Not Easy Rider

Today’s update on the current hotel cycle… we are not in a baseball game folks… (and aren’t you sick of the which-inning-are-we-in question?). A far better analogy is a big tall roller coaster. Sitting in the front car… click click click … you can feel it slowing as we near the top… right before the big drop. Some facts on our upcoming plunge…

1. Our current easy ride of RevPAR growth has lasted 73 months. Do we really believe it will continue for much longer? Look up “entropy”.

2. Supply growth is accelerating – this March for the month we had over 73,000 more rooms each day than 12 months ago… and supply growth will increase from 1.7% this year to 1.9% in 2017.

3. Demand is down… especially in Group (-9.6%) and Overall (-0.4%) in March.

4. CMBS is already going over the top… as I mentioned before $20B in CMBS hotel loans are coming due the next 24 months. But for replacement loans the CMBS market has sharply dropped off and instead of last year’s 95% pay off of maturities the first quarter saw only 67%… and there are record kick outs of hotel loans in new securitizations by B-piece investors.

5. Back to the roller coaster…click… click… click … ZOOM !!! New York and Houston are already on the ride down. The Big Apple was down in demand around 2% in March (but supply is under construction to increase by 14% or 15,000 new rooms and Houston is down for March almost 10% (supply in the ground is going up 7% or 5,000 new rooms.)

6. Roller coaster cars in the shale oil areas have already fallen off the track… Ahhhhhhh… RevPAR down 20-60%. Goodbye, Adios

7. Finally there are still happy times for a few cars on the back of the coaster…. Dreamlands like San Francisco up 15% RevPAR and Los Angeles up 16%. But as the momentum of the coaster continues they too will feel the terror of free fall.

8. And forget getting off the coaster – it’s too late… Hotel sales are already down 52% YTD…

9. Click click click


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