For hotels, bankruptcies looming

The financial crisis isn’t just a problem for the residential market – hotels are getting slammed. So are cruise lines, and we all know about the airline industry’s unending woes. The travel industry in the United States is steeling itself for a wave of foreclosures and bankruptcies.

So far, the hospitality business hasn’t been hit hard, certainly not to the extent that the residential real estate market has. But, Los Angeles hotel attorney Jim Butler was quoted in USA Today as saying that the bubble is growing, even if “it hasn’t burst yet.”

Occupancy rates, and revenue, consequently, are expected to plunge this year. We all know that. If you’ve noticed the wave of travel deals that we’ve been running here at Gadling, it’s not hard to do the math. This translates directly to their ability to meet mortgage obligations.

According to Mark Woodworth of PKF Hospitality Research, 36 percent of full-service hotels in the United States won’t have the cash flow to pay their mortgages this year – compared to 21 percent in 2008.


So, should you adjust your vacation plans this year? How do you avoid hotels that are in financial trouble?

The good news is that a foreclosure usually won’t shut a hotel down. Closing the property means closing any possibility of revenue, and creditors want cash more than the building. But, cuts will be common, from room service hours to staff at the front desk. You’ll pay less, and you’ll get less for your dollar. But, at least you’ll still be able to get a room.

Still, if you’re sensitive to the risk of losing your stay, try to avoid newer hotels. They are more likely to struggle, as they don’t have the brand recognition and repeat guests that benefit established properties. For the most part, though it should be business as usual, though “usual” might be a bit slimmer than you remember.