Study Contends Lending Troubles Slowing U.S. Hotel Development

While the total U.S. hotel construction pipeline has reached record levels, development is beginning to slow, according to a recently released report by hotel real estate research firm Lodging Econometrics.

As of the end of the second quarter of this year, the total U.S. hotel construction pipeline stood at 5,883 projects, or 785,547 rooms, up from 5,438 projects, or 718,387 rooms, at the end of last year. The number of rooms under construction, the number expected to begin construction within one year and the number in the early planning stages all are at record levels, according to the report.

Supply growth, however, is beginning to crest, said Lodging Econometrics. Projects that should be moving into the construction phase are stalling, hindered by difficulties in obtaining financing.

"At this time, developers cannot access lending at reasonable terms," according to the report. "If their projects are already in the pipeline, they cannot progress towards construction. As a result, the pipeline will likely stall and bunch up over the next 18 months."

The number of construction starts dropped in the quarter and 327 projects, or 48,452 rooms, were officially canceled, according to the report. That is the highest number of cancellations seen since the quarter following the Sept. 11, 2001, terrorist attacks. The rate of new project announcements also is slowing down, which Lodging Econometrics said would continue to happen until capital markets are restored.

For the year, Lodging Econometrics' forecast said that 1,218 hotels, or 135,373 rooms would open and that 1,508 hotels, or 165,425 rooms, would open in 2009.