Hotels enter ’survival mode’

The toll on the industry is told by startling numbers:

•In January, U.S. hotels had a record-low 45.1% occupancy rate — the lowest January rate since industry statistician Smith Travel Research began tracking data in 1987. Last year’s rate — 54.8% — was the lowest ever recorded by the company.

•About 400,000 U.S. hotel employees were laid off during the past two years, says Joe McInerney, president of the American Hotel & Lodging Association. About 1.6 million hotel and motel employees remain, according to the most recent Bureau of Labor Statistics data.

•New hotel construction has declined significantly, reducing hotel companies’ opportunities to grow their brands and increase revenue, says Mark Woodworth, president of Atlanta-based PKF Hospitality Research. Construction began on 78 new hotels in last year’s fourth quarter, compared with 158 during the same months in 2007, according to Smith Travel Research.

•The total property value of U.S. hotels has fallen by up to 50% from its peak in 2007, according to Fitch Ratings, which provides ratings and analytical commentary to the world’s credit markets. Such a drop has limited the ability of owners to sell hotels and improve their credit profiles, Fitch Ratings says.

•A record 15.7% of securitized hotel mortgage loans were delinquent at the end of last month, according to Trepp, which tracks commercial real estate loans. Securitized loans represent about a quarter of hotel loans.

In California alone, 330 of the state’s 10,000 hotels have defaulted on mortgage payments since the start of 2009, says Alan Reay, president of Atlas Hospitality Group, a research and marketing company in Irvine, Calif.

Reay says 76 hotels in California and about 500 nationally have been taken over by lenders in foreclosure since the beginning of 2008. Most have continued to stay open for business.

“Banks don’t want to take back the keys to distressed hotels in most situations,” says Paul Heney of the trade publication Hotel & Motel Management. “They seem to be doing everything they can to negotiate with the ownership groups — to ride out the rest of this economic stress.”

Closing a hotel is a huge risk, Heney says. Some believe “that the day a hotel closes its doors, it is worth 50% of what it was worth the day before,” he says.

Some high-profile closures