ALIS Day Two: Confidence high despite cost, labor woes
ALIS Day Two: Confidence high despite cost, labor woes
24 JANUARY 2018 9:34 AM

Editors recap the second day of the Americas Lodging Investment Summit with takeaways, quotables and more highlights from the event.

LOS ANGELES—Cautious optimism has been the name of the game for the U.S. hotel industry in recent years after the hotel industry experienced its meteoric recovery from the Great Recession. The fundamentals remained sound, but everyone was waiting for the other shoe to drop.

The general feeling during Day Two of the Americas Lodging Investment Summit, and of the conference overall, is that perhaps the other shoe has fallen, and maybe it wasn’t that big a shoe. Revenue per available room growth isn’t at record highs like it was only so recently, but it is still growing. Occupancy levels on average are better than previously expected.

Attendees of ALIS spent the day attending sessions and networking, looking to make deals in light of a growing economy and the hope that the new normal means smooth sailing from here on out.

Quotes of the day
“When we look at reducing expenses, it’s not about cutting, it’s about making it more efficient. If you’re measuring it better, people are going to manage it better.”
—Gary Isenberg, present of asset management services for LW Hospitality Advisors, during an interview with Hotel News Now.

“A lot of cities have seen what was done with the JW Marriott in Austin (Texas), the Omni in Nashville (Tennessee) and the JW (Marriott) here (in Los Angeles) and are willing to provide incentives and subsidies to make projects work.”
—Alex Tisch, EVP of commercial and business development, Loews Hotels & Co., while talking about Loews’ increased activity in convention-center hotels during an interview with Hotel News Now.

“I’m of the opinion that we’re going to hit a wall in this industry. We’re getting ready to hit a wall where, with the cost of development, you can’t justify the projects. … When you talk about 10% to 25% a year inflation in construction costs … we’re seeing delays and we’re seeing shortages, not as much in materials, but critical shortages in labor. I think we’re ready to hit a wall that, for the first time, isn’t caused by a crash, but caused by (the industry) meandering along at 2% to 3% RevPAR growth.”
—Billy Brown, chairman and CEO, LodgeCap, talking about hotel construction and development challenges on a panel titled “Combatting common challenges and completing the development a winner.”

“We read in the trades about how our friends in the brand business are selling record levels of franchises. … It’s scary from an operator perspective. While it’s a fair amount of international (franchise growth), there’s a fair amount in U.S. domestic growth. My expectation is they’re going to have a great year in 2017 and a great year in 2019. I anticipate a lot of licensing deals executed and a great deal of new supply coming in 2018 and 2019.
—Michael George, president and CEO, Crescent Hotels & Resorts, on the “Boardroom Broadcast: Owners & Operators” panel, on the threat of new supply in the United States.

Tweet of the day

Editors’ takeaways

One of the underlying topics that has weaved its way through the first two days of ALIS 2018 is the absence of obvious value-add opportunities for hotel buyers.

The flurry of renovations during the past four or five years—whether they materialize through a property improvement plan from one of the brands or owner drive to improve performance—has definitely reduced the number of properties that are clear candidates for acquisition and improvement.

Buyers lament that most opportunities have an over-abundance of potential suitors, which drives up the price and makes even a value-add opportunity an ineffective way to pad the balance sheet. They admit the value-add deals aren’t as lucrative as they once were, but they’re still chasing them because a change in management, a tweak in the food-and-beverage department or even appealing the real-estate taxes can add enough accretive value to make a deal pencil out.

This definitely doesn’t mean deals are a thing of the past. There’s still action. Much of it seems to be happening in secondary and tertiary markets, where pricing remains competitive and local lenders play a major role in financing because of their familiarity with the assets.

Those deals, along with the new development projects that are on the books or close to getting done, have kept investment people busy while the industry fundamentals stay strong. How long that’s the case remains unpredictable. As long as gross domestic product projections are at 3% or above, consumer confidence will remain high unless a hint of inflation appears.

That adds up to investment confidence in hotels being at an all-time high, which should continue to fuel plenty of discussions and consummated deals—even if the value-add proportion is lower than buyers are hoping for.
—Jeff Higley, Editorial Director

If there was one common theme that kept popping up in most conversations during Day Two of ALIS, it was labor. For the hotel industry, labor is a huge, varied topic. It’s about attracting and keeping hotel employees. It’s about the growing costs associated with construction and development labor. And today more than ever, it’s even about ensuring the industry’s labor force is represented with diversity at all levels, from dishwashers to CEOs.

Today kicked off with a women’s networking breakfast, where female executives shared thoughts and data explaining some of the reasons why women aren’t hitting the advancement trajectory their male counterparts are. And that conversation kept going among attendees all day.

On the employee labor front, this conversation keeps popping up. and nobody seems to have a good resolution for it. CEOs from franchise companies, ownership companies and management companies on Tuesday’s general session panels all talked about labor challenges.

Jim Amorosia, president and CEO of G6 Hospitality, summed it up when he said: “The thing that worries me is that we are in a compressed human capital situation in terms of people. The unemployment rate is such that it’s challenging to get people, to retain them.”

But the labor issue doesn’t end there. Several speakers in the development-centric breakout panels talked about rising labor costs on the construction side, which has obvious effects on new-build development, but is possibly a net positive damper on too much new supply in some markets, speakers said.
—Stephanie Ricca, Editor-in-Chief

An improving economy seems to be a bit of double-edged sword. Hoteliers throughout the conference have shared their excitement about the steady growth of gross domestic product and what the recently passed tax reform bill will mean for consumers and their disposable income. After all, spending trends are moving away from material goods toward more experiences, which likely means more travel and more stays at hotels.

While a healthy and growing economy can mean more consumer confidence, it also means fewer people are unemployed. The jobless claims have remained low after steadily decreasing in recent years, which makes it tougher to fill vacant positions, as the hotel industry knows all too well right now.

This labor issue has been a concern for hoteliers for quite some time, and it hits them in a couple ways. It’s difficult to find the right employees for on-property jobs, so hoteliers have to offer higher wages to attract and retain the best employees. Finding qualified construction workers continues to be a problem as well. This translates into delays on new build and renovation projects. It also drives up the cost.

The unavailability and increasing cost of labor hurts profitability for hotel companies, and there doesn’t seem to be any signs at the moment conditions will change in the near future
—Bryan Wroten, Senior Reporter

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