LIIC: Tech, humans undermine ADR gains
04 NOVEMBER 2014 8:47 AM
Members of the Lodging Industry Investment Council talked about how technological advances and short-sighted revenue specialists are hurting the sector’s ability to grow room rates.
PHOENIX—A spirited discussion about the influence of technology on the hotel industry was among the highlights at last month’s Lodging Industry Investment Council meeting.
The gathering, held in conjunction with The Lodging Conference at the Arizona Biltmore, turned to tech talk when David Loeb, senior research analyst and MD for Robert W. Baird & Company, brought up how platforms such as his company’s “Hotel Scout” program are altering the reservations landscape.
Loeb summarized the discussion: “Technology is the enemy of (average-daily-rate) growth.”
Loeb explained how Baird uses technology to scrape the global distribution system to find lower hotel room rates even after a reservation has been booked. He cited several examples, including saving 17% on a room in Boston when the rate was lowered five weeks after his original reservation was made. Other savings included 24%, 25% and 30%, he said.
“We expect to save between $20,000 and $25,000 a year by rebooking at lower rates,” Loeb said. “That is really scary. … That is money coming out of owners’ pockets.”
“Basically the program is paying for (a traveler’s) food-and-beverage for a day (when it finds another rate),” said Mike Cahill, president and founder of Hospitality Real Estate Counselors.
Dan Lesser, president & CEO of LW Hospitality Advisors, said technology reverses a long-time strategy many hoteliers employed over the years that allowed them to maximize profits on the last 10 rooms sold.
“This is not really computer- or technology-driven; it’s the managers who control the pricing, and there’s always the guy that drops his rate and everybody follows—that’s the problem,” Lesser said.
The group conceded hoteliers are their own worst enemies because they are the ones who lower the rates, and agreed that it’s not going to change anytime soon.
“That makes me think the downturn will come faster, and it will drop faster,” Loeb said. “It makes a commodity out of hotel rooms.”
He said there are commercially available sites such as TripBam and Tingo that use inventory from online travel agencies to accomplish similar results. That prompted Frank Anderson, president of Anderson Hospitality Consultants, to say the rate-scraping sites are “making a mockery of pace reports” because hoteliers can’t accurately project future bookings.
The meeting took on the same aura of the overall Lodging Conference as the LIIC members talked about the plethora of action surrounding their companies.
Bill Doak, first VP for CIM Group, said the company has five of its properties on the market and is developing a James Hotel in West Hollywood that will open in 2016 and a Cambria Suites property in Rockville, Maryland, that will open in May 2105.
He made no bones about where the real action is for hotels: “The fun part for me right now is in Las Vegas,” he said. “We have a 630-room hotel (a member of Choice Hotels International’s Ascend Collection) in downtown Las Vegas. It’s running 86% (occupancy) for the year.”
Interstate Hotels & Resorts
Larry Shupnick, senior VP of development & acquisitions for Interstate Hotels & Resorts, said the company’s acquisition of Rim Hospitality, which it operates as a wholly owned subsidiary, gives it a great concentration of properties on the West Coast. The company isn’t done; it is working on acquiring another management company in the United States and one in Europe.
Destination Hotels & Resorts
Russ Urban, executive VP of business development & acquisitions for Destination Hotels & Resorts, said Destination has closed 12 deals in the last year, and the pace is not letting up.
“The most interesting thing to me is how rapidly the paradigm is shifting away from big brand management companies by large institutions,” Urban said. “Big institutions and lenders are looking at the independent space differently than they were a couple of years ago.”
Omni Hotels & Resorts
Charlie Muller, VP of acquisitions & development for Omni Hotels & Resorts, said Omni’s plans for continued growth are in full swing.
The company is pursuing a 1,000-room hotel at the south end of the Ernest N. Morial Convention Center in New Orleans and plans to respond to a request for proposal to build a convention center hotel in Salt Lake City. In addition, Omni has announced plans for a convention center hotel in Louisville, Kentucky, and the deal is progressing toward being finalized. Last week Omni announced it was building a 300-room property in Plano, Texas, as part of the Dallas Cowboys’ training facility.
“We have nothing under construction at the moment, but a lot of our growth will come from new development,” Muller said.
Anderson, meanwhile, said workouts for lenders have been greatly reduced during the past year, but he is seeing a rising phenomenon with what he called soft mediations.
“There are a lot of requests from partners trying to figure out how to get along with one another,” Anderson said, adding that it often involves the direction of cash flow, the cost and carrying out of renovations, and exit strategies.
Loeb said the level of noise on the macroeconomic, political and health front has been pretty loud, but the volatility of the stock market can’t be overlooked.
“I don’t think we’re out of the woods yet in the (stock) market,” Loeb said. “Margin pressures are a concern.”
Loeb said hotel real estate investment trusts have raised a record amount of debt and equity. He predicted consolidation for that sector. He also said he doesn’t believe interest rates will be the catalyst to end this cycle for the hotel industry, but they will rise.