What! Did Mr. Hotel Default say that? Absolutely. The fundamentals for hotel asset appreciation during the next five years have never been better. There is real demand growth, there is an all-time low in new supply, there will be a recovery of the US economy and if and when we resort to monetizing our debt with inflation hotels will BENEFIT more than any other real estate class.

The fortunate few (25%?) who didn’t over leverage their hotels and those who buy now will be real winners in a few years.

Some details:

1. Hotel income growth has averaged about 3% annually for 40 years and all predictions for 2012 are between 3.5% to 8% (the latter by Dr. Pangloss). It is directly correlated with GDP growth.
2. Supply growth historically averages 2% but now is less than .5% and will stay that way for years (go try to get a hotel construction loan).
3. The US economy still leads the world in innovation and productivity and the coming applications in Nano technology, robotics, gene therapy, artificial intelligence, etc. will make us thrive.
4. Inflation has always benefited hotels on the recovery side. Unlike office and retail with long term leases, hotels can now raise their rates hourly. Buy a hotel at less than replacement cost, get a fixed rate loan and sit back and watch that appreciation fly.

So hotel defaults will continue to grow because of the maturity proceeds shortfall and PIP demands from franchisors but buying now makes perfect sense.