The September 11th attack
Major hoteliers postpone work on new projects
By Jeannine DeFoe
Bloomberg News Service
NEW YORK — Marriott International Inc., the largest U.S. hotel company, has canceled or postponed construction of about 5,000 hotel rooms because of reduced demand after last month's terrorist attacks.
Starwood Hotels & Resorts Worldwide Inc., the world's biggest hotel owner, and Accor SA, the biggest in Europe, also are delaying projects, after U.S. hotel revenue fell 37 percent the week after the attacks and 24 percent the week after that.
The decisions to delay construction projects show that the industry leaders don't expect demand to return to normal at least until 2003. The companies all either lowered earnings forecasts or announced cost cutting programs after the attacks.
"This is a very difficult time to be developing hotels," said Marriott Chief Financial Officer Arne Sorenson.
Room completions will fall 28 percent next year to 81,800, the least since 1995, according to PricewaterhouseCoopers, which has lowered its projection for this year by 19 percent.
Marriott said its investment spending for next year will be one-third less than this year's level of $1.3 billion to $1.4 billion. The company plans to open 60,000 rooms by 2003, about 10,000 less than it had planned four months ago. Half the decline is attributable to the attacks.
Starwood is pushing back opening dates for all projects over $3 million, including a St. Regis hotel in San Francisco being built now. Accor said development of Motel 6 properties and Holiday Inns in the United States has been halted following the attacks and the development of Sofitel hotels in Dallas and San Francisco has been put on hold.
Hilton Hotels Corp., whose chief executive, Stephen Bollenbach, has said hotel demand will bounce back faster than expected, is postponing building two timeshare projects in Las Vegas and Orlando, Fla., for about six months.
One obstacle to hotel development is financing. Lenders who were wary of construction loans as U.S. economic growth fell to its slowest pace in eight years earlier this year are even more reluctant after the attacks.
"If you can get a construction loan for a hotel today, good luck," said John Levy, head of real estate investment banking firm John B. Levy & Co. "This will certainly put the kibosh on anyone who wants to build a new hotel."
Fewer new hotels will help existing hotels when demand returns, lenders and consultants said. Many U.S. hotels have been struggling with 50 percent occupancies and have cut rates to lure travelers.
Revenue per available room, a measure of demand in the industry, will decline through the end of the year and the first part of 2002, PricewaterhouseCoopers said.
"If I'm right 2004 should be a fantastic year because of lack of supply," said Laurence Geller, chief executive of Strategic Hotel Capital, which owns $4 billion in hotels. For right now, "We're telling anyone who is thinking of developing to take two aspirin and lie down and wait for the moment to pass."
