Tuesday, July 29, 2008

Pipelines and PIPs

After months of unrelenting, negative news out of the lending markets related to the mortgage meltdown, hotel developers nationwide seem to have finally curbed their enthusiasm for aggressive growth. Hospitality consulting firm Lodging Econometrics yesterday released its U.S. Construction Pipeline Report for Q2 2008, announcing 5,883 projects with 785,547 guestrooms in the total pipeline.

LE President Patrick Ford noted: “Showing only a moderate quarter-over-quarter increase, project and guestroom counts in the total pipeline are at new peak levels, but appear to be cresting. New visibility on the economy, the lending crisis and lodging operating trends emerged during the second quarter, which served to dampen developer sentiment considerably.”

Ford continued: “For some time, there has been no financing available at either the Wall Street or National Bank level. During Q2, balance sheet problems began to surface in regional banks and some community banks, too. It is becoming increasingly difficult to source financing for 100-200 room projects, which account for 44 percent of the total pipeline, as well as the majority of upscale and mid-market projects currently in the pipeline.”

LE suggested that the withdrawal of lending from the economy is growing more serious for developers. And, with few signs that conditions will change before mid-year 2009 at the earliest, pipeline totals will likely decline over the next 4-6 quarters.

That said, all is not doom and gloom. Development and renovation projects do go on, especially among highly credentialed investor groups and those with existing equity holdings. Case in point: Hyatt Regency today announced a $1.3 billion investment in revitalizing its portfolio in North America.

The company reported that dozens of Hyatt Regency properties in key business, convention and resort locations are undergoing transformation as part of a multi-year revitalization project. Seventeen properties have been renovated or opened in the past three years and 31 additional hotels are scheduled to be revamped or to open by the end of 2010 (the Hyatt Regency Sarasota, Fla. is pictured above).

The current business environment may be challenging, to say the least, but savvy developers know now is not the time for timidity or fear. Reinvigorating instead of retrenching: that’s what it’s going to take for this industry to remain vigorous and competitive. Hyatt Regency gets it.

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