RevPAR Growth is Headed South
(and I don’t mean Texas or Florida)
Published by Steve Van
The Great Bright Hope for curing hotel defaults‐ RevPAR growth‐ is slowing and all the forecast gurus are starting to lower their projections. Two of the big guys‐ Deutsche Bank and Morgan Stanley just lowered theirs by 37% and 29% respectively (to 4.4% and 5%). This morning at the Lodging Conference additional data on group bookings slowing in August and leisure being flat makes me convinced that the Delphic Oracle of hotel forecasting, the Smith Travel STR report folks, will soon retreat below their current 7% forecast. The economic reasons for this are obvious to all. What is not obvious is what this means to hotel loans.
For RevPAR growth in 2012 to support replacement loans for the Billions in notes coming due, growth would have to be more than 64% (no there is no decimal between the 6 and 4 – I have the math if anyone would like to see it). The single greatest misconception made in the hotel loan industry is that robust annual income growth of 7 plus percent will make everything ok in 2012. Wrong! Despite strong growth the past two years income is still not at the level of 2007. (Remember how hard it was to recover from that 1.5 GPA in your freshman year?) And that is not adjusted for inflation. Without regurgitating the PROCEEDS problem it is clear that today’s downward forecast makes for a messy future.
Will this slow down the industry standard Extend and Pretend game? No. Just make it even more unlikely to succeed. Receiver posses mount your horses.
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