Members of the Lodging Industry Investment Council believe hoteliers can walk the fine line between opportunities and challenges in today’s hotel environment.
LOS ANGELES—Despite uncertainties swirling around U.S. politics and the “where are we now?” debate in the lodging cycle, many hoteliers agree that now is the time to take advantage of all opportunities.
Members of the Lodging Industry Investment Council met in conjunction with the Americas Lodging Investment Summit to talk about ways they’re seizing the day, whether it be in technology, purchase decisions or setting rates.
Tech was a hot topic at the roundtable, as LIIC members debated how the industry is toeing the line between maximizing technology efficiencies while still providing the high-touch customer service required by hotels.
Andrea Foster, SVP of development for Marcus Hotels & Resorts, said it’s all about striking the right balance.
“There are ways we can incorporate technology to do things we don’t necessarily need human interaction for,” she said. “But as people want to connect more locally, we see the need for concierge services, which are more skilled. You have to have a person who can have a caring, personal interaction. That’s where we’ll see the need for more people, while we may be able to automate other functions with technology.”
Gary Gray, chief investment officer for Twenty Four Seven Hotels, said today’s environment of high labor costs goes hand in hand with finding technology-enabled efficiencies at hotels, and it’s a natural progression.
“We see technology replacing labor opportunities, driven in part by the cost of labor,” he said. “We see big pushes in California and the Northwest around minimum wage, so the driver is to get a hold of these labor costs as best as you can, and technology can be a driver for that.”
Gray said as the workforce at hotels accommodates younger, more tech-savvy people, the transition is natural.
“It’s already a mindset; they’ve embraced it and it’s part of their platform,” he said.
Tim Dick, managing director and principal at Three Wall Capital, said it’s a challenge for owners to balance the efficiencies of technology with guests’ diverse needs.
“What I’ve learned as an owner is that the guest experience really starts with that interaction at the front desk, how that stay is going to go,” he said. “But tech can let you control your experience.”
The key is delivering service to the customer the way he or she wants it, he said, which might mean tech-enabled check-in for some, and a desk clerk for others.
“You may want the high-tech check-in, but you also want a desk clerk who can say, ‘You need to go to this restaurant for blueberry pie,’” she said. “You have to have tech as an option, but that service backup.”
Is there renewed life in this cycle?
Cycle dynamics are always a point of contention, and LIIC members debated all the different ways owners, operators, brokers and financiers are looking at cycle opportunities today.
Gray said it’s all a market-by-market situation.
“It’ll all depend on what’s going on in that market or submarket, in terms of demand leaving or coming in,” to see if there’s runway for revenue-per-available-room growth, he said.
Mike Cahill, CEO and founder of Hospitality Real Estate Counselors, took an optimistic look at supply and demand.
“Occupancy levels are fundamentally driven by supply and demand; people are still buying more hotel rooms. They’re traveling, and the demand equation is still good,” he said.
Cahill cited Denver as an example of a market where occupancy is down but demand and average daily rate are growing.
“Occupancy will go down because of all the new supply, but as long as we don’t hit a recession, this may be the first cycle in our lifetime where we don’t see negative RevPAR declines,” Cahill said.
He added positive demand is the key.
“If demand growth stays positive and nobody starts rampant discounting, we may surprise ourselves and have positive RevPAR growth for the next 10 years,” Cahill said.
Dick agreed that there is runway for RevPAR, but he said “the lines are getting narrower and narrower.”
“We’ve squeezed and squeezed and found more efficient ways to operate with lower payroll,” he said.
He said there are still opportunities to find efficiencies, particularly in purchasing.
“There are a lot of boutique properties taking off now” affiliated with soft brands, he said. “In the past, it was a challenge to (be independent) because you didn’t have that purchasing power or access to distribution channels, and that’s changed a lot in the last 10 years.”
Phil Ribolow, director of real estate appraisal at Deutsche Bank, looked at the topic from a policy perspective.
“The positive changes will be if tax reform goes to drive corporate profit,” he said. “I think we’ve pushed occupancy as far as we can; the only way we can get rate up to push RevPAR is finding new sources of demand.”
He said it comes down to politics and governance.
“We’re at a bit of an inflection point,” he said. “If Trump is successful, life is good. If he’s not, we may be pushing it. We’re in a highly cyclical industry; our fundamentals have been stretched to nearly as high as they can go.”
Foster said Marcus sees opportunity in ADR in its markets.
“Occupancy we see as relatively flat, or we have a few markets where supply is having an impact, like Milwaukee and Chicago,” she said. “We are not as exposed in primary markets, so we’re drilling in on the ADR side with strong revenue management.”
How are you preparing now for what’s next?
When it comes to keeping an eye on the ball but still anticipating the inevitable turn in the cycle, LIIC members said it’s all about balance and smart planning.
Dick: “Don’t take on three-year contracts. You have to be really strategic about the type of business you’re taking on. It varies market by market; what Atlanta does isn’t necessarily what Denver’s doing.”
Cahill: “If you’re going to buy a hotel, buy it based on the big-picture location, where people want to live. The risk with hotels is you don’t know what’s going to happen, but that’s built into your risk.”
Ribolow: “You have to be nimble in day-to-day activities and not worry too much—you have to be willing to change your strategy on a dime. It’s about waking up every day and deciding what the best choice is that you can make at that moment.”
Foster: “We have a long view, while making tweaks, adjusting and looking both long-term and short-term. There’s renewed interest in secondary markets. Looking long term, population growth is exponential—there are more people, more travel and more demand.”
Gray: “Values (for hotels) are higher. There’s still a lot of capital looking to find opportunities. We’re at the part of the cycle where you’re earning your money now; you have to be more discerning; you have to pick the winners. The concept of a rising tide floating all boats can cover mistakes, but now when you’re making transaction decisions you’re going to have to live with the consequences, so make sure you find good deals.”