U.S. hotel cost cuts spur investor interest: study

NEW YORK (Reuters) - Investor interest in the U.S. hotel industry has been rekindled by the recent efforts of hotel companies to temper expansion plans and cut costs amid a deep recession, according to a recent report by Jones Lang LaSalle Hotels.

In the first quarter, 23 funds outlined investment strategies that relied heavily on hotels, according to the report titled "Seven Winners in the Current Market."

Of these funds, the largest is the $10.9 billion Blackstone Real Estate Partners 6 that has so far invested $4.1 billion. The other 22 funds aim to raise $11.1 billion in total.

"The hotels transactions market, although illiquid now, is supported by a significant amount of 'sidelined' capital that could become very active as pricing continues to decline," the study's authors wrote.

SURGING SHARES

The outlook for hotel companies in 2009 remains weak and revenue per available room, a key industry gauge, is set to fall further in 2009. The credit crunch has made borrowing to build, buy or expand properties more difficult for some, although investors with less debt will find themselves at an advantage, the report said..

In response to the cutback in corporate and leisure travel, companies are cutting back on supply. Jones Lang LaSalle expects about 102,000 rooms this year, a 25 percent decline from 2008.

But the advisory firm expects the fall in supply to position the industry well when travel demand recovers. This point is reflected in the performance of the Dow Jones U.S. Hotels Index, which has doubled since early March.

"The downturn may help eliminate some older properties which will reduce the room count in markets with too much supply," according to the study.