In recent posts, I have detailed why the hospitality industry is well poised to continue record profits and sustained growth for several more years. But I have also noted that even though the hospitality industry has its fundamentals in place, the industry enjoys (or suffers) almost a 1 to 1 correlation with changes in the U.S. economy's GDP.
And all the worry over the sagging housing industry's impact on the economy has caused a lot of concern. ( See "Good Times Now, But Speed Bumps Ahead?") Yesterday, Alan Greenspan calmed those concerns somewhat.
On November 6, 2006, former Federal Reserve Chairman Alan Greenspan told a group of financial advisors in Washington, DC that he is not worried about the impact of sluggish housing on the U.S. economy, and thinks the economy is about to rebound.
According to Nell Henderson's Washington Post article today, Greenspan commented on the sharp slowdown in U.S. economic growth to a sluggish 1.6% in July through September-largely because of the steep fall off in home construction. Greenspan said, 'It looks as though the worst is behind us in terms of the effect of the housing slump on economic growth.' He also commented that the significant slowing is 'quite likely to be temporary' although he said the housing downturn itself has 'a way to go' before it hits bottom.
Fortunately, Greenspan thinks that the housing slowdown's effect on the rest of the economy should abate in the months ahead, but reflected that other industries are enjoying healthy profits, consumer spending is solid, and 'the global economy is in extraordinarily good shape.' All in all, he concluded that 'Things don't look bad.'
Both tracks look clear
In order for things to go well in the hospitality industry, there are really two sets of potentially independent conditions that must be favorable.
First, the industry fundamentals must be sound-including basic supply and demand factors. Those factors have never looked better!
Second, the U.S. economy must be growing and thriving. There is almost a 1 to 1 correlation between the direction of the hospitality industry's profitability and growth of the U.S. GDP. In other words, even if the all the hospitality industry fundamentals are great, if the U.S. economy drops off, so will the hospitality industry. The housing slow down had many of us concerned about the direction of the U.S. economy and its impact on hospitality.
Alan Greenspan's comments yesterday suggest that we have a green light on both track. Let's hope he is right, because we should enjoy good time for quite a while if he is.
About the Author
Jim Butler is recognized as one of the top hotel lawyers in the world. He devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM's Global Hospitality Group(R) -- a team of 50 seasoned professionals with more than $40 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, they have brought their practical advice to more than 80 "hotel-enhanced mixed-use" projects, a term Jim coined to fill a void in industry lexicon. This term describes one of the hottest developments in real estate-where hotels work together with shopping center, residential, office, retail, spa and sports facility components to mutually enhance the entire project's excitement and success.
Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right "fit" for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.
Jim is the author of the www.HotelLawBlog.com. He can be reached at +1 310.201.3526 or jbutler@jmbm.com .
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