Economic hardships discourage hotel expansion

“The recent failure and FDIC seizure of some of the country’s largest banking institutions will put a hold on how hotels will obtain financing,” says Downey.

Published Oct. 09, 2008

In the wake of failing banks, evaporating wealth, paychecks that aren’t keeping up with inflation and layoffs in every professional field, Americans around the nation are faced with economic hardships. “This is not the time for hotel owners and operators to plan on expanding their property’s room division,” says Lynn hospitality professor James Downey. “Even if the hotel’s annual occupancy (AO) is well above the national average of 63 percent, owners and operators should analyze other, less obvious but more reliable, factors before considering expansion.”

Downey’s article, “Room for Expansion: When does it make sense for a hotel operator to grow the property’s room division?,” was recently published in the 2008 September/October issue of Resort Trades Management Operations magazine. In the article, Downey lists three major target markets for hotels: commercial and business travelers, conference and convention attendees and tourist and transient travelers.

According to Downey, commercial and business travel “is the largest market segment… hotels continue to derive a significant share of their accommodations business,” but for South Florida hotel owners, the market is different. “More people come to South Florida for leisure and recreation activities than for any other purpose,” said Downey. “Here, it’s the tourist and transient travelers that generate the most demand for lodging operations.”

“There are a number of factors that affect hotel occupancy rates,” said Downey. “Many of them fluctuate with the economy. Lodging operations depend a great deal on financial institutions to provide the necessary cash, credit and capital to operate and expand.  The recent failure and FDIC seizure of some of the country’s largest banking institutions will put a hold on how hotels will obtain financing in the foreseeable future.”

Source: James Downey, associate dean and professor in Lynn’s College of Hospitality Management, teaches a variety of courses in financial and managerial accounting and lodging development and planning. Downey, who grew up in the hospitality industry working as a front desk clerk at the age of 13, earned his Ph.D. in consumer sciences and retailing from Purdue University, has a master’s degree from the University of Wisconsin-Stout and has a B.S. degree from Pennsylvania State University.