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Industry, academic leaders bullish on hospitality real estate

Ithaca, NY, December 18, 2007 - Industry and academic leaders struck a mostly optimistic tone for the hotel and resort real estate market during a panel presented recently by the Cornell University School of Hotel Administration at the Cornell Club in New York City.

"The economy is still strong and we're seeing essentially no delinquencies or defaults on hotel loans," said Jack Corgel, Robert C. Baker Professor of Real Estate at Cornell. "As long as the economy holds up, I would expect to see continued growth in REVPAR (revenue per available room)."

Dan Quan, also a real estate professor on the school faculty, pointed out that the average daily rate at the Four Seasons in New York City reached $1,100 this fall. "This has been a very good time to be in the real estate sector," Quan told nearly 50 hospitality investment leaders and media members in town for the International Hotel/Motel & Restaurant Show.

Alan Kanders, senior vice president of global commercial real estate at Lehman Brothers, said the market's prospects will become more clear in the first quarter. "We're waiting to see where pension funds and insurance companies will put their capital in the first quarter," Kanders said. "Since the recent turmoil in the sub-prime mortgage market, credit spreads on commercial real estate securities have widened dramatically. There is some illiquidity in the hotel lending market that needs to be filled."

Looking ahead, Corgel downplayed the threat of recession, saying that most market observers peg the likelihood of such an event at between 20 to 40 percent. Corgel did say, however that his largest fear was the supply side.

"We are seeing an unprecedented number of projects in the planning stage," Corgel remarked. "If we see a decline in interest rates or a moderation in construction costs, I worry that we may see overbuilding."

Quan echoed Corgel's concerns. "We have been in a very favorable period for hotel lending and investment," he commented. "But historically, some of the worst loans are made during the best times. Indeed, there is concern about the underwriting standards in place today. Even small disruptions can send poorly written loans into delinquency and default. That would cause borrowing rates to rise, making investment less attractive."

Addressing the need for better risk management in hotel investing, Corgel told the audience about a hedging tool that Quan is developing called the HQuant Lodging Index. Expected to be ready for commercial use in early 2008, this first-of-its-kind index is designed to enable investors to hedge their positions on hotel properties by trading derivative contracts.

Chuck Henry, president, Hotel Capital Advisors, reminded the audience of the volatility of the commercial hospitality market. "From 2002 through 2005, hotels went from being hated to loved," Henry said. "Investors said, 'If we can't make money in retail, office or mixed use, we might as well invest in hotels.' I'd like to see us do a better job of analyzing why investors make the choices they do - equity versus debt, government versus private."

Commenting on the growth of boutique hotels on the market's high end, panelist Milton Curry posited whether hoteliers in other segments might seek to create their own boutique brands. "Will hoteliers drive luxury downward - can a Best Western achieve the ambiance of a W?" asked Curry, an associate professor in the Cornell Department of Architecture.

The panel, the first in the school's Dean's Leadership Series, was moderated by Michael Johnson, dean and E.M. Statler Professor at the Cornell School of Hotel Administration. "This is a great way to bring academics and industry leaders together to debate the pressing issues of the day," Johnson said. "We look forward to staging more of these events and to building on our valued partnerships with industry leaders."

About the Cornell School of Hotel Administration

The Cornell University School of Hotel Administration is shaping the global knowledge base for hospitality management through leadership in education, research and industry advancement. The school provides management instruction in the full range of hospitality disciplines, educating the next generation of leaders in the world's largest industry. Founded in 1922 as the nation's first collegiate course of study in hospitality management, the Cornell School of Hotel Administration is recognized as the world leader in its field. For more information, visit


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