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Hotel Industry CEOs Say Just Beginning of Boom Times

Industry leaders have stopped couching their comments with economic uncertainty and see plenty of upside potential for years to come.

Monday, June 02, 2014
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Welcome to boom times. At least that’s the way we see it as the hotel industry is about to launch into an unprecedented era of multifaceted growth that’ll result in higher profits and wider footprints for major brands.

On the first day of the NYU International Hospitality Industry Investment Conference it’s clear to us the industry is in ‘go’ mode. People are talking a big games, deals are going down and significant announcements will get headline status.

Here’s just two massive announcements from the first part of the day. Hilton has officially unveiled its new soft brand concept Curio – A Collection by Hilton, and American Realty Capital Hospitality Trust announced it’ll scoop up the Equity Inns portfolio of 126 hotels from Whitehall Real Estate Funds for $1.93 billion in a deal expected to close later this year.

But beyond the headlines is a conference filled with downright giddy attendees keenly aware these are the days people will one day look back on with marvel at the vast opportunity potential. Rates will continue to rise – we’ll get into how much another day – demand is strong and the new construction pipeline is just about ready to blow open as money floods into the sector.

For many it feels like the only thing stopping individual companies from reaching success is negative psychology that prevents people from making smart moves. That’s right, hotel industry economics is just that good. Plus industry insiders are saying on the stage and in the hallways this industry has plenty of room to keep growing for years to come.

“We have many years to run in this upcycle,” said Monty J. Bennett, Chairman and CEO, Ashford Hospitality Trust. “If you look historically just about every recession, they were caused by federal reserve as they raise interest rates. Interest rates will have to move up to suck the wind out of economy. I do not see a recession happening any time soon. It is year’s away unless there is some strong external shock.”

Thomas J. Baltimore, Jr., President and CEO of RLJ Lodging Trust agrees.

“We are in the fourth or fifth inning of the cycle and we are likely to run onto extra innings,” he said. “We could easily see another four to five years if not longer on this part of the cycle as we have a nice tailwind setting us up for a longer cycle,” said Baltimore.

The guys building, buying and operating hotels are loving the business, and so are the major franchisors. There are plenty of deals to be done for both new construction and conversion focused brands.

Look at Marriott, for example. That company is seeing a lot of demand for new hotels and Arne Sorenson, President and CEO, Marriott International said since launching AC Hotels in the United States a year ago they have seen widespread interest to the tune of dozens of opportunities. “Franchisees said they would like to have a lifestyle product in the middle of the market and by the end of this year I think we will have signed deals or be in detailed negotiations in about 100 hotels in the U.S.

“This gives a sense of the level of demand from franchisees for a hotel that will create economic success. We are totally turned on by it,” Sorenson said.

Richard Solomons, CEO, InterContinental Hotels Group said they’ll be growing too.

“We concentrate where we see the growth. The U.S. is the biggest market and China the second. There are about 10 countries which will generate 75% of [IHG] growth,” said Solomons.

The reason Solomons is so bullish on the U.S. is that even small movement of fundamentals in the right direction here yields big opportunity because off the sheer size of the market, he said.

J. Allen Smith, President and CEO, Four Seasons Hotels & Resorts said his company is opening four or five properties this year and will continue to expand the company’s footprint in destinations luxury travelers want to be; including more hotels in markets in which they have a presence but demand commands.

“With the exception of locations impacted by political strife or disruption we have seen remarkable RevPAR gains around the world and our outlook is [good], said Smith.

Frits van Paasschen, President and CEO, Starwood Hotels & Resorts Worldwide said the company has more than doubled the footprint of its hotels and “grown on par with any brand in the industry.”

“We have seen extraordinary growth fueled not just by growth in demand but by more travelers that are more diverse and younger than ever before. Having hotels that reflect and interpret locations where they are, that is where this business gets really exciting,” said van Paasschen.
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