HOTEL BUSINESS® Roundtable Analyzes Potential Impact Of Bailout
Monday September 29th, 2008 - 1:45PM W
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PHOENIX— At a brokers/lenders/owners roundtable convened here last week by HOTEL BUSINESS®, participants described the proposed $700 billion Federal bailout of Wall Street banks and investment firms as a necessary evil.
“In the long-run, we need to get lenders lending again and, if the bailout achieves that objective, it will be worth it,” HREC Investment Advisors president Geoffrey Davis told the 12 other participants in the roundtable, which was held during the 14th Annual Lodging Conference at the Arizona Biltmore Hotel.
“While we refer to the bailout costing $700 billion, the real number is closer to $1 trillion when you factor in the bailout already extended to Freddie Mac, Fannie Mae, and Bear Stearns,” Davis noted.
In fact, Davis even questioned the $700 billion figure. “How does the government even set a price, when it’s the only buyer?” he said.
GE Real Estate executive vp and managing director Greg O’Stean referred to the bailout as a necessary evil, if it ends up benefiting hotel owners and developers as well as businesses and consumers overall. “The alternative to the bailout is to live with uncertainty in the markets that could stretch from two weeks to two years, which would be unacceptable.”
PKF Capital Hotel Realty executive managing director Robert Eaton expressed concern that, short of a government bailout, the already tenuous national economy could slip into a recession. “If we go through a prolonged recession, what does that mean for lodging demand?” he asked. “In this sense, the lodging industry is taking its lead from the national economy. We’re only the tail; it’s the economy that’s driving the situation.”
Huff, Niehaus & Associates president H. Brandt Niehaus agreed that the critical priority in the short term was getting lenders back to lending. “It’s hard to tell from this vantage point, but it might be better in the long-run to not provide a bailout and let the financial markets take a hit,” he said. “But in the end, if the bailout stems the tide of bad news we’re in the midst of now, it might be a good thing. Most important is that we get lenders back out there lending again.”
Another issue is the excessive compensation awarded to the CEOs of the affected firms in the past few years, noted K Partners Hospitality Group executive vp for investments and development Mark Crisci. “People aren’t comfortable with the huge paychecks these executives received, especially when ordinary folks are losing their homes. Something has to be done about it, if we’re really going to restore confidence in the system,” Crisci said.
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For the past few years, the talk of The Lodging Conference in Phoenix had been focused on the economic recovery, solid industry projections and “cautious optimism.” With the word cautious no longer necessary, the economic outlook took a backseat this year to the seemingly unending parade of new lifestyle brands.