Patrick D’Sa is managing director at The Situs Companies, a global commercial real estate services and consulting firm based in Houston.

D'Sa, Patrick
2009 is likely to go down as the worst year in modern history for of the hotel industry eclipsing the downturn following events of 9/11 and other recent recessionary periods.

Industry participants in this business sector including owners, operators, vendors, brokers, consultants and lenders have been adversely impacted by the economic recession, which first began to take hold in early 2008.

From a performance perspective, the United States lodging market for 2009 is forecasted to end the year with an 8.8 percent decline in occupancy and an 8.9 percent decrease in ADR [average daily rates], resulting in a combined RevPAR [revenue per available room] decline of 17 percent as reported by STR Global. The market is expected to hit bottom in 2010 before beginning the long road to recovery in 2011.

The outlook for 2010 is for a further deterioration in both occupancy and ADR levels by an additional 0.2 percent and 3.4 percent, respectively, over 2009 levels.

For borrowers, lenders and private equity groups, 2010 is likely to be a watershed year.

For borrowers, the lack of available of financing for maturing loans coupled with depressed property values will likely result in loan extensions and an increased number of accelerated hospitality property dispositions at liquidation rather than market value.

Trepp LLC estimates that approximately $10.6 billion in securitized mortgages collateralized by hospitality properties will mature between 2010 and 2012.

For lenders, government-sponsored capital infusions will facilitate bank foreclosures as well as loan modifications.

Concurrently, banks will begin to accelerate the disposition of their REO lodging assets which will be good news for hotel brokers and appraisers.

Jones Lang LaSalle reported that in 2009, an estimated $9 billion in global hotel transactions were completed, down substantially from $25 billion in 2008. Projections by JLL are that worldwide transaction volume will increase to about $12 billion in 2010.

Government agencies, principally the FDIC, are anticipated to accelerate the sales pace of its non-performing loan portfolios and real estate assets acquired from numerous community and regional bank failures. Additionally, valuations that have continued to decline will likely bottom out in 2010 averaging 40 percent to 50 percent down from their mid-2007 peak valuation levels.

For private equity groups and those with a cash war chest, 2010 will represent a classic timing play presenting lucrative buying opportunities at a cyclical market low point.

The opinions in this article do not necessarily reflect the views and/or policies of the Mortgage Bankers Association.