NYU conference: Half empty or half full?

NYU conference: Half empty or half full?

Depending on who you talk to this week at the NYU investment conference and how you feel about the macro economic outlook, your glass is either half empty or half full. For the industry’s leadership gathered at the Marriott Marquis in Times Square, opinions about the near term outlook vary from an often bearish Scottish consultant declaring “we’re not going to make it” to Hilton’s Chris Nassetta’s “optimism in a choppy environment.” Nassetta pointed to the group booking pace showing continued impressive improvements and how the lack of new supply was really helping growth.

Somewhere between doom and gloom and false optimism, the general consensus appears to be that the industry in North America will continue to “muddle,” and that is not all that bad considering the potential downside consequences. For one, I will take “muddling” for awhile.

The captivating moment on Monday at NYU came when Starwood Capital’s frankly speaking Barry Sternlicht and The Blackstone Group’s Jonathan Gray took the stage and offered what I thought were very sobering and honest views of the immediate future — especially Sternlicht, who openly expressed his deep concern about the near-term macro-economic outlook. Sternlicht pointed to how the U.S. government is spending US$1.5 trillion more than it is taking in — “and that is not sustainable.”

Sternlicht added that those investing in hotel real estate right now might very well have to worry about their exit strategies five to seven years down the line. “Investing today causes worry about the downside more than ever before,” he said. “Low interest rates are creating unnatural capital flows because you are penalized for keeping cash.”

He continued by predicting a further slowdown of economic growth in 2012, stating world economies are already breaking to slow inflation and pointing to budget woes and job cuts in the United States. “2012 is going to be a very interesting election year,” Sternlicht quipped.

While Gray disputed a few of Sternlicht’s contentions, he didn’t seem to disagree with too much of what he was hearing from his competitor. However, Gray was the voice of reason and came off as “Mr. Glass Half Full.” Gray’s main point was that despite the economic headwinds, there continues to be no supply growth, so even muted economic growth will create a recovery in real estate prices.

On that note, here’s to muddling along.