Last week, the team here spent a few extra minutes after our daily news meetings entertainingly kicking around what we would do if we won the Mega Millions jackpot—as did most of the nation, I’m guessing. We knew there was no chance of winning, but every once in a while it’s fun to dream about a life with no financial constraints, right? Some of the HotelNewsNow.com staff vowed to continue working while others said they’d never be seen or heard from again (I won’t throw anyone under the bus by naming names).
The conversations helped resurface a query I’d been pondering for a while now: If all of a sudden $1 million dollars landed in your lap and you were forced to invest it in something related to the hotel industry, what would it be?
Hotel real estate?
Hotel supply is expected to remain muted at least into 2014, which means hotels that open early in that cycle will get a jumpstart on a peak-demand period. If you get some shovels in the dirt now in the right market with the right product, there certainly could be a lot of money to be made. Of course $1 million isn’t going to fund the construction of a hotel, but $1 million in cash with a 50-50 joint-venture partner could be a nice down payment on a select-service property in a secondary market. Would you build or buy? What markets would provide the best returns? Would you choose a brand or go independent?
Digital sales and marketing?
Some really smart people are taking advantage of the rapidly advancing online space and inventing revolutionary ways to sell hotel rooms. Imagine where you would be now if you had invested $1 million in a little startup called Priceline.com, whose stock today is trading at more than $740 per share? Sites like Room 77, Tingo, Backbid—just to name a few—are revolutionary in what they offer but may lack the investment to take them to the next level. And for some, the goal really isn’t to get to the next level; instead, they hope to get on the radar of a conglomerate such as Expedia or Google and be bought up. I could imagine some pretty hefty returns on a $1 million investment if your company was purchased by Google.
If we’re talking about the “next best thing” in the hotel industry, we’d be remiss to pass up the idea of international expansion. With travel throughout the world getting easier and less expensive, and middle classes emerging in remote countries, there is a great opportunity to get in from the ground up in many new regions of the world. How can an entrepreneur tap into new demand from new travelers in regions such as Brazil, North Africa, India and parts of the Middle East? Would you invest in a brand such as InterContinental Hotels Group, who is inventing new brands to cater to these markets? Or in a developer such as Bestech Hospitalities, who has contracted with Carlson Rezidor to build 49 hotels across India? Or into an organization like Booking.com or Expedia, which are both investing heavily in digital bookings in local languages and tailored to native devices? On the flipside, do you think the big Chinese domestic brands—Home Inns, Jin Jiang, 7 Days, for example—will take their show on the road? What about putting a Home Inn in Europe or North America to cater to the Chinese traveler?
Are you more of a hands-on person who wants more control over profit margins? Maybe you want to invest in a management company and, rather than being the financer behind the operations, you want to help build that relationship with the guest. A company like Interstate Hotels & Resorts seems to be on a solid growth path and is betting heavily on international expansion. Concord Hospitality and HVMG appear to be growing like gangbusters as well, adding new contracts seemingly every day. Those are all great examples of how operators are poised to benefit from the surge of banks looking for someone to manage their newly-obtained assets. Investing in a management company might mitigate risk because, if the economy experiences a setback, management companies might see percentages of revenue diminish, but they’re not falling behind on mortgage payments.
The other day, as a team, we were taking a look at stock prices for the major hotel brands. It’s interesting to see which brands are leading the pack and which are still struggling with stock prices (plug: the Hotel Stock Index is the best place to do this) … and then correlating that with recent announcements from the respective brands. Which brands are taking the right strategy—those that continue to move asset-light or those that continue to buy and hold assets? Which brands have unique value-adds (proprietary central reservations system, strong loyalty programs) that help them stand out among the crowd? Which are growing fastest and which have the biggest international pipelines?
There are plenty of other intriguing investment opportunities. Maybe you feel strongly about the effect technology will have on the industry, but you don’t want to get into the distribution game. Will Google Wallet change the way travelers use their credit card in the booking process and at the hotel, or will near-field communication technology revolutionize the check-in and keycard process? Is there a way to capitalize on the effect social media is having on the industry? Maybe you’re strictly an investor-type, and you want to see returns but don’t want to get involved. With all the CMBS debt coming due, is there an opportunity to buy hotel-related debt at deep discounts?
I’d love to hear your thoughts, strategies or even dreams in the comment section below.