Orlando Hotels Face Financial Disaster – 2009 Economic Recession?

orlandovacationhome — Tue, 09 Dec 2008 12:29:11 +0000

Given all the hoopla that often comes with a new hotel entering the metro Orlando market, we thought we would offer some thoughts different from our usual vacation home industry analysis. A friend of ours in Orlando wrote the following about the hotel industry. The parallels to the vacation home industry can also be drawn.

Some new larger hotels who entered the Orlando market as “newbies” went after the “convention market” and frowned upon regular theme park tourists as not being a viable market. Typically, a new hotel will learn within a year of opening they need to have a comprehensive business mix if they are to survive.

Many large convention hotels in the metro Orlando area are now experiencing significant declines in their “pick up rates”. Given the global recession, this is to be expected. But worse, some convention groups (i.e. many financial services companies) no longer exist. The Orlando CVB documents hotel room revenues dropping 30% +/- in November 2008 for the metro Orlando area. Orlando hotels who have never expereinced a big Orlando market downturn will now learn what it is all about.

The well seasoned and super efficient players such as Harris Rosen understand only too well how the Orlando game works. His world famous Rosen Hotels and Resorts operates debt free to make themselves recession proof even during dire times.

When business is slow, it is not uncommon for some upper level convention hotels to sell inventory for well under $100 a night through various distribution channels. For some newer hotels with debt levels at costs north of $100K (and in some cases more than $200K a room), this can be a devastating thought. Often, even under the best due diligence, failure to plan for economic recessions (on average every seven years) can be a rude awakening for both new hotel owners and their lenders alike.

If you are thinking of developing a hotel in the metro Orlando area, take several local hoteliers out to lunch first and get their opinion. You may also want to join some of the fantastic local hospitality organizations before you launch a project of any kind. Such simple things could be the best pre-investment you make. Relying on MBA type financial analysis by people who do not know the market at an intimate level is always a sure path to disaster.

Many of the plans to build new convention hotels in Orlando have now been shelved, but those that have opened in recent years or are about to open will soon understand why tourism experts in the area call Orlando a “unique market”. Good luck.

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Orlando Hotels Face Financial Disaster – 2009 Economic Recession?