Things are never as bad as they seem, and the current financial climate is not indicative of another 2008. Here’s why.
Although we're more than a quarter into 2016, many people in our industry find themselves asking if it's 2008 again based on the financial climate and volatility we have seen from the stock market. Not to mention, early information from STR indicates that occupancy could be softening and that the continued rise in average daily rate is beginning to slow. The Dow Jones Industrial average is down more than 8% this year, and oil prices are at historic lows. (STR is the parent company of Hotel News Now.)
Is this a normal progression through the business cycle or are we feeling effects from the financial markets?
Here is my response to anyone predicting that we are headed for another major downturn. It’s important to keep in mind that 2015 was an exceptional year in terms of growth. That’s going to be difficult to match. To that end, I think we're seeing a natural progression through the rest of that cycle with this slowing down; it’s a natural part of the business cycle. No need for night sweats—this is in no way similar to the 2008-type of meltdown we endured. At that time, we saw a perfect storm of highly leveraged hotel assets affected by a sudden shift in our national and world economy.
I fully expect the stock market to recover and reduce volatility over time.
Over the next 18 to 24 months, I think we will see a mixed bag of results that is more affected by local conditions than any major economic downturn. We should anticipate disruptors from more microeconomic factors than macroeconomic factors. Overall, due to the tighter lending requirements we now have in place, most hotel assets are more properly leveraged and can withstand some “downturn,” which I firmly believe is simply the aforementioned slowing of growth.
As new supply is absorbed and the national economy begins to expand, I predict that healthy growth, more along the lines of what we have been seeing, to resume—and I’m not alone in that line of thinking.
At the 28th annual Hunter Hotel Investment Conference in Atlanta, industry experts said they fully anticipate that growth will continue through 2018. While this extra two years is not a time to build aggressively, it is the right time to pursue smart acquisitions, new builds and management contracts.
Don’t follow the crowd
We have several projects under development and in the pipeline. Each of these developments have one thing in common: They are each dependent on a wide variety of demand generators. The more varied your demand base, the more insulated you are from a downturn. It’s all about strategy. The danger comes when developers follow the crowd instead of relying on fundamental principles.
Stock volatility translates into consumer confidence—or a lack thereof—which affects consumers’ likelihood to use their disposable income for travel plans. But, the stock market decline has been affected more by international news than “at-home” fundamentals. While everyone hates to see their retirement account or personal investment account affected by stock fluctuations, those are long-term implications. I do not think this will be a significant deterrent to travel in the short term. Business travel will continue, and though our potential guests might be more frugal over where they allot their disposable income and what amount they spend, vacations will still continue.
After all, the offset is that we are now seeing low oil and gas prices, a clear sign that it is cheaper to travel. This is a great indication that our properties will be even busier. While the low prices of oil are considered a bust to many of our oil-producing markets, this will absolutely support many of our drive and fly destinations.
The renowned author, Harper Lee, once said, “Things are never as bad as they seem.” The converse is also true. Reality resides somewhere in the middle. The developers and operators who follow the same blueprint consistently, in good times and bad, will be somewhat insulated. Then, they can spend more time empowering their associates to provide exceptional customer service and profitable results than wasting time trying to read their crystal ball in an effort to predict the future.
Since joining LBA Hospitality in 2005, Beau Benton has played a vital role in expanding the hotel management organization’s footprint from 27 to more than 65 hotels over the past decade. Benton has served in the roles of Chief Financial Officer and Chief Operating Officer, assuming his role as President in 2012. As President, Benton spearheads the company’s growth, which includes doubling the number of hotels represented by the company, maintaining a strong development program by developing and opening 26 Marriott and Hilton hotels, and overseeing the company’s transition from an owner/manager platform to that of a third-party management entity.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.