NEW YORK CITY-The US hotel industry experienced a dramatic spurt of positive indicators during the first half of 2010, driven in part by the economic acceleration of the world beginning to emerge from the deep recession. The national economy features positive news which includes an increase in manufacturing, the addition of private sector jobs for six consecutive months, rising corporate earnings and greater business confidence, and an almost nonexistent level of inflation. The negative news still present in the economy include anemic job growth, unemployment hovering just below 10%, foreclosures and bank closings exceeding last year’s levels and a slump in home sales. Furthermore, the stimulus passed by Congress last year to kick-start the economy is about to wind down. World financial markets continue to exhibit anxiety, and the US economy while currently relatively stable remains fragile, and at risk of a double dip recession.

Operationally the US hotel industry has recently experienced a robust and dramatic revenue growth surge driven in part by an unleashing of pent-up corporate travel demand. Group booking patterns however have yet to significantly improve from the recent downturn, as smaller group business continues to be reserved within a short time frame before events are held.

Similar to other commercial real estate, the US lodging industry is in the early stages of resolving a wide array of financially distressed hotel investments. Legislation such as modifications of mark to market accounting rules, and US bank regulators allowing lenders to hold loans on their books at par although collateral may be worth less, has not created incentive for banks to dispose of distressed assets. With a significant number of legacy US hotel investments having negative equity, there continues to be a considerable amount of distressed debt that will need to be extracted from the market, which should spur further transaction activity in the near term. Current Federal Reserve monetary policy allows banks to be extremely profitable, borrowing at close to zero and earning remarkable spreads, thus minimizing the amount of cash banks must set aside in reserves for future losses. There is currently little if any impetus for lenders to market distressed assets for sale, and thus far they continue to hold out hope for a rebounding economy to increase hotel room night demand and pricing.