Hotel industry experts discussed how recent hurricanes along the Gulf Coast might affect hotel markets in their paths, as well as the industry as a whole in the long term.
PHOENIX—Though Hurricane Harvey itself has passed after days of strong winds, heavy rain and massive flooding, the city of Houston and others in its path are still taking stock of the damage caused by the storm. The same can be said of cities in Florida and the Caribbean that have been hit and still are being hit by Hurricane Irma, which on Monday weakened to a tropical storm.
Research by STR, parent company of Hotel News Now, looked at daily data during the nine-day period in which Hurricane/Tropical Storm Harvey was active, to assess the immediate impact on hotel performance in the hardest-hit markets.
While it’s too early to tell what the impact on the industry will be in the long run, a group of hotel owners, developers, brokers and lenders discussed what they think could come out of the storms, using past disasters as a basis. (This discussion took place during a roundtable hosted by Best Western Hotels & Resorts in Phoenix.)
Housing the displaced
Looking back at previous disasters in the U.S., the most recent that had an effect on hotels was the Porter Ranch gas leak in Los Angeles, said Robert Rauch, president and CEO of RAR Hospitality. The leak created a large demand for hotels as nearby residents evacuated, he said.
“Hurricanes create huge demand for displaced locals,” he said. “All these displaced residents coupled with aid workers and federal money will create large demand for hotels. A very large amount of money will be thrown at Houston. We don’t know yet what will happen with Irma.”
Almost every hurricane and disaster—with the exception for Hurricane Katrina because it closed hotels—creates opportunities to build, he said.
Hotels become a place of refuge, said Bill DeForrest, president and CEO of Spire Hospitality, so that’s the first thing to figure out: how to help. Last week, his company picked up 1,300 roomnights in Atlanta all in one day from people leaving Florida ahead of Hurricane Irma.
One of his company’s hotels on the water in Gulf Port, Mississippi, was completely wiped out by Hurricane Katrina, he said, and reopened with limited capabilities.
“We could open the top floors,” he said. “It was full for nine months.”
There will be a spike in performance from Harvey and Irma, he said, because hotels will accommodate as many people as need shelter while the recovery process gets underway. In Houston, he said, that could be a very long process.
Overall impact on Houston, US
It’s already difficult to find people to build and renovate hotels, said Michael Morton, VP of owner relations at Best Western Hotels & Resorts. It could become more so as contactors and laborers follow the money to Houston and other cities in recovery, he said.
Construction workers and other service providers will leave other states to work in Houston and then head home on the weekends, said Steven Martens, president of The Martens Companies. The cost of construction will go up as a result, he said.
The same thing—the siphoning of labor and other resources into areas paying the highest prices—happened following Katrina, said Bill Blackham, president and CEO of Condor Hospitality Trust.
“We saw a large inflation in construction costs,” he said.
There have been significant increases in the cost of construction over the past 12 to 15 months, he said, and the damage from the hurricanes will compound this greatly.
“The net effect of it could very well be to make new development economically unjustified,” he said. “It may have a constraining effect in additional increase in supply.”
Based on his experience in Baton Rouge, Mark Kallenberger, founding principal at Kallenberger Jones & Co., said hoteliers are better equipped to pay for renovations to their affected properties than a resident might be to make home repairs. As a result, the contractors and the construction money goes to hotels, which are able to turn around generally in four to six months, he said.
In Houston, it’s possible some hotels won’t go back online, he said. Some were already suffering from the oil downturn, he said, and if they don’t have the property insurance, they will close until they can get back on their feet.
“That means everyone else will be at high occupancy,” he said.
Jeffrey Kolessar, SVP of acquisitions and development at GF Management, said the short-term burst of business by contractors and federal relief workers will help the Houston market overall. Ultimately, he thinks the city will rebound pretty well, helped in part by the strength of its medical community and other businesses.