The boom in lodging and casino-resort development has clearly waned, and the dry spell is likely to last for years as the capital-intensive industries grapple with the credit crisis hangover.
Like the U.S. housing market, hotel and resort real estate assets have fallen dramatically in value.
"I would say it's probably at least seven if not up to 10 years until I could imagine a new development boom happening, because there are asset-backed opportunities in other sectors where you can get far better returns than zero on what would be your hotel and gaming properties," said Phil Kleweno, a partner at Bain & Co's Corporate Renewal Group, at the Reuters Travel and Leisure Summit in New York this week.
Real estate services firm Jones Lang LaSalle found that $23 billion worth of hotels changed ownership worldwide in 2008, down from a peak of $113 billion in 2007.
The boom was driven by highly leveraged private capital and its access to increasingly liquid and sophisticated debt markets -- a source that has since imploded.
Some of those owners and developers are now struggling as recession-wary consumers and businesses cut back on extras like vacations and travel.
"Economic activity drives travel, it drives business travel, it drives meetings -- probably less directly, but still quite fundamentally, it also drives leisure travel," Arne Sorenson, chief financial officer at hotelier Marriott International Inc., told Reuters.
He expects lower supply growth for the lodging industry, both in the United States and internationally, into next year through at least 2012.
"FEWER COMMITMENTS"
"We're seeing meaningfully fewer commitments to new projects and construction-starts today than we saw a year ago or two years ago," Sorenson told Reuters.
That is particularly true of higher-end, full-service hotel projects.
"Our view is that in that lower end of the market, there is still liquidity for good transactions and good hotel owner-operators," said David White, CFO and Choice Hotels International Inc. "It gets tougher the further you go up the chain scale."
That is clearly evident in the gambling mecca of Las Vegas, where numerous luxury projects have been canceled or indefinitely delayed.
Still, there are some 14,000 new rooms expected between now and 2011, from projects such as MGM Mirage's multi-tower CityCenter on the Las Vegas Strip. That would be a gain of about 10 percent from the current room base.
The supply glut has come at the same time consumer demand for gambling has fizzled, and highly-leveraged operators are struggling to avoid defaulting on their debt.
The full text of the story is on Reuters.com at:
www.reuters.com/article/TravelandLeisure09/idUSTRE52460G20090305
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