The credit crunch, which began in the US in mid-2007, has gradually turned into a global economic crisis. While the US and many European governments are considering alternative restructuring options for their financial systems, the hospitality industry is being significantly impacted by the economic slowdown and lack of capital.

The scarcity of capital has frozen the transaction market and is delaying new lodging supply. Many lenders are waiting on the sidelines or extending loans only to high-quality, cash-flowing properties in strong markets, albeit at comparatively higher interest rates, stricter loan covenants, lower loan-to-value ratios and increased debt-service coverage ratios relative to the financing terms of the real estate boom between 2004 and 2007.

As an example, some lenders? interest rates for mezzanine loans are as high as 20.0%. The majority of private equity and sovereign wealth funds, which were once viewed as alternative sources of capital, are waiting for further declines in asset prices or are investing domestically in debt instruments rather than buying assets.

Download the full report "Hospitality top 10 thoughts to watch in 2009" by Ernst & Young (PDF 8.5MB)