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BITAC - It's the Facts, Not the Stats At BITAC Purchasing & Design East we broke down the myths into bite sized truths. Here’s what’s really going on out there. Tuesday, July 24, 2012 Glenn Haussman

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At BITAC Purchasing & Design East this morning it was all about looking behind the numbers. It seems to us too many industry insiders are just taking a look at overarching industry statistics without thinking about all the variables and intertwining dynamics that created those numbers in the first place.

It’s not the first time we’ve said this, but it bears repeating: Looking at hotel industry statistics in aggregate is a good a sport but it doesn’t really reveal what is actually happening in our business.

So we looked to our resident real estate authority Bruce Ford, SVP of Business Development with Lodging Econometrics. In a one on one interview this morning I conducted with Ford in front of the at capacity audience I dug deep into Ford’s psyche to get the real story on a variety of issues affecting the hotel industry.

BITAC is of course the industry’s preeminent idea exchange and at this sold out event attendees not only got a chance to network with top industry decision makers but also get the inside track on what is really happening in the hotel business.

Market Dynamics

The hotel business has seen month after month of marked improvement now for an incredible 27 straight months. That’s more than two years! And while that sounds fabulous, the upswing is taking place in very different ways. While major markets like New York City and Houston (yes Houston!) are booming the recovery has not touched secondary and tertiary markets to the same degree.

So the haves and have nots are spreading further apart in some aspects and creating some unusual trends. Take renovations and transactions, for instance.

The commonly accepted belief was that many hoteliers would choose to sell their property in lieu of doing renovations. In fact that trend seemed to be playing out last year but as fundamentals improved hoteliers have become emboldened. So now instead of selling properties they’re renovating and holding. And it’s been happening in such widespread numbers, transaction numbers are nearly half of what industry prognosticators thought it would be this year, said Ford.

Turns out the Extend and Pretend philosophy –the notion that lenders would ‘extend’ loan terms to market conditions returned – was the right strategy.

“While hotels must eventually deal with a balloon payment, market conditions have increased cash flow. So now instead of hoteliers having to worry about that payment in the immediate future, they can push that to the side and focus on renovations,” said Ford. “The thought is they could then make that balloon payment from yielding higher occupancy with stronger room rates when the time comes.”

Going Downmarket

One of the bigger stories in the past year is how brands are getting tougher on PIPs. While many have been entering into renovations required by their respective flags some are choosing to seek a new flag that doesn’t have as stringent requirements.

“Some are downshifting to save on renovation costs,” said Ford. “They are also signing shorter franchise agreements. Much of this is due to dealing with depressed real estate valuations and an inability to sell that asset.”

Essentially, the availability of brands has never been better and brands are differentiating by the fees they charge the franchisee. Much of those structures are designed to be competitive with more segmentation than ever before, said Ford. 

Renovations Returning

Though the number of hotels entering into renovations has ebbed recently, expect them to pick up at the very tip top of 2013.

What’s happening here, according to Ford, is hotels are in a situation where they must differentiate themselves. Mostly to beat the competition, but also to reflect current hospitality consumer trends. However, right now is not the best time to renovate. It’s summer and conference season is right around the corner. Then there’s the holidays.

“There is a big wave of renovations coming in the off season. All the construction crews will be pulling up then to get started,” said Ford.

His advice, if you are going to renovate, get those orders in now. Because if you wait too long there’s going to be a factory  backup that will impede your hotel’s project from reaching completion.