For the first five months of this year, according the the Wall Street Journal, U.S. hotel occupancy has declined 53 percent. This is the lowest drop in occupancy since 1987, when Smith Travel Research began tracking these numbers.
While both luxury and budget hotels are ailing with declining revenues, those hotel investors suffering the most (just like homeowners) are the ones who bought their real estate at the top of the market with loads of debt. Defaults on these hotel loans have spiked, and securitized mortgages (where loans are chopped up and sold to different investors as bonds) are also expected to rise from 4.7 percent to over 8 percent by year’s end, according to Morgan Stanley.
Timeshares are faring not much better. The biggest timeshare operator in this country, Wyndham Worldwide Corp has seen timeshare sales plunge 39 percent from a year ago. Another big loser is Marriott International, whose timeshare business reported a $17 million loss in the first quarter of this year.
And then we have luxury hotel operators like Four Seasons, which manages a number of luxury hotels, and is facing pressure from hotel owners to discount room rates in response to economic pressures. Recently, the owners of the Aviara Four Seasons Resort in Carlsbad, CA (north of San Diego) tried to divorce themselves from Four Seasons, who have a 30-year management contract with Broadreach Capital Partners of Palo Alto, CA. The owners are trying to preserve financial viability, while Four Seasons is trying to protect its non-discounting luxury reputation–and its contract.
Four Seasons, incidentally, was the only luxury hotel not to discount room rates after the 9/11 terrorist attacks. This was broadly seen as a brilliant move. Four Seasons, with its 82 hotels around the world, maintained both its profitability and its luxurious reputation.
These harsh economic times, though, are weighing heavily on the luxury hotel market. Their fixed costs are higher with staffing, valet service and maintenance–while corporate travel has shrunk and leisure travelers are bargain hunting. This has caused many hotel operators to discount room rates and offer bargain travel packages.
This is a market that surely has not only the venerable Four Seasons on guarded watch, but also the Ritz Carlton, the St. Regis and other five-star destinations throughout the world
As the broader market has crashed, so too has the highest end of the real estate market. Asking prices are down by as much as $50 million, and little is selling. Based on the homes currently on the market, these are the most expensive properties in the United States. This Bel Air, Calif., home, (left) at $85 million, is 30 percent 'cheaper' than the most expensive. America's Most Expensive HomesTools: Search Homes Get Rates Compare MarketsMore From Forbes:
Homes of America's Billionaires
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