ATLANTA—The way Mit Shah sees it, he is entitled to worry. It goes with the territory for hotel owners. Shah, the CEO for Atlanta-based Noble Investment Group, admits to being a worrier when it comes to demand trends at his company’s 45 hotels.
“We’re in the daily lease business, so what don’t you worry about as it relates to demand coming through?” Shah said during an interview held during last month’s Hunter Hotel Investment Conference. “You’re waiting for the next major disaster to happen, but at the same time you’re looking at the marketplace, and you’re trying to take advantage of real rate opportunity that exists based on growing demand.”
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Mit Shah, CEO for Noble Investment Group
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Shah said he marvels at the record demand the U.S. hotel industry has experienced for the last 18 months and sees good things ahead for hotel owners.
“It is interesting when you look at the supply/demand imbalance and what’s taking place,” he said. “It’s never really taken place before in our time. We’re quite bullish that transient demand will continue to see ongoing highs. We’re going to get to a point where 90 million roomnights (sold) a month is going to be the norm, and I believe it will continue to have some successive increases because travel for businesses has gone from something that is a discretionary spend to something that is an investment in the businesses themselves.”
Though he has some concerns about the pace of leisure travel maintaining its lofty pace, Shah said he doesn’t see it wavering in the near term.
Although gas prices are a hot topic, Shah isn’t worried.
“We are truly at a point that is historic in that you have very consistent demand, very consistent demand growth and negligible supply in the offing for at least the next three or four years.,” he said.
'The big gap in our business'
Like many industry leaders, Shah admits to being surprised that the robust growth in revenue per available room enjoyed by the industry—7.9% year to date through February after finishing 2011 up 8.2%, according to STR, parent company of HotelNewsNow.com—hasn’t led to more growth in average daily rate.
“If you look at all the slides, where we are in the supply curve, where we are in the demand curve, why rate isn’t moving more than it is?” he said. “It’s the big gap in our business.”
When it comes to growing rate, Shah knows exactly where to turn.
“Every market’s only as good as its best revenue manager,” he said. “A part of it is also that we’ve gone through such difficult times, historically difficult times in our industry, and customers are very understanding that there’s transparency in our business, and they’re being very, very focused about negotiating the best deal. It’s taking more time for operators to feel better that they can count on this transient demand.”
The differences in markets also play a big role in the transactions market, according to Shah. Market dynamics, including which brands are located in the market, vary so much that drilling down to uncover the underlying fundamentals of a good market is essential to making a good deal.
“It is always going to be a business that leases its rooms on a daily basis. It’s the most volatile (asset class), which I believe requires the most amount of specialization,” Shah said. “If you look at our world, which is in the world of private equity, investors today, major public pension funds, university endowments and the like, they’re looking in every asset class for specialists and for those (where) that’s what they do and that’s the only thing they do. There’s this whole model of allocators versus operators.”
So Noble, with its investors backing it, plans to churn its portfolio and enhance its exposure in markets with universities and large medical outlets, he said.
Shah said he expects other companies to have the same mentality as Noble: to focus on what they know well.
“For investors, having a focus on lodging as a ‘this-is-what-you-do’ is important,” he said. “Second, if you’re in lodging, having a focus around what niche of lodging do you focus on and what competencies do you now have to tie into that. For those organizations, I believe it’s truly going to be an exceptional time to be in this business.”
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| Noble Investment Group CEO Mit Shah is bullish on the opportunities for repositioning hotels throughout the industry, such as the project to convert a former Holiday Inn property into a Marriott hotel his company is doing in Memphis. |
