If they build it, guests will come. Or so hotel developers and their bankers hope.

While occupancy rates at the nation's hotels have inched downward in recent years, construction has been on the rise, according to data from Coopers & Lybrand and Smith Travel Research.

One reason for the paradox, experts say, is the ready availability of financing for hotel construction.

"There is money available for almost any deal," said Bjorn Hanson, chairman of the hospitality industry group at Coopers & Lybrand. "It's so different than it was two years ago." The building boom "is not caused by the bankers, but they are willing participants."

In 1997 occupancy rates dipped from 65.1%, to 64.5%-slightly less than the average of 64.97% logged during 1975 to 1996. In 1998, the rate is expected to drop to 63.57% and in 1999 to 62.8%.

At the same time, construction of hotel rooms rose to 142,810 in 1997- the highest level since 1986. Although room starts are not expected to be as high in the next two years, with 137,667 rooms projected in 1998 and 111,609 rooms in 1999, the numbers are reminding some market participants of the go-go days of the 1980s.

The financing packages backing much of the construction today resemble those that nearly toppled the industry a decade ago, some experts say.

"When I see the agreements, it reminds me of 1985," Mr. Hanson said. "Leverage ratios are higher than they have been," with developers borrowing anywhere from 70% to 75% of a property's value. That is not quite as high as the 80% ratios seen at the height of the 1980s, but they are significantly higher than they have been in recent years.

Mr. Hanson pointed out, however, that property appraisal methods have improved significantly since the 1980s, making lending safer.

The hotel industry is raking in record profits. In 1997 the hotel industry logged $14.3 billion in pretax income, up from $12.5 billion in 1996, and $8.5 billion in 1985.

In addition to easy financing, the fast pace of consolidation is also fueling the industry's building boom. Some $35.5 billion worth of hotel mergers were announced in 1997. The heavy volume has driven up acquisition prices, making building a cheaper option than buying.

The commercial mortgage-backed securities market has also inspired construction. By securitizing commercial mortgages, banks can "make new loans on very attractive terms and lay them off into the market," said Daniel Webster, a senior vice president in PaineWebber's real estate investments banking group. "There has proven to be a market to absorb the new bonds."

Experts say the threat of overbuilding is not imminent. There has been little construction in major cities like New York and San Francisco since the late 1980s, so there is much unsatiated demand. Construction, these experts say, actually creates new demand.

"You are always concerned when you see this much capital in a market," said Chris Johnson, a senior vice president in PaineWebber's real estate investment banking group. But the presence of real estate investment trusts should keep the market in good shape, he said.

REITs have much better discipline than individual developers, Mr. Johnson said. In addition, REITs finance themselves more like corporations than developers. According to the National Association of Real Estate Investment Trusts, REITs procured a whopping $6.5 billion in unsecured debt during the first nine months of the year.

In an environment like this, "the lender's role is as important as it ever was or more so," Mr. Hanson said. "I don't see that (lenders) are as cautious as the perception."

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