projected a national occupancy rate of 64% in 2001, according to the report. Now, the firm’s projected rate for the year has dipped to 60%. Industry analysts surveyed for the report say the rate for 2002 likely will fall in the 57% to 60% range.

Furthermore, the national revenue per available room (RevPAR) declined 4.3% to $54.07 in the first nine months of 2001, compared to the same period in 2000. "Continued RevPAR declines are forecast for the fourth quarter and the first half of 2002," the report says, adding that "increased strength in the second half of 2002 is not expected to overcome weakness early in the year, causing RevPAR to be down again next year by as much as 5%."

The report also notes that hotel values likely will decline as well in 2002, like they did in the recession of the early 1990s. However, hotels generally are on much more solid footing that a decade ago, the report claims. Then, "hotel assets were highly leveraged, with loan-to-value rations well over 75% and very low debt-coverage ratios," the report says. "Also, under-capitalized and unsound lending institutions underwrote many loans." The current hotel market is characterized by lower loan-to-value ratios, higher debt-coverage ratios and more stable lenders, according to Marcus & Millichap.

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