Hotel executives reflected on how 2019 changed the industry, pointing to political headwinds, labor and operations management and weaker KPIs.
REPORT FROM THE U.S.—A swirling political arena as a preamble to an election year. Finding creative solutions to labor and operations issues. Tweaking acquisition strategies in a more aggressive market.
Hotel executives have much to look back on from 2019 as they consider how their perspectives on the industry and their companies’ strategies changed during the year. Four executives from U.S.-based companies shared their 2019 takeaways via email with Hotel News Now.
Peachtree Hotel Group
M&R Hotel Management
Dream Hotel Group
Andy Amit Chopra,
Banyan Investment Group
1. In your opinion, what news from 2019 had the biggest impact for the hotel industry at large?
Brent LeBlanc, SVP, Peachtree Hotel Group
“Politics seems to be the consistent theme throughout the year and we don’t see that changing into 2020. We think tariff talks, geopolitical headwinds and supply growth have created a choppy lodging market both on the performance side as well as the transaction side. Heading into an election year we would expect much of the same in 2020.
“We continue to be active in our pursuit for acquisitions, however throughout 2019 we saw higher-quality assets get bid up and trade for aggressive pricing. We will continue to stick to our underwriting fundamentals and be cautiously optimistic heading into the new year.”
Brian McSherry, COO, M&R Hotel Management
“Strong employment numbers make recruiting and retaining entry-level employees more challenging.
“Continuing trade issues with China have hurt outbound travel from that country to markets like New York City, where we have considerable inventory.
“Crisis over immigration policy this year (legal as well as illegal) puts more pressure on recruiting. Like agriculture and construction, our industry depends on a steady stream of entry-level workers.
“A spike in the number of incidents of extreme weather (forest fires, hurricanes, tornadoes, flooding) has brought home the reality of climate change, including in the Midwest, where we also have significant inventory.”
Jay Stein, CEO, Dream Hotel Group
“In my opinion, it’s been a combination of two major events. One, for the first time in over a decade, we’re seeing occupancy numbers decline in 2019. Two, interest rates are down, thanks to the Federal Reserve, and that has kept the cycle going, so development is still very strong.”
Andy Amit Chopra, principal and Chief Investment Officer, Banyan Investment Group
“Trade war. It’s not necessarily the trade war itself, as the economy hasn’t contracted in 2019. Rather, it’s the impact of uncertainty and doubt on the business spending environment. The perceived risk premium on capex spending by large businesses has increased, and it has a direct and dilutive correlation on room demand. Uncertainty is further exacerbated by the politics on full display in Washington, which will only amplify going forward in 2020. This is coupled with increasing hotel supply, which has eroded hotelier pricing power, particularly in the second half of 2019.”
2. How has your company’s strategy changed from the beginning of 2019 to now as you look toward 2020?
LeBlanc: “Our strategy has remained the same and we continue to be opportunistic and strategic with our investment decisions. Given the challenge of finding higher quality acquisitions, we have put significant focus and capital into our development/construction pipeline, which we will continue into 2020. We have also continued to invest in our lending arm, Stonehill. With a perceived slowdown on the horizon, local and regional banks have been reluctant to provide debt for hospitality projects. We see this as a tremendous opportunity to continue to provide debt and equity for high quality projects. With the political uncertainty heading into 2020, we will continue to pivot and find new ways to put our capital to work.”
McSherry: “Growing concerns about a recession means we're looking more closely at ways to operate more cost-effectively while still maintaining a high level of customer service.
“As a franchisee, we're keeping a close eye on the cost of new brand initiatives and upgrades. At the same time, we remain supportive of the brands' efforts to keep their properties current and appealing, especially as consumer expectations continue to rise.
“On the labor front, we're intensifying our focus on programs like job sharing and cross-training to ensure we're maximizing the value of our associates, while keeping an eye on costs.
“Regarding growth, we still see opportunity as owners seek out management companies with a successful track record of operating cost-effectively.”
Stein: “Our biggest shift was at the beginning of the year, when we decided to refocus our primary growth and expansion efforts on North America—the U.S., Canada, Mexico, Caribbean—which, when looking back, was a pretty unique thing for a company to do. After several years of fully committing resources and talent into growth in Asia, Europe and the Middle East, we made the deliberate decision to reduce the emphasis on international markets and shift focus back to North America. This is where we’re seeing the strongest growth potential. Though we continue to look at international opportunities in select top-tier markets, the main focus is now in North America. In order to achieve smart growth, this was the right move for us at this time. And I’m glad we did. Our development team has never been busier!”
Chopra: “From an acquisition standpoint, we are focusing more on urban markets located within the Southeast and the Southwestern U.S. We feel the economic environments in those geographies, combined with generally lower business operating costs, will help bolster cash flow while broader global/national GDP growth slows. Given the record-low unemployment rates, finding talented people has been a tremendous challenge faced by all hotel companies. We continue to focus on submarkets which have robust economies and population growth, which implies deeper labor markets. We also have increased the scope of our benefits packages in an effort to retain employees and reduce costly turnover.”
3. With 2019 coming to an end, are you more or less optimistic about the health of the hotel industry and your company’s part in it?
LeBlanc: “We are slightly less optimistic heading into the 2020. The fundamentals going forward will be affected given the headwinds from a tense political environment in addition to the abundance of supply in certain markets. Peachtree has focused on building a vertically integrated investment platform that can pivot with the market and invest in all parts of the capital stack. We will continue to be in search for quality acquisitions, lending opportunities with Stonehill and developing in markets where we see the opportunity.”
McSherry: “Cautiously optimistic. If we plan carefully—and remain nimble—we'll be fine.”
Stein: “For us, personally, looking at the growth we had and the deals we signed in 2019, it’s all looking strong for 2020. We also have a healthy pipeline of HMA’s that are about to sign, which will set us off on the right foot for 2020. While the industry is pretty flat, we’re still seeing an increased demand for our type of product—a lifestyle experience—and we are confident the growth opportunities will continue.
“The biggest news for 2020 is that, for the first time, we will see negative occupancy growth. This is the first time supply is outpacing demand. (Average daily rate) is still in the positive so (revenue per available room) will stay positive or flat. But expenses are growing faster than RevPAR, and that’s going to create issues for everyone. We need to be smart. Make sure you’re not only managing the top line but the bottom line, too.”
Chopra: “Using RevPAR growth as the metric to gauge health, I’m less optimistic about 2020. Increasing supply, coupled with economic uncertainty, is a recipe for decelerating RevPAR growth. Our disciplined approach to investments, however, will allow us to continue to grow as we aim be active buyers of hotel assets in 2020 with flags, markets and cash flow which makes economic sense. Our investment approach involves both conservative leverage and RevPAR growth assumptions, which allow us to remain meticulous and restrained when we submit offers on properties. We acquired several hotels in 2019 and expect this to continue in 2020.”
*Correction, 31 December 2019: This story has been updated to correct a title and clarify a quote.