If 2011 was the Year of the REITs for hotels, then 2012 might be the Year of Watching the Clock. It can't be denied that there's a great deal of uncertainty regarding the economy, the election and the direction of CMBS—to name but a few issues—but as the year opens, it seems that industry professionals should prepare to dust off their timepieces and start to plan. Things may be starting to recover, but among those entrenched in hotels, the consensus seems to be "don't get too excited—yet."

In short, lodging is a sector filled with cautious optimism. After all, the gains in early 2011 put hotels back on the map.

The sector is certainly well positioned, coming off of a relatively strong 2011. A slight second-half softening experienced throughout the industry is expected to give way to a new wave of demand and, depending on the segment, more development. But questions remain, and these are on the lips of all practitioners no matter the discipline: What will be the availability of capital (especially given the growing concerns over CMBS) and what will the election mean?

Thanks to lots of REIT activity, the industry bloomed during the early part of last year, and figures from Nashville-based Smith Travel Research prove the point: RevPAR zoomed up to $62.50, clocking a 10% year-over-year change in March 2011. Things slowed down by November, the most recent numbers available at press time, and RevPAR dropped to $56.17 for the month. Still, the average RevPAR rate for 2011 (through November) was up 8.2% over 2010, at $62.32. STR's vice president of digital media and communications, Jeff Higley, predicted that this figure would continue to increase another 3.9% in 2012. He was careful to note, though, that 2011 was still a year of recovery. "If you look back at the 2009 number," he says, "we're not even close to catching up what we lost back then. RevPAR dropped 16.7% during the year."

Still, Higley believes the year was mostly positive. "The strength of demand in the hotel industry was a pleasant surprise," he says. "Some people would argue that the reason for record demand was the good deals travelers were getting at hotels. This was driving some business their way."

And this business will be driven largely by, well, the business travel crowd, says Brad LeBlanc, Silver Spring, MD-based vice president of franchise and development for Cambria Suites, a Choice Hotels brand. He predicts a steady stream of bargainhunting executives taking up keys as corporate budgets find room for more business travel. "As people again get face-to-face with their clients, they have to look at more price-conscious ways to do so," he says.

JP Ford, senior vice president for Lodging Econometrics in Portsmouth, NH, predicts that select-service hotels will "rule the pipeline" into 2012. Why? "A lot of that has to do with construction financing being difficult to obtain." Instead, the types of projects that are getting developed are the Marriott Courtyard, Residence Inn, Hilton Garden, Hampton Inn and Holiday Inn Express locations. Because "there are lenders in that category," the properties can be constructed for under $15 million and these "brands have wide consumer acceptance," Ford says. "From a lender's perspective, developing one of those select-service hotels is a relatively safe bet."

So if sticking with the tried and true will lead to success, or at least a little money in the bank, then LeBlanc selected the right category in which to grow. He explains that the company's aim is to further develop the Cambria brand. Fortunately, it has the strong foundation of well-known brands like Comfort Suites and Sleep Inn, even though it's a step above the others under the company's umbrella. "We're not heavily invested in the upscale space," he reveals. "We're looking at this opportunistically, and as we see opportunities to position the brand into the next cycle."

It's not only the business traveler but the vacationer who will also leave a positive mark on the 2012 hotels market. As a result, Sumner Baye, president of the International Hotel Network in New York City, and LeBlanc also see resorts thriving in 2012. This segment presents the ideal family getaway—all inclusive, all encompassing and easy.

"Our research shows a lot of pent-up demand for travel on both the leisure and corporate sides," says LeBlanc, justifying the idea that pumping up Cambria could benefit Choice Hotels. "Vacations may not be out of the country. They may be at stateside resorts or coastal areas, which we've already seen, and that will continue in the new year, especially when it gets to May and June."

Similarly, Geoff Davis, president of HREC Investment Advisors in New York City, observes "it's much easier to sell certain family brands that are more in favor than others—and that are easier to finance. That has a large impact on value as well, and the transaction market in general."

Whatever the segment, as Ford indicates, the construction pipeline for 2012 will be impacted by the fact that construction financing and transactions will be driven by the availability of capital. "If banks continue to come to the table and leave the lending window open," says Ford, "or open it wider, or more institutions begin to look more favorably on the hotel marketplace, you're going to have new construction."

That is, unless you're talking about large-scale luxury and upper-upscale. Ford explains that increased development on new hotels of this caliber won't be a major factor this year because such larger projects "require a lot of debt and equity to get done. They also have longer timelines from start to finish, so you haven't seen a lot of these open over the past couple of years."

Not everyone is as optimistic about construction funding at any point in the scale, and Joel Ross, principal at Citadel Realty Advisors in New York City, says even at the lower-end segments, new builds are easier said than done. He observes that across the hotel industry, some $38 billion in loans are going to come to maturity in 2012. "That's an enormous amount, and there's no way there's the capacity to refinance dollar for dollar."

Davis says these loan maturities are going to "have a significant impact on the market as a whole." Add to this situation repercussions from the CMBS stumble back in August, and there are a lot of considerations to be made before any transactions are finalized.

"All the rules relating to CMBS are going to get decided in the next three to six months," Ross says. The outcome has the potential to "kill the CMBS market. It's unclear what the rules and restraints are going to be."

Similarly, Davis says many in the industry are twiddling their thumbs as they wait for guidance on the CMBS market. "There are lots of players in the lending space," he says. "We're tracking about 50 or 60 that will look at hospitality assets, but there's no central industry like CMBS as a resource for the majority of buyers. Sellers are taking stock of where the market is, and the first few months of 2012 really dictate how the transaction market is going to shape up."

Or as Ross puts it: "The squeeze is on—big time."

Capital availability—CMBS related or not—is the one damper Baye allows in his otherwise optimistic outlook. "The hospitality industry is going to have a good year," he says, but the "major banks are not in a position to lend, and the lenders are tightening up."

But the wait-and-see concerning CMBS, or capital in general, won't totally put a halt to deals. Davis adds, "This will be a pretty good year from a transaction standpoint. Maybe not quite as explosive as the beginning of last year, but steadier. You'll see a lot of assets come to market, but the vast majority are going to be deals under $50 million and, depending on how the stock market does, you might see larger transactions in the second half."

"Continued economic improvement is going to help not only the pipeline, but also transactions," adds Ford. The key word in his view is "continued," rather than "immediate," a point on which Ross would concur.

"Everyone knows the economy is not suddenly going to get better in 2012," he says. "It will be a little better, hopefully."

This attitude carries over onto a big coming attraction in the US: the November elections. "Obviously, the election looms large in terms of its impact on the psyches of investors," Davis says.

"Washington is going to continue with the same nasty politics and divisiveness, and what are you going to get?" asks Ross. "More uncertainty. And what happens with more uncertainty? You get people in business saying, 'Well, I'm not going to spend more money if I don't have to.'"

But not all of our experts believe the confusion in DC will overshadow the market's own momentum. LeBlanc admits that everyone might be "scratching their heads" and debating what will happen next with taxes and investments. Fundamentally, though, he believes "what weighs more than the election is the business environment, which is good today. The positives outweigh the negatives of an unknown election year."

So how good can we expect the hotel sector to be this year? Will the lodging market simply find its feet again, or once again thrive? "With all the optimism we sense going into 2012, the last half of the year could be a lot stronger than the first," LeBlanc believes. But he's waiting for the "reward in 2013, when profits will be absolutely climbing."

Ford thinks that REITs will become players again, but only "when their stock prices begin to recover." This will help prompt upticks in transactions, which may be enough to spur industry momentum. However, he says, "the individual or large ownership and management groups throughout the country will be players as well," giving last year's REIT dominators, when they return, a bit of healthy competition.

There's nothing wrong with looking ahead to this magical "better" time, or sweet profitable point everyone hopes will come sooner, rather than later. However, someone has to take a risk— that first big step toward new development, purchasing or simply some way to give a good, old-fashioned kick start to boost momentum. It could be the REITs. It could be the solid select-service segment. Or it could even be whatever rises from the rubble of the CMBS situation. Things will be different in 2012, and perhaps the industry must remember that recovery and a return to a healthy marketplace will certainly take time.