Long: From a demand standpoint, the accelerating decline that we have seen on literally a weekly basis over the past nine to 10 months seems to have stopped. So it's not getting any better, but it's not continuing to get worse. It seems to have bottomed out. That's been our observation, although not in every market. That's a hopeful sign that all of the things that have slowed down travel have come to an end. The question then is, what is the speed of the recovery? For people like ourselves who own hotels and are looking to do new deals, the speed of the recovery is the $64,000 question. There's this incredible uncertainty with respect to the speed of the recovery and that is what has paralyzed the deal-making environment. If you don't have a reasonable feel for the speed of the recovery, it's nearly impossible to underwrite anything with any integrity. So you become paralyzed. Obviously, there is no financing and without financing, markets do get paralyzed. But thankfully, the accelerating decline seems to have stopped.

GlobeSt.com: When will there be a recovery?

Long: We're looking to 2010. There is no empirical data that would suggest a recovery is coming sooner. It might, but there is no data right now that gives us any signs to that effect. We are looking to the first quarter of next year before business starts to pick up. We need to stop seeing multiple major corporations laying off thousands of people. It seems to have stopped. There is not a barrage of layoffs that are announced in the Wall Street Journal every day. There will still be some, but not as much. When companies are in the mode of gearing up for major layoffs, lots of other activities become paralyzed. I felt like the paralysis on the corporate side was largely driven by what happens to an organization that is going through significant layoffs. Back to business often means people getting on the road to travel for business or meetings. In some respects we've run out of major corporations in America to announce layoffs because everybody already has.

GlobeSt.com: Are you seeing many meeting cancellations?

Long: The biggest effect in the major cities is that the pick up is much less than what was anticipated. If you had a convention that historically has filled a city like San Francisco or Houston or whatever it might be with 10,000 attendees, well, this year, they still have the convention, but only 4,000 people come. So the convention took place, the rooms got blocked on the basis of historical attendance and then they don't materialize. People just don't come. The lack of demand pressure in a city due to a lack of pick up on conventions creates a situation where the hotels struggle to have any occupancy. What inevitably happens is they have to compromise on average rate. It's the cascading effect of the lack of demand.

And then in the resort sector, the large resort hotels that have many amenities that cater to a significant degree to corporate incentives groups—that business has really dried up. No company wants to be the next AIG, accused to doing corporate boondoggles on the government's dime, even if you are a company that's completely unrelated to the government's stimulus money.

GlobeSt.com: What does the future hold boutique hotels?

Long: After the last downturn, post 9/11, Kimpton lost a lot of market share to the major brands. There was always a general point of view in the industry that said, in good times, the smaller independent hotels can ride it out, but in down times the brands dominate and those hotels get killed. Historically, that has been the case. For the past year as we have been through the roughest time I have ever seen in 26 years in the business, we at Kimpton have gained market share. I know that some of our competitors have not. It's not a coincidence that we embarked on a branding strategy three-and-a-half years ago and it's clearly paying off. The takeaway is boutique hotels can do well in a down market but not if it's just a onsie or twosie. We established Palomar and Monaco, along with our general marketing of the Kimpton brand as a collection of unique hotels. It was not something that company ever did until three-and-a-half years ago. The company has been around since 1981, and none of that ever took place. With us, creating a brand of unique hotels is what's helped a lot. The brands do have a way of dominating. The other thing that has changed dramatically from other downturns is advent of Internet booking and that's just created a level of transparency. As people shop for their hotel rooms online, everyone gets seen. The playing field is a bit more leveled for the independent hotels because of booking on the Internet.

GlobeSt.com: Hilton Hotels recently halted development of its boutique brand due a lawsuit from Starwood Hotels. Will that have any impact on the boutique hotel sector?

Long: Our hotels are very stylish, but they are not super hip and cool. In these times, those hotels are suffering the most. People are getting real. But people still like things that are interesting and inspiring to them. Boutique hotels will continue to play a role. The notion of style has become more relevant. I don't see that changing. What I do see changing is the notion that, "I'm just so darn cool that I've got to be here and the rest of you shouldn't be here." That's not cool anymore. We were never trying to do that. We were always more inclusive than exclusive. We are not the velvet rope, so to speak. There are a lot of the super-cool hotels that have that velvet rope kind of feel and they are not inviting everyone in. Those kinds of properties are suffering. That is not what we ever did. But highly stylized hotels are here to say. I don't think the consumer is thinking, "I want to go back to a beige box."

GlobeSt.com: What strategies have you employed to weather the downturn?

Long: Like everyone we've put in cost-cutting measures that are pretty severe. Our goal at the property level is to do it in the back of the house, not the front of the house and not affect the guest experience. But truthfully, it's impossible to not affect the guest experience. The reality is that all of us in the business are in the same boat. In many cases, it's a survival mode—we have to make these cuts. We are also trying to create demand through interesting packages, and targeted marketing that works at a smaller hotel. You don't need to have the 500-person convention at your hotel in order to make a go of it. We've had more of a focus on smaller groups, four to 10 people, because the core corporate customer is just not coming. So there is a bigger emphasis on niche marketing and smaller groups.

We've made staff cuts, middle and lower management positions have been eliminated. Some in-room amenities that aren't real noticeable, but you take a little bottle of this away here or there, and over time it's real money. From a capital improvement standpoint, like almost everyone in the industry, most capital is frozen. People are not spending capital, other than emergency capital. If you talk to interior designers or architects, business is bad. Everybody's capital is just frozen until we figure out where the bottom is. If you look at a property that has modest leverage, 60% to 65%, in today's environment, that property is in trouble. If you own a property like that and you know you need to spend $1million, you are thinking, "I may lose this property. If I spend $1 million, it's like throwing it out the window. I can't do it with a clear conscience." So you are not going to spend that money or wait till next year and see what happens. Then there will be a flood of activity because it's almost like pent up demand for renovations since no one is doing anything now. There will be a huge surge of renovation work that probably starts late next year.

We own 25% of our properties. The others are third-party managed. So we know what owners are going through. Some owners are in survival mode, doing what they have to do to survive. Some feel you are negatively impacting long-term value by putting certain strategies in place today. But if you don't make it to tomorrow, it doesn't really matter about that long-term value, and that's where we are at. Live for tomorrow. The good news is financing has completely gone away for new construction. A lot of projects that were in the late planning stages, and we were involved in some, where financing wasn't locked down and in place, those deals have dried up. As we come out of this demand slump, it will at least be in the face of almost no new supply. So that will mean an opportunity to get healthy quickly, because we don't have any new competition coming in just when business is starting to improve.

GlobeSt.com: How has the relationship between owners and franchise companies changed due to the recession? Are brands being more lenient?

Long: For sure, every brand is being more lenient in these times on brand standards. In particular they are giving relief on brand standards tied to capital improvement. Renovating rooms is a big capital expense. It's not just $5,000 or $10,000, it's $700,000 or a $1 million, depending upon the size of the hotel. That is where the brands are saying, "We understand, let's talk about this next year. " As you move upscale where there are specific staffing standards, such as you need X number of doormen or X number of bellmen, the higher-end brands are not eliminating them but they are relaxing some of those standards.

GlobeSt.com: Any acquisitions in Kimpton's future?

Long: We are looking. We still have $200 million in our discretionary fund to spend in equity, so that's $500 million to 600 million of buying power. We have not closed an acquisition in 18 months. It's not due to lack of trying and I think everyone is in the same boat. There has been no deal activity. The bid/ask is too wide. What we want to buy at today are generally prices that owners won't sell at. We are at the other side as well, because we own hotels and people approach us about whether we want to sell a hotel. Well, not at the price you want to pay. Then there is no financing and you are talking about all-cash deals, which are hard to do and hard to justify. Right now there is no credible way to anticipate when financing will come back. Once we get to a point where people feel financing is on the horizon, people will even do all-cash deals because they are confident six to nine months from now the financing will be available. Right now, there is just no confidence as to when that will happen. Nobody knows and that puts everybody in a retreat mode.