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Cautious Optimism

Executives At BITAC® Owner’s Event Project Similar Results For 2018

Wednesday, December 06, 2017
Dennis Nessler
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Hotel executives on hand at the annual BITAC® Owner’s event expressed cautious optimism that 2018 will be similar to 2017 in terms of RevPAR growth and they acknowledged that while the current cycle has reached a mature stage there is no immediate end in sight.

During the event—which took place at the Omni La Costa Resort & Spa in Carlsbad, CA—the multi-unit owners shared their collective outlook within a panel discussion entitled “Recycled Optimism: Assessing The Outlook For 2018.”

To frame the discussion the panelists were asked how 2017 has played out.
Gerry Chase, President & COO, New Castle Hotels & Resorts, weighed in. “There were not any real surprises, it was a little bit of a carryover from ‘16. Obviously the RevPAR performance slowed down a little bit, but we anticipated that so we were pretty close to the mark,” he said.

David Gould, President, hospitality division, Moody National Companies, said his company experienced similar results. “It was what we expected across our properties. Some were up, some were down, but nothing was way off in either direction. But we were kind of conservative coming into 2017 and how it was going to play out because there were a lot of things that were impacting the economy,” he maintained.

Looking ahead for 2018, Chase noted RevPAR projections for the company’s portfolio in 2018 are roughly the same as the current year. “We’ll probably do somewhere around 4 percent [growth] with some properties coming in under 3 and other ones above that. The ones that are above that obviously are either in a growing market or have been converted or they are new builds,” he said.

However, owners did unilaterally express some concern about supply growth in relationship to the current cycle.

Mark Hemmer, COO, Vesta Hospitality Group, commented, “I think I speak for all of us when I say we don’t want it to be the end of the cycle. We want to continue all these good times that we’ve been experiencing, yet you can see a little bit of the supply creep come into a couple of our markets. While we’re still doing well what ends up happening is everyone finds your market and starts building and that softens things up in those markets. So that’s one of the things we’re preparing for,” he noted.

Billy Brown, Chairman/CEO, LodgeCap, reinforced the point. “It’s not a particularly good place to be in the cycle. RevPAR growth is less than expense growth at the operations level and there’s a lot of supply coming,” he said.

Gould agreed, “The challenge is the supply is starting to catch up.” He further explained the anticipated increase in supply. “The normal cycle kind of got interrupted by 2009. It was about time for another dip and obviously it was much worse than what would have normally happened. But at the same time it stymied the growth, and since 2009 there’s been very limited growth and the demand has been growing significantly. It’s been a really nice ride. That being said the brands and developers have been holding back and not doing as much development so it’s all kind of pent-up supply development. It’s starting to trickle in now to some of our markets. I think in 2019 there is really going to be a supply issue.”

Meanwhile, Chase cited a couple of macroeconomic factors that could have a positive impact going forward. “I think when tax reform goes through it could provide a real positive bump, especially for our industry. Disposable income—especially at a higher level—drives a lot of travel,” he said.

Chase added, “Once we get stabilized through the political arena we have I think international travel will come back stronger than ever. Even though everybody thinks it’s not great, it still is only slightly down from what it was last year.”

In terms of challenges going forward, in addition to supply, the panelists put labor and potential wage increases in a number of U.S. states at the top of the list.

According to Hemmer, “One of the things that we’re really in tune with is the wage pressure that we’re seeing in a number of markets driven by the immense minimum wage increases by the state governments, particularly in Oregon and Arizona. I long for the days when you saw these wage increases coming two years down the road. Not anymore, you get months of notice and it’s hard to plan and react to that. I think getting the labor situation stabilized is probably one of the biggest challenges that we face in our company going forward,” he asserted.

Chase underscored the point. “I’m concerned about government, especially local governments right now, deciding what people should get paid. In the Northeast we’re seeing some stiff increases, especially in New York, on minimum wage at levels that would never support any type of rate growth. I’m concerned about that, but I think we’re heading in a direction that we have enough positive growth that our associates and our people will realize some nice handsome growth in their salaries and wages as well,” he maintained.

Brown, meanwhile, expressed concern about the industry’s inability to raise rates.
“I’d actually like to see us have some inflation. Our hotels are running fuller than ever and we have no pricing power, which is a function of the world we live in now with social media and OTAs and those kind of things. If we had a little inflation overall maybe we could start getting the rates more appropriate to where we are in the cycle,” he said.
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Dennis Nessler    Dennis Nessler
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