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Recycled Optimism

Owners At BITAC® Remain Generally Bullish On Strength Of Recent Election

Tuesday, December 06, 2016
Dennis Nessler
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The results of the recent U.S. election, rising labor costs and large-scale consolidation were among the key topics discussed by top owners and operators at the BITAC® Owner’s event in Santa Barbara, CA.

In a session entitled “Preparing For The Next Phase Of The Cycle,” C-level executives offered their perspectives on current conditions and some of their best practices as they relate to changing economic cycles.

According to Robert Habeeb, President/CEO, First Hospitality Group, “I think the conventional wisdom is we’re like 12 months from a soft landing in the cycle. But the game changer happened a few weeks ago with this crazy election, and I, for one, think the economy has been held back for the last decade by irresponsible government policy. Whether you love or hate Trump, the shift in economic policy in Washington could really heat the cycle right back up again,” he said.

Chris Green, COO, Chesapeake Hospitality, was equally bullish. “I think it’s going to be a more business-friendly administration, obviously with a business person involved in global economics. Some of the people being brought in to these positions they’re money makers and business people and they want to get to 3 to 4 percent GDP [growth]. If that happens that improves the economy significantly. What I love about our business is when things are going good we always benefit because people are always traveling, selling and buying things and vacationing. I feel very positive momentum so I might even question my 2017 budgets a little bit. I’ve already got them inked, but I might question them a little bit if things keep moving this way,” he commented.

Chris Flagg, SVP, Development, TPI Hospitality, underscored the potential benefits of President-elect Trump. “I’m optimistic, if you would have asked me that question four weeks ago I would have had a different answer. Everyone thought the world would fall apart if he got elected, but it hasn’t. Looking at the silver lining it’s the first time we have a President that understands the star report. You have somebody who understands our business, who is invested in our business, and who has a different mentality when looking at the global policies. Your hope is that he’s going to have the hotel industry in the back of his mind when making major decisions that affect our business,” he said.

Rick Takach, Chairman and CEO, Vesta Hospitality, simply stated: “What I’m hearing is a pro-business, tax-friendly environment and that should be good for us all.”

The executives were asked how they might alter their approach depending on where we are in the cycle. For example, Michael Tall, president/COO, Charlestowne Hotels, noted, “It’s probably some things that you would anticipate. You look at markets or segments that you typically have been a little more bullish with. You may sign some looser contracts with wholesalers. Maybe you start chasing triple A business again. There are all kinds of things you can do from a top line that when demand was strong you may have threw your fences up and protected yourself,” he said.

Green added, “We learned a lot from the last two cycles; we saw this one a little bit further out. Things started to soften a little earlier, I think we’ve been talking about it for maybe 18 months. We spent time rejuvenating our assets making sure even if we were mid lifecycle, they were in great shape through the downturn. We also do planning around who’s sleeping with both tiers, both above if they have to move down to our product in a down cycle and then if we can go after some of the stuff that was below and bolster our base RevPAR as we head into a softening period.”

Habeeb maintained his company’s formula remains fairly consistent. “Our approach is pretty disciplined. We believe the economy is going to go up and down in cycles, as it has forever. We run our CapEx out 10 years and we stay focused on doing the lifecycle renovations in hotels when they’re due whether the economy is good or bad,” he said.

Takach joked, “I’ve been preparing for this downturn since the last downturn; it was painful.” He further added, “it starts with us by making sure every asset we acquire that we’re not overleveraging. I can sleep at night knowing that I’m prepared for the downturn operationally.”

Flagg added, “From the CapEx side we’re trying to take a proactive approach as well. Displaced business is more costly today than it will be tomorrow. We’re actually engaging and being proactive with the brands. We have some large PIPs coming up for relicensing in the next three or four years, but we’re having the conversations now.”

They executives commented on the impact of the recently completed Marriott/Starwood merger. According to Flagg, there’s more to come. “Marriott/Starwood was the huge news, but I don’t think they’re the last two brands that are going to end up consolidating. You’re also seeing operator consolidation. We’re still a very fragmented business at the end of the day. If it doesn’t happen in this cycle, it will happen in the next cycle. There’s going to be fewer folks controlling the industry,” he insisted.

Green noted the much-anticipated integration of the companies has gone surprisingly well. “There was all that talk that they couldn’t do it. They’re too big and there’s too much scale, but they’re doing a really good job of the integration. I’ve never seen a more refined integration on such a large platform. I actually feel like it’s good for the enterprise; they had to do it really,” he said.

Habeeb agreed, but offered a word of caution. “It makes me a little nervous that the net between Marriott and Hilton is they own such a ridiculous portion of the market. As independent owners and operators that’s something we have to keep an eye on. But you have to give them [Marriott] credit, everything they’ve done so far has been stellar.”

The group also identified wages and rising costs as key issues moving forward.
Flagg noted of minimum wage growth, “it not only affects you as a hotel owner and operator on the bottom line, but also affects your demand generators.”

Habeeb noted, ”I’m concerned about costs in general and I think labor is a big piece of it. We’re going to see mortgage rates start to climb in the next couple of quarters. There’s going to be continued pressure on the cost side of the business.”
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Dennis Nessler    Dennis Nessler
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