04 February 2011

Hotel industry: bang or bust in 2011?

The global hotel industry may look like it is on the way to recovery but there are still thorns among the roses as some hotel operators, which have taken a beating during the downturn, are faced with foreclosure or bankruptcy.

The most recent high-profile bankruptcy came earlier this week when the owner of eight luxury, iconic US resorts filed for Chapter 11 protection in an attempt to ward off repaying USD 1.50 billion of debt that matured on 1st February. The proceedings came just a few days after a group formally known as CNL-AB, which is controlled by investors such as Paulson & Co, Winthrop Realty Trust and Capital Trust, seized control of the assets from Morgan Stanley’s real estate funds via a foreclosure. These new owners are using Chapter 11 to buy some wiggle room in which to restructure the debt mountain, which included mortgage obligations.

The Grand Wailea Resort Hotel & Spa on the Hawaiian island of Maui was one of the five luxury resorts which together filed for bankruptcy with a total of USD 2.20 billion in assets and a total of USD 1.90 billion in debt as of 30th November 2010. The other properties included Arizona Biltmore Resort and Spa in Phoenix, La Quinta Resort and Club and PGA West in southern California, Doral Golf Resort and Spa in Miami and Claremont Resort and Spa in Berkeley. Together, these properties have 14 separate golf courses, more than 35 food and beverage outlets and 432,000-plus square feet of meeting space. In the meantime, Ritz Carlton Grande Lakes, JW Marriott Grande Lakes in Florida and JW Marriott Desert Ridge in Phoenix, which are currently controlled by Capital Trust and its affiliates, have managed to escape bankruptcy proceedings.

Paulson partner Dan Kamensky remains optimistic about the future prospects of the resorts, claiming the hospitality industry “is at or near the bottom of a historic down-cycle and is poised for a significant recovery in the years ahead, especially given the extremely limited amount of new supply expected in the luxury resort market”.

The comment comes as data from Smith Travel Research at the end of January indicates that the US lodging sector is poised to take off in 2011 after inching towards full recovery in the fourth quarter of 2010. The independent research company said occupancy increased 5.7 per cent to 57.6 per cent in 2010 while revenue per available room was up 5.5 per cent year-on-year at USD 52.59.

Green shoots appear to be emerging abroad, with the French hotel giant Accor announcing plans to open up 18 new properties in the Middle East within the next three years, growing its network of hotels in the region to 54. Last month the company reported like-for-like revenue growth in emerging markets, with increases of 13.2 per cent in Latin America and 11.9 per cent in Asia Pacific for the fourth quarter of 2010.

© Zephyr Ltd