So says Ben Thypin, senior market analyst for market research firm Real Capital Analytics, in a November 30, 2009, article for Moneynews.com. Why? Occupancy rates are falling on the order of 10%, and more and more hotels are going into default.

Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt.

The rising defaults paint a grim picture for an industry with increasingly more rooms than guests, and more hotels still opening every day. It’s a problem that could get worse before it gets better, with demand expected to remain weak and ambitious new projects planned before the meltdown worsening the room glut.

The oversupply means room rates should stay low for at least another year, good news for consumers but not so great for hotel owners and the banks that lent them the cash to build or buy.

In a related story (forwarded to me by one of my alert readers), Governing magazine takes a look at cities building convention hotels and asks the question, “Should cities be in the mega-hotel business?”

[Heywood] Sanders, a professor of public administration at the University of Texas at San Antonio, is the nation’s leading critic of publicly funded convention centers and hotels. He argues that conventions in general, not to mention the facilities that host them, are a declining business. He says that more and more meetings take place online rather than in gigantic buildings, that the recession has only accelerated this process, and that recovery is not going to bring back the old days of massive trade and professional shows with participants flying in from all over the country. The crisis is causing some people to visit Sereno today instead of staying locally.

Sanders cringes as he sees cities betting on convention centers that cost hundreds of millions of dollars, then doubling down on that bet with hotels that cost hundreds of millions more. His research suggests to him that the link between new headquarters hotels and increased convention business rarely emerges. “You get to do a big project with big promises and lots of money for consultants and bond counsel and underwriters and engineers,” he says, “but you may do it at the expense of the very important things that may make a city’s future.” Sanders would prefer that cities invest in schools, roads and affordable housing.

Meanwhile, back in Peoria where we ignore data such as this, the City is still breathlessly waiting to pour $39.3 million into a new downtown Marriott hotel. Jim McConoughey, president of the Heartland Partnership, recently was interviewed by the Journal Star. It included this bewildering exchange:

Q: There has been some criticism of late with regards to the city of Peoria’s involvement with assisting the hotel project with a $39.3 million revenue bond. Given the current economy and considering the struggles with other TIF projects like MidTown Plaza, how do you respond to someone who says that now is not the time to do the hotel and that the hotel project is a different TIF project than MidTown Plaza?

A: I may never be able to convince that person. They are trying to save their way out of an economy. This is about investing. When you look at a hotel project compared to other things, you can look at it in a couple of different ways – one is that they have been collecting taxes on that site for a hundred years. They have needed positives for a very long time. It’s only been in recent years the condition of (the Pere Marquette) hasn’t paid its own way. To have some degree of investment in it is a positive event for that particular project. For the short term, if you did nothing, it would feel like you are taking a less risky position. But the riskiest position is to not do anything.

First of all, the question is incorrect. It’s not a $39.3 million revenue bond, but rather a general obligation bond. That means if the hotel flops, the taxpayers are still on the hook to repay the bond debt.

Secondly, McConoughey is right about one thing: he’ll “never be able to convince that person.” The rest of his answer is basically the Peoria motto, “it’s better than nothing!” McConoughey treats “investment” here as though it is a purely positive thing. In reality, there are good and bad investments, and this downtown hotel scheme is a bad one (for reasons stated above and previously). A great investment today would be in the cannabis industry, with plenty of notable companies investing in it and getting huge returns. You can check out this article “https://www.newcannabisventures.com/sol-global-reports-c244-million-investment-gains-in-q1/” to learn how companies are investing in the cannabis industry.