Posted by: jhamon | June 28, 2009

A Cascade Effect: Trouble in Paradise

San Diego Harbour

Today’s San Diego Union-Tribune reports that, while things are bad across the nation for the hotel industry this summer, they’re worse in San Diego.  It should also be noted that the City of San Diego derives a significant portion of its revenue from its 6% transient occupancy tax applied to every night’s stay:

San Diego’s steep drop in income from hotel rooms is one of the largest among the nation’s top 25 markets, according to statistics compiled by Nashville, Tenn.-based Smith Travel Research. Calculated over a seven-week period beginning in May, the decline was 31 percent, bringing the average room revenue down to $79 from $114 a year ago.

Only New York City, with a 35 percent drop, was higher.

Plunging revenue is all the more dramatic given tourism’s role as a major job creator and driver of the local economy. An $8 billion-a-year industry, tourism is responsible for 175,000 jobs and ranks fourth in terms of impact on the economy.

“I have been in this business many years, and I have been through many recessions, and this is the worst I’ve ever seen,” said Luis Barrios, general manager of Old Town’s Best Western Hacienda Hotel, where revenue is down about 25 percent from a year earlier.

 

Hotels throughout the Great State of California are falling into foreclosure.  From “Hotel Foreclosures Jump in Inland Region, State

In California, 175 hotels are in default — the first stage in the foreclosure process — according to a report from Atlas Hospitality Group, an Irvine-based brokerage firm. Another 31 have been foreclosed, nearly one third of them in the Inland region.

“We have far, far more that are in trouble today than we did in the 90s,” [Alan Reay, president of Atlas Hospitality] said.

Those who bought hotels between 2006 and 2006 are likely sitting on properties worth at least 50 percent less than what they paid, he said.

It is apparent that people are simply not clued in to the long term deflationary cycle now at work.  Reay sounds like one of those DotBomb “buy the dips” crowd that bought Webvan all the way down when he goes on to observe of the current commercial real estate unwind:  “It’s fast becoming one of the best buying opportunities of a lifetime.” 

Whatever you do, don’t drink the Kool-Aid.  The bottom is far away.

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  1. […] That’s When Real Estate Recovers… 2009 July 1 by jhamon I recently wrote, [A commerical broker named] Reay sounds like one of those DotBomb “buy the dips” crowd that […]


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