Joel Ross is principal of Citadel Realty Advisors, successor to Ross Properties, the investment banking and real estate financing firm he launched in 1981. A Wharton School graduate, Ross began his career on Wall Street as an investment banker in 1965.
As the weeks move on, occupancy continues to be negative as it has for most of the year. Recent numbers show a decline of 1.5%, and revenue per available room continues well below the levels projected
While revenue per available room exceeded what I predicted in 2012, it was primarily because some of what lies ahead is slower to arrive than I had thought. The bubble is growing, and unless Washington—and especially President Obama—act to reduce entitlements and overall spending and accomplishes true tax reform, the result of the bursting bubble someday will be very ugly.
A lot of people like to call me Dr. Doom for all of my cautious columns during the past year or so. Well, I really am not so doomsday (even now), but I think now you see the black swans that I have been forecasting have come home to roost and they are swarming and splattering everyone.
The yield curve is the plot of the rates as you go out by maturity. The left side is the short rates (i.e. one month) and the right is the long rates (i.e. 30 years). The slope of this curve has been fairly good at predicting where rates are headed over the next few months and the cost of borrowing.
While there has been a new start to CMBS lending and hotel lending in general, do not get lulled into believing it is all sunny and you can easily refinance at 5% or less. There are only a few lenders who are active.
We used to use debt service coverage ratio to measure the risk of a loan and to size the loan proceeds. Now the mantra is debt yield. That is, net operating income divided by 14% to determine proceeds.
I have made a major issue of what metrics should be looked at by hotel industry prognosticators, and the need to look at a wide variety of things all over the world to really try to get a good sense of where we are headed.
I have said several times in articles and panels, “follow the money.” The industry prognosticators missed the entire downturn because they were not paying attention to the capital markets that really drive the economy.
The prognosticators for the industry completely missed the worst decline in revenue per available room in history and the entire economic collapse. Even as late as 2008 at the Americas Lodging Investment Summit and the New York University International Hospitality Investment Conference, they were still predicting upward movement in RevPAR and hotel values.