A panel of hotel company executives at this week’s Southern Lodging Summit in Memphis pointed to distribution, supply growth and financing challenges as indicators of small, but growing, concern.
MEMPHIS, Tennessee—While the U.S. hotel industry continues to enjoy overall favorable performance and supply-and-demand metrics, small disruptors are creeping in that have caused uncertainty for some hoteliers.
That was the sentiment at this year’s Southern Lodging Summit in Memphis, Tennessee, and speakers on the “Presidents panel” Wednesday addressed just how much of an impact these small disruptors are having on the industry.
“There’s really no one, particular, big thing causing concern,” said Alex Cabañas, CEO of Benchmark Hospitality International. “In a lot of other cycles, maybe it was oversupply that was a very specific concern. 9/11 was a specific concern. The housing crisis was specific. While people are saying we’re in some sort of a last inning, there’s no big element causing uncertainty. It’s a bunch of little things this time.”
So what’s contributing to that disruption? The panel identified supply growth, distribution changes and financing challenges at the top of the list.
On the topic of supply, John Hamilton, SVP of business development and acquisitions with Pyramid Hotel Group, pointed out that creeping supply “obviously affects all of us, just by doing the math.”
Mark Carrier, president of B.F. Saul Company Hospitality Group, said that supply growth is more concentrated in some buckets than others.
“Growth is in certain product types and the top half of the (chain scale) spectrum, and that makes sense; it’s where the money is,” he said.
That money might not necessarily be as free-flowing as it has been, panelists said. The plus side of that is it allows developers to focus on high-return projects in high-barrier-to-entry markets, and it also keeps supply growth in check.
“We have about $500 million to $600 million in projects in the ground or in planning right now, and they’re getting harder to finance,” Hamilton said, citing a Residence Inn project his company is developing in Berkeley, California, as an example.
“We could do 17 Tru Hotels for the cost of doing this one Residence Inn,” he said. “It’s expensive, but to us, it’s all about the location and it will be worth it.”
Bhavesh Patel, vice chairman of AAHOA and principal of ADM Hotels, agreed that banks are getting stricter with lending, but by investing in relationships with banks and identifying great locations, lending is still available.
Cabañas, whose company has a lot of ground-up development in its pipeline, said these tightening purse strings aren’t a bad thing.
“From a management company standpoint, it’s a good thing that there are more governors on lending right now,” he said. “The last thing we need right now is a significant oversupply situation.”
On the topic of distribution, speakers mentioned two main concerns: the impact of Airbnb and the costs related to brands offering lower rate options to loyalty program members.
Cabañas cautioned attendees against welcoming Airbnb with open arms.
“We said that about OTAs years ago—no big deal, they’re not going to hurt us,” he said. “And look what happened. Airbnb is the same. They have no capital costs, they don’t care about barriers to entry into a market, about supply, competition or labor issues. That’s a massive impact on us.”
Patel said now is the time for hotel brands to innovate when it comes to competing with Airbnb.
“Brands must come up with exceptional experiences and do what it takes,” he said. “They have to act now, though.”
Carrier said Airbnb continues to pose a threat, but plenty of action is being taken on the national hotel association level to help stem the tide and level the playing field when it comes to taxation. He said that message doesn’t always come across from the big hotel players.
“Public company leaders don’t want to admit to a threat and tank their own stock by talking about a threat they might not understand,” he said.
Panelists also debated the pros and cons of brands offering lower rates to loyalty members. Hamilton said owners are in the early stages of seeing the impact of these new offers.
“It all has a cost; that’s inventory being given away at a discount,” he said. “The richer the reward for the guest, the more that costs me as an owner, so where do you decide there’s a payback for that?”
Carrier responded by encouraging owners to take a longer view.
“If you’re a believer in your brand affiliations, you need your brands to be strong, and one of the best tools they have is that (lower-price program),” he said. “I’ve become a big supporter of it, even though you’re paying a price for it on top-line discounting and overall cost. These companies are all reporting a big swell in their loyalty membership.”
The overall message from the panel was that paying attention to all disruptors, big and small, will help sustain profitability in the long run when the cycle inevitably turns.
“There’s a lot of things happening now that have slowed growth and (revenue per available room) and made it more difficult to translate into the bottom line,” Hamilton said.