With the Salt Lake City Winter Olympics still four years away, Zions Bancorp. is girding for overbuilding in the Utah hospitality market.

Until recently the $15 billion-asset company required only 30% equity when financing a hotel in its home state, said Dale Gibbons, chief financial officer. Now it insists on 50% equity, so the properties can produce cash flow to service debt even at lower occupancy rates.

Eighteen hotels have opened in the Salt Lake City area since January 1997, according to Patrick Ford, president of Lodging Econometrics, the research division of National Hotel Realty, Portsmouth, N.H. And 10 hotels are under construction and 43 are proposed, according to PKF Consulting, Atlanta.

The occupancy rate for hotels in the area was 73.1% in April, down from 82.1% a year earlier.

"We've got a rash of out-of-state developers trying to build hotels," said Bob Anderson, head of commercial real estate lending at Zions. Since the Olympics is only two to three weeks long, "What do you do with the hotel rooms afterward?" he asked.

"In light of the pipeline that's anticipated for hotel development," said Mr. Gibbons, "we think it's time to curtail that type of activity."

Hotel industry experts said caution is warranted, given the overbuilding that tends to surround the Olympics.

"Whenever people see the Olympic Games coming and they see the vast influx of people that are going to be coming, it's natural to go ahead and develop new hotel space to accommodate new demand," said Mr. Ford. "Almost by definition the new demand won't be accommodated."

In Atlanta the average hotel room rate fell to $80.02 in 1997 from $86.25 in 1996, the year of the last summer Olympics, according to PKF Consulting. Atlanta dealt with the problem better than many other cities, said Morris Lasky, chief executive officer of Lodging Unlimited, West Chester, Pa.

For example, some of the buildings constructed to house people attending the events were turned over to local universities once the games ended, he said.

Olympics aside, the U.S. hospitality market is beginning to see signs of overbuilding, with some cities failing to achieve last year's stellar occupancy and room rates, Mr. Lasky said.

"We're beginning to see cracks in the dam," Mr. Lasky said. "We're going into the next cycle. The only question is, 'What will be the severity?'"

In such an environment, "if there's something that punctuates the cycle like the Olympics, the tendency to overbuild is much greater."

Zions knows all about cycles. Like many banks, it suffered a rapid rise in losses on loans made in the 1980s, having underwritten on the basis of the properties' market value rather than their potential cash flow. As a result, 15% of the company's real estate portfolio was classified in 1987 as "nonperforming."

Today Zions has an unusually high share of its assets in real estate loans - 40% - a fact that caught the attention of Merrill Lynch analyst William Katz in a recent note to clients.

Most banks report 15% to 20% of their assets as commercial real estate loans, up from about 12% a year ago, Mr. Katz said.

But the bank says it is well shielded against the kind of cyclical dangers that led to high loan losses in the 1980s.

First, the 40% figure is somewhat misleading, Mr. Gibbons said.

The bank securitizes many of the loans it originates, but few of its commercial real estate loans, he said. "That tends to inflate the exposure we might have on a comparable basis to other institutions that aren't as aggressive in securitization."

Moreover, $260 million of Zions' $943 million commercial real estate loan portfolio was originated through a Small Business Administration program which finances owner-occupied properties for small businesses such as restaurants.

In these loans, typically in the ballpark of $500,000, the owner has 10% equity and SBA funds 40%, so in effect Zions lends at only 50% loan-to- value.

Most of the properties Zions finances are owner-occupied, Mr. Anderson said.

"We try to stay away from investor-type commercial real estate loans," he said, referring to loans on properties that are evaluated on the basis of the income they produce. The bank tends to sell such loans to conduits and holds only $53 million of them on its books, he said.

Mr. Katz added that Zions classifies any commercial loans that use real estate as collateral as "commercial real estate loans," regardless of the use of proceeds, which many other banks do not do.

"Apples to apples it may not be as large a percentage of their portfolio," Mr. Katz said.

And the analyst pointed to the recent change in the bank's policy about hotel loans. "Having been down that path in the prior cycle," Mr. Katz said, "they're being prudently cautious."

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