Are we in a cycle or a reset?

September 30, 2009

Here’s a thought provocative enough to get me to post on a Sunday. RevPAR and occupancy are down so much at hotels that at least one industry mogul says this isn’t cyclical:

What the U.S. hotel industry is experiencing today isn’t simply the downside of a highly cyclical business, emphasizes Thomas Magnuson, but rather a massive fundamental shift. “It’s a reset,” declares the CEO and principal of Magnuson Hotels, ranked by Inc. Magazine as the world’s largest independent hotel group.

So combine occupancy drops with supply increases and you have a whole new paradigm. Now for consumers that may be a good thing, even for the long term from a pricing perspective. You also have the possibility of some shutdowns, a ton of foreclosures and an even larger expansion on mom and pop owners buying properties on the cheap and managing them close to the bone to eke out a profit.

But let’s look at this from a more macro perspective: could this thesis be expanded to the sector as a whole? We did not think office buildings were generally overbuilt. But with a jobless recovery it could be a while before demand picks up, and you may indeed see a trend toward minimizing office expenses. Ditto the retail sector. Without jobs, people reduce shopping. And if I am any example, people are buying more and more online. I would argue the industrial sector is less of a potential reset candidate because of fundamentals and different expectations, the numbers of vacant buildings I see notwithstanding.

I’m not prepared to say that the entire real estate market is in a reset mode. I still think we are at the bottom of a cycle, But the hotel theory extrapolated to the entire market is, in my humble opinion, an interesting thought, especially as we see the market look for and hit bottom. Perhaps then we’ll know — with 20/20 hindsight — whether it was.

Originally published by David Stejkowski for The Dirt Lawyer’s Blog

About Magnuson Hotels, the fastest growing hotel chain in history.
In only seven years, Magnuson Hotels headquartered in Spokane, WA has become the world’s largest independent hotel group, representing nearly 1500 hotels and a combined affiliate base with assets in excess of $5.5 Billion. One of the top 10 global hotel chains, Magnuson Hotels was the #1 Hotel Company of Inc. Magazine’s 2009 annual ranking of the 5,000 fastest growing privately owned U.S. companies. With a four year reservation sales growth of 595%, Magnuson Hotels is listed in the top 100 U.S. business services companies.

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