Four things are top of mind this week, including lender perspectives, Arne Sorenson’s complicated quote during a CNBC interview, what gouging really means and the sale of Marriott International’s headquarters.
Lenders continue to be the governors of the hotel industry. The lending community’s approach during this cycle is often credited with keeping hotel supply growth in check because of stringent requirements and tight purse strings.
Based on a lender survey conducted by STR, RobertDouglas and Hotel News Now, that’s not going to change any time soon. You can download the free survey here (free sign-in/registration required).
It was more than a decade ago that lenders seemingly threw caution to the wind and were providing financing to just about any project presented. When it came to lending, 2006 and 2007 resembled the Wild West. It wasn’t uncommon to see hotel development projects receive 100% financing—or more. Senior debt combined with mezzanine financing allowed some projects to be financed for more that their costs back in the “glory days” of aught seven and aught 8. Then the housing bubble burst, government intervention that led to more government oversight.
The aftermath was substantial as hotels opened regularly long after the Great Recession ended the parade. Openings through the downturn were many—even as a number of projects stalled. According to STR, the parent company of Hotel News Now, here are the number of rooms opened during that key span: 101,163 (2007); 153,571 (2008); 150,789 (2009); and 77,062 (2010).
In the nine years—nine years!—since the current up cycle began in 2010, lenders have been more prudent in their lending practices, and in many ways, that’s a chief driver of these good times. Lenders provided enough financing to keep the industry’s pipeline robust, but not an overabundance of it to cause grief.
The 66 lenders in the Lender Survey indicate that the tight-fisted scenario isn’t going to change. Many of the senior lenders said they don’t provide construction financing, and three-quarters of all respondents reported that cash-flow metrics are most important.
For the fifth year in a row, survey respondents cited the potential for a U.S. economic slowdown and/or faltering general macroeconomic growth as the most-feared threat to their hotel loan portfolio. The numbers of lenders feeling this way has increased.
There were approximately 192,000 hotel guestrooms in construction in the U.S. at the end of 2018, according to STR. The company expects that number to grow 1.9% in 2019 and again in 2020, which is a reasonable expansion rate and should help keep the hotel industry on steady ground (barring a black-swan event).
That’s something that should please just about all U.S. hoteliers.
Hoteliers need to remain vigilant
Did a comment Marriott International CEO Arne Sorenson made to CNBC last week during the World Economic Forum in Switzerland get taken out of context? Perhaps Sorenson didn’t mean it exactly as he said it.
Here’s the quote: “The China story, of course, is a little bit complicated, because we’ve got the trade and we’ve got a number of very high-profile events that have happened. The China story is still a very constructive one in the travel space. We’re not in a business that is super sensitive from a national security perspective. And I don't think we’re going to be in anybody’s crosshairs.”
Complicated indeed. Sorenson is among the most thorough CEOs in the business when it comes to public speaking. He knows his stuff and often makes compelling cases on behalf of the hotel industry. I have to agree with the pundits who jumped on the last sentence of his quote as being troubling.
The fact that Marriott is going through the aftermath of a major data breach—a breach that some people think was carried out at the direction of a foreign government—puts the company directly in the crosshairs.
As the 21st century moves along, cyber terrorism is as terrifying as physical terrorism. The aftershocks of Marriott’s data breach will be felt for years.
Hopefully Sorenson rethinks his position on the topic and uses different words in the future. The hotel industry has been and will continue to be targeted by terrorists of all types, so hoteliers around the world—whether they’re in small-town USA such as Valparaiso, Indiana, or in major gateway city such as Sidney—need to stay focused on doing what they can to keep guests and data safe.
Click here to view the full interview with Sorenson. The aforementioned quote appears at the 2:18 mark.
The fine line between gouging and opportunity
Airbnb, the 10-year-old disruptor that has caused its fair share of headaches for the traditional hotel industry, always seems to be in the crosshairs of some organization.
Last week, it was Airbnbwatch, a self-described affordable housing advocate and consumer watchdog group, which released a report claiming Airbnb hosts in Atlanta are gouging football fans heading to the city for Super Bowl LIII.
The report said most of the hosts are “commercial operators running multiple listings for rentals during the Super Bowl”—which must please the many hoteliers who have long maintained that Airbnb operators tend to not be the mom-and-pop hosts that the company insists comprise the bulk of their offerings.
The report says rates for many Airbnb listings increased “thousands of dollars per night” for stays during the big game’s weekend.
According to the report, an Airbnb rental in Atlanta, which is normally rented for $284 per night, was being advertised for $2,994 per night during Super Bowl LIII. A typical three-night stay at that apartment would normally cost a total of $1,071, but the same length of stay during Super Bowl LIII would cost more than $10,000.
I’m torn on this one. Merriam-Webster defines “gouge” as an excessive or improper charge for something.
I can understand using “gouge” when there’s a natural disaster and people are forced to rent units because they have no other place to go for shelter.
But the Super Bowl is hardly a cataclysmic event (unless of course, you’re a fan of the Buffalo Bills or Minnesota Vikings—both teams have lost in all four of their trips to the big game). Traveling to watch the game falls under the “discretionary spending” line item in a budget, so the business side of my mind asks: Shouldn’t operators be able to charge any rate they want to if fans are willing to pay it? Market conditions will dictate whether travelers pay the price. It’s one of the basic tenets of capitalism.
Hoteliers also try to make money during the Super Bowl—and other big events. A search on Sunday morning, 27 January, for a stay during Super Bowl weekend (Friday through Monday) showed the Moxie midtown Atlanta going for $749 per night (non-refundable) for a standard king room, Sonesta Gwinnett Place Atlanta at $209 per night (non-refundable) for a deluxe king and sofa bed room; and a Red Roof Plus Atlanta-Buckhead standard 1 king room going for $370 a night (non-refundable).
The same hotels for the next weekend: $92 for the Red Roof Inn, $87 for Sonesta and Moxy for $173.
Of course, the consumer in me is outraged. I have never had to worry about heading to the Super Bowl to root for my favorite team, the Cleveland Browns. This year’s 53rd Super Bowl marks another year without the brown-and-orange competing for the NFL title (heavy sigh). But if they ever do advance to the big game, I understand that paying premium pricing for lodging is part of the deal if I want to travel to see it.
Marriott’s HQ sold
In one of the ironies that dot the hotel-industry landscape, Marriott International has sold its headquarters—a location it is set to leave by 2022 when it opens its new 30-story head office building in downtown Bethesda, Maryland—to a retirement community, according to the Washington Business Journal.
The newspaper reports that Marriott’s current 775,000-square-foot headquarters in Bethesda, Maryland, will be redeveloped into a senior community by Catonsville, Maryland-based Erickson Living. WBJ said the sale price wasn’t released, but a special warranty deed recorded with the state between Erickson and Marbeth Partnership puts the deal at $104.6 million.
The irony of it all is that the site will house a senior living facility. Marriott dabbled in the senior-living sector before selling its Marriott Senior Living Services business in 2002.
Of course, that was long before Marriott became the largest hotel company in the world with 30 hotel brands—I guess that’s one hotel brand for every floor in its new HQ. Does that mean its consolidation quest is over?
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