The overall pace of the recovery, new construction challenges, and the deep impact of disruptors on the lodging industry, were among the key topics of a panel discussion during last month’s BITAC Owner’s event at Grand Hyatt Baha Mar.
A handful of executives weighed in on these issues and more during the discussion entitled “Owner’s Outlook: Hotel Executives Assess Current Lodging Landscape.” Several executives expressed optimism and touted the resiliency of travelers, although the discussion took place prior to the current surge of the Omicron variant of COVID-19 that the U.S. is currently experiencing.
As an example, RP Rama, President & CTO/CIO, Orlando-based Sarona Holdings, LLC— which has investments in some 24 major branded hotels—suggested a full recovery may be in the offing as soon as 2022.
“I’m very optimistic that after we open up the international markets people who are in jail are just going to go out. And if we as employers feel comfortable sending our staff members to conferences such as these it’s going to boost the business in a very good way. So I’m looking at very optimistic figures in 2022, because I already see the trend right now that people are feeling more comfortable to travel,” he said.
Brian Wogernese, President/CEO, Cobblestone Hotels—a Neenah, WI-based franchise company with more than 160 hotels in its midscale branded portfolio—meanwhile, pointed out that the recovery has already been occurring in many of the rural markets where its hotels are located.
“About 80% of our properties are up over ‘19 numbers. Now I know that’s not the case with a lot of convention and some leisure corporate markets, but for us we’re seeing it [the recovery],” he said.
Munir Walji, Owner, Camden Hotel Group—which owns, operates and develops select-service and luxury hotels—had something of a mixed outlook depending on the sector.
“In 2019, total U.S. savings amounted to something like $4 trillion and today it’s $6 trillion so it’s a 50% increase. That’s going to drive the leisure business in a very strong way, besides other fundamentals,” he said.
Walji continued, “The business [segment] is going to be challenged and particularly the city hotels are really going to be challenged. I think the resorts, generally speaking, will recover much faster, but the prognosis for big boxes and full-service properties is pretty dim at the moment,” he said.
Elliott Estes, Principal, Bethesda, MD-based Woodmont Lodging—which owns 6 hotels ranging from the economy to luxury segments—suggested business travel has forever changed citing statistics that suggest that some 35 percent to 50 percent of business travel won’t return as we knew it.
“I don’t think it’ll be that challenging or that bad, but I do think that there will be a chunk that will not travel in the scale or the masses that traveled before. I think in order for us to attract the business it’s got to be a lot more direct or more tactical going after the smaller groups, call it 10 to 25, instead of the large convention business,” he commented.
Meanwhile, new hotel projects and development opportunities continue to gain momentum as owners look to accommodate increasing levels of demand going forward.
“We’re seeing a steady flow of new construction, it hasn’t really slowed down on our end. We’re also seeing a huge upsurge in redevelopment and PIP improvements that need to happen,” said Martin Thornros, Principal, Convergent Services, a San Diego-based company which provides IT support and consulting services.
However, the rising cost of raw materials, such as lumber, does present a challenge for owners and developers to make sure projects pencil out.
“It’s not going down, but we factored that into these projects as we’re going. We make sure that when we’re running the numbers that there’s a little wiggle room,” said Wogernese.
“Everybody is going to have consider the ROI on the investment because the construction costs are going to be very high. Are you going to be able to charge that rate or get that kind of occupancy for a good ROI,” said Rama.
Owners looking to expand their portfolios may also want to look at acquisitions going forward, according to Estes, who is projecting “a flood of opportunity coming by the middle of next year.”
He added, “we’re buyers and we see sellers with a lot of leverage right now because so much money was raised in anticipation of distress that never occurred. Multiple rounds of PPP [payroll protection plan] bailed people out and generally lenders who had the ability to tighten screws on owners haven’t because they don’t want to own hotels. I think we’re turning a corner now. We’ll get through the winter and lenders will have to kind of right size those loans or those investments,” he said.
When it comes to disruptors, particularly with home rental sites like Airbnb, the impact on the industry has been undeniable. The panelists all agreed that the rules need to be fair.
“I think the associations [AH&LA and AAHOA] need to very, very seriously look into this because they are intruding into the hospitality industry in a significant manner and not paying their fair share of the taxes that are due to the local governments. They are not following any life safety standards, they are not following any regulations, they don’t have even licenses for operating those as accommodations,” said Rama.
Estes reinforced the point. “I’m a capitalist, I am not threatened by new business just make it fair. This country is built on having an idea and commercializing it and seeding it and letting it grow. I say ‘bring it,’ but it’s got to be fair.”
Wogernese put some of the onus on the lodging industry.
“I kind of equate this to the OTAs when they first came out, we were all excited about that right? In 2019, we weren’t really concerned about Airbnb but then COVID happened. I think as you watch some of these trends go we need to get ahead of these before they get to this point. It should be regulated, but just as much as Uber and Lyft should be too,” he said.
Thornros provided some hope that change can occur at the grass roots level.
“I live in a [southern California] beach community where there have been a lot of Airbnb’s over the last few years and the community actually stood up and changed the rules. The city has now a number of enforcement officers that are on payroll to enforce the rules, as well as the limitation of only being allowed to have roughly 4% of the residences turned into Airbnb’s at any given time. And they are enforcing it pretty heavily,” he said.