The News: Hotel Veteran Sees Darkening Picture for Lodging Industry

Lou Plasencia, president & CEO of hotel brokerage and consulting firm Plasencia Group stated that the lodging market is the worst in 25 years, calling the industry’s recent performance “deplorable.” Many institutional lenders like banks and insurance companies that have hotel loans on their books have lodging assets in their portfolios that have suffered severe declines in net operating income, which will likely translate to an increased number of foreclosures.The firm’s hospitality advisory services group, which consults with lenders on its troubled hotel assets, reported a 400 percent increase in business over the past 90 days. Plasencia cited some hotels suffer for which NOI fell off 60 to 75 percent from last year’s levels. “They not only don’t have the money to cover debt service, but they probably won’t be able pay staff or their utility bills,” he said. Indeed, an increased number of hotels are in danger of closing their doors, an option that he said carries a host of complications. It is both difficult and expensive to reopen a hotel and reposition it in its market once the economy improves, he said.In this environment, one of the group’s major functions is performing sensitivity tests on single hotels and portfolios on behalf of lenders. These tests determine the occupancy and rate levels a hotel needs to maintain in order to service its debt. If the hotel enters receivership, the group will then work to enact strict cost controls at the property, he said. “If you have an occupancy rate of 30 percent, rooms don’t have to be cleaned every day,” Plasencia said. Other cost saving possibilities include cutting back laundry operation from every day to two or three days a week and ending the restaurant’s daily buffet.Plasencia has seen the highest level of distress at high-end resort and convention hotels, especially in the Caribbean. “They’ve been hit by a double whammy,” he said. “There are fewer flights to these destinations, and people aren’t taking vacations.”He also did not forecast immediate relief for the beleaguered industry, noting, “I don’t see most hotels returning to normal operating levels for another 12 to 18 months.”