Members of the Hospitality Asset Managers Association reveal survey sentiment that predicts continued industry growth while facing a number of challenges and opportunities.
DENVER—Hotel asset managers are bullish on the future of the hotel industry and see more solid—not spectacular—footing ahead as performance fundamentals remain favorable.
While meeting with the trade media last week during the Hospitality Asset Managers Association meeting at the Le Méridien Denver Downtown, several of the group’s officers and leadership team said 2018 was a surprise on many levels, including:
- “Stronger demand than expected.”—Kim Gauthier, SVP with HotelAVE
- “New York has had a couple of very strong quarters.”—Larry Kaminsky, EVP, Fulcrum Hospitality
- “Demand is stronger even in secondary and tertiary markets.”—Tim Dick, director, Duff & Phelps LLC
- “Realizing how many third parties there are and how many fees we pay them.”—Maxine Taylor, SVP, CHMWarnick and HAMA’s president
- “Demand is much stronger than we anticipated. I wish we’d seen more rate growth—that is a surprise … I’m surprised rates haven’t grown.” Matt Arrants, EVP, Pinnacle Advisory Group
- “The pressure of the unions outside of major markets is increasing significantly. It’s becoming a big issue.”—Melissa Silvers, principal, SCS Advisors
- “The enigma of rate growth … we (as an industry) just haven’t figured it out yet,”—Larry Trabulsi, SVP, CHMWarnick
- “Transient demand has been surprising in a lot of markets. There’s way, way more than we forecasted. There’s not a good explanation … is it a trend, is it an anomaly?”—Derrick Yee, VP, Watermark Capital Partners, who stressed his comments were his opinions and not necessarily the opinions of the company.
Those comments came at the end of a discussion focused on the future and the results of group’s sentiment survey—a future that includes steady performance metrics despite facing some bumps in the road, the executives said.
Perhaps the most important element of the survey’s takeaways is that 56% of respondents said their companies are exceeding budget in 2018, according to Arrants. The expectations call for more an industry good times in 2019—as more than 40% of respondents expecting a flat to 2% increase in revenue per available room. An additional 39% of respondents said they expect a 2% to 4% RevPAR jump next year.
More than 60% of respondents said they expect the RevPAR growth cycle to continue for the next seven to 18 months. HAMA members are cognizant that the industry will face a downturn at some point.
“There will be a market correction,” Dick said. “Everyone’s anticipating one, we just don’t know when.”
“Nobody really knows,” Arrants said. “There was some optimism in that over 20% said they thought the cycle would last 19 to 30 more months.”
With a number of challenges and opportunities available, owners must have a plan in place for when the downturn does happen, the executives said.
“As things get more competitive, our fear as owners is what the operator’s going to do from a competitive standpoint,” Arrants said. “Our fear is they hit the panic button.”
Yee said avoiding steep discounting is the key.
“A lot of these chains are only as strong as your weakest link,” he said.
When asked to name the top three issues they face, 91% of respondents chose labor costs and 70% picked new supply.
“We’re seeing it everywhere,” Arrants said. “You have the new Disney contract, and you have the new union contracts in San Francisco and other major cities. A lot of us are involved in those negotiations, and/or planning or looking at it from a budgeting perspective for next year. While some of them are minimum wage increases, (which) rolls up because if you are raising your bottom people, we have to raise others along the way.”
“It probably will get worse—the low unemployment,” Dick said, citing talent acquisition for line-level employees as a major issue facing hoteliers.
Taylor, who serves as HAMA’s president, said the rising cost of labor, including union contracts that tend to call for wage increases between 4% and 5%, is a big issue if RevPAR growth stays in the 2% range.
“(Asset managers) really have to be part of those (union negotiation),” she said.
Obtaining H-2B visas has been more difficult this year, and when companies don’t get the H-2Bs they need, they have to turn to the more-expensive J-1 visas, according to Yee. In addition, the hard work required at hotels often steers candidates to other industries.
“There are a lot of job opportunities that are less taxing that pay better,” Yee said. “Longer term, it’s a broader challenge for our industry.”
The HAMA executives also said insurance, brand proliferation and cyber security are issues that hoteliers must closely monitor. Gauthier said hotel operators face the constant pressure of brands pushing more costs to them.
Also on the radar are cancellation fees, which are increasing in length and industrywide implementation as more hotel brands have instituted 48- to 72-hour cancellation policies.
“It’s a real positive shift for us,” Arrants said. “We’d all like to see it get closer to (the) airline model.”
“Once the brands jumped on board and supported it, that’s where the traction came,” Fulcrum’s Kaminsky added.
The HAMA survey also revealed hot and cold markets in the minds of the group’s members.
Hot markets where HAMA members would buy include Washington, San Francisco, Miami, New York, Atlanta and Boston. Markets they said they would exit include New York, San Francisco, Los Angeles and Nashville, Tennessee.