7.3.12: Fracking Boosts Hotel Business

Hydraulic fracking has positively influenced hotel performance in areas with high fracking activity.  One such area in the eastern portion of the United States is in the “Marcellus Shale” region, mostly found under the states of Pennsylvania, Ohio and West Virginia.  These three states allow fracking, a process of horizontal ground drilling in conjunction with injection of high-pressure water and chemicals to extract natural gas. The Marcellus Shale has resulted in a significant positive impact from gas exploration companies establishing operations in these areas and travel to these areas by a variety of natural gas specialists.  As a measure of impact, Smith Travel Research reports increases in revenue per available room (RevPar) of 9.3% in 2010 and 9.9% in 2011.

“I am getting a lot of calls for hotel construction loans in central and north central Pennsylvania,” notes Michael D. Sneden, Executive Vice President at ValueXpress LLC.  “My sources were reporting 100% occupancy at hotels in the heart of drilling areas.  The concern is that the fracking process is an in-and-out effort.  You drill the well, connect it to a pipeline and leave.  Eventually, all this transient demand for hotel rooms will end.”

Sure enough, with the collapse of natural gas prices to below $3.00/mcf in 2012 from over $9.00/mcf in 2008, drillers are shutting down their efforts, capping wells and going home.  As a result, growth in hotel demand has slowed considerably in the Marcellus Shale region.

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This entry was posted in Commercial Lending, Commercial Real Estate Loans, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , . Bookmark the permalink.

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