Company presidents and chief executive officers used a Memphis gathering to voice their opinions on issues facing the hotel industry.
MEMPHIS, Tennessee—Hotel industry leaders who attended the recent Presidents’ Dinner in conjunction with the Memphis Lodging Industry Update were eager to speak about a number of topics affecting their businesses, but five portions of the two-hour conversation commanded most of the attention.
Airbnb’s continuing impact
Alternative-accommodation megaplatform Airbnb appeared to be top of mind for all of the participants.
“It’s being a governor on rate; there’s no doubt about it,” said Jerry Cataldo, president and CEO of Hostmark Hospitality Group.
“As an operator, we understand it’s going to take a big chunk of the share,” said Morty Valldejuli, VP and managing director of Pyramid Hotel Group’s Guest House at Graceland in Memphis, which hosted the event. “You can’t fight it, so you have to embrace it … and treat it like new supply.”
Kevin Kane, president and CEO of the Memphis Convention and Visitors Bureau, outlined the way that city is tackling the issue of Airbnb hosts working around typical hotel taxes. Memphis has adopted a $2-per-night tourism fee for the alternative-accommodations/short-term rental business in the city.
“It’s real easy to calculate the rooms on Airbnb, and we started receiving checks in June,” Kane said. “Checks are averaging between $46,000 and $50,000 a month.”
By using the fee as a guide, there are between 23,000 and 25,000 Airbnb rentals per month in the city of Memphis, according to the CVB leader.
“Put that in comparison to the rooms sold in the two largest hotels in the city; they don’t sell that number,” Kane said.
He added that understanding the metrics is important for the entire hospitality sector, but especially for hoteliers.
“In the last couple of years, we have added the equivalent of another Peabody and another Sheraton to our market,” Kane said, referring to the 464-room Peabody Hotel and the 600-room Sheraton Memphis Downtown Hotel. “Fortunately, we’ve been able to keep our citywide (hotel) occupancy slightly up.”
The often contentious relationship between alternative-accommodation companies such as Airbnb and the hotel industry continues to churn, according to Greg Adkins, president and CEO of the Tennessee Hospitality & Tourism Association.
“It’s been an all-out regulations war between Airbnb and traditional lodging partners,” Adkins said. “Airbnb has hired dozens of lobbyists in Tennessee. The same thing is happening in over two dozen states.”
Adkins said the short-term rental lobby is no longer fighting tax provisions for the sector because those provisions legitimize the business. Instead, the lobbyists are pushing for states to enact laws that would prohibit cities from banning the short-term rental model in any specific location.
“They’ve kind of moved on from the taxation piece—they knew they would lose that, and they have,” Adkins said. “Now they’re working on the regulation piece. (Airbnb) is a $30-billion company that wants special treatment on zoning regulations.
“Local governments should have control because every locality is very different,” he added. “You want local governments to be able to regulate—local governments have always regulated where they put hotels.”
Changing tastes of consumers
The industry’s changing focus to public spaces and creating an experiential feel is the result of a complete shift in consumer habits—and it’s not just millennials that are fueling the fire, speakers said.
“It’s a mindset, a change in attitude,” Cataldo said. “People want to be where people are at, and I don’t think it’s an age thing.”
Larry Wright Sr., the semi-retired founder of Memphis-based Wright Investments, said that trend is evident at its Moxy Hotel in New Orleans. Wright Investments opened the second Moxy-branded hotel in the U.S.—a brand designed to appeal to younger age groups—and has found the demographics to cover all age groups.
The group also discussed whether the soft-brand trend sweeping the industry could flourish in lower tiers in addition to the mid- and upper-end segments that it is currently concentrated in.
“That could be an interesting idea go to small markets and have soft brands and let local history drive that brand,” said Sunny Desai, president and CEO of Jackson, Mississippi-based Desai Hotel Group. “Those old Hamptons are solid structures and could be good for that.”
Micajah Sturdivant, president of Jackson, Mississippi-based MMI Hotel Group, said he wasn’t sure the concept could work at the economy level.
“It will be hard for the soft brands to move down because you move into a value play,” he said.
Construction issues include labor woes
Montgomery Martin, founder and CEO for Memphis-based Montgomery Martin Contractors, said the development side of the business bears watching.
“It’s going to change fast for a lot of different reasons,” Martin said. “Construction costs are going to continue to go up, which is going to affect pay rate. Construction and hospitality and other service-oriented business have got to think about that now and over the next two or three years.”
Finding contractors and subcontractors isn’t an issue, the CEO said.
“You can get subs for sure; the question is can you negotiate a good (air conditioner) price,” Martin said. “Demand and materials are the two issues.”
Desai said the shortage of subcontractors has been a “big problem” for his company, which serves as its own general contractor for its projects.
“We’re a little more involved than a normal developer,” he said.
Work on a hotel DHG is building in Louisiana slowed to a crawl after Hurricane Harvey blew through Houston last August, Desai said.
“As soon as hurricane hit Houston, we lost two subs,” Desai said. “They said they were going to make more money. We couldn’t do anything about it.”
“Some developers like somebody that can travel with them that they can trust,” Martin said. “Sometimes there’s a bit of a premium for that, but in the long run it’s worth it.”
Labor continues to be top of mind
Like most other conversations among hotel leaders, the discussion touched on the industry’s need to find new sources of employees.
“Our biggest problem is finding the talent,” Wright said. “It’s become a much greater problem in the last several years.”
Wright said the company has refined the interview process to include more interviews and input from people within the organization.
“The end of that process is such that we’re attracting much better personnel,” he said.
The biggest challenge for hoteliers is on the personnel side at all levels, according to Cataldo.
“We’re focused on employee-facing programs and career development paths for people for those exact reasons,” he said. “It’s getting more and more difficult to find more people.”
“There’s an ongoing fight for quality staffing,” he said. “Pay is something that’s always a challenge. We wrap that up with a lot of other benefits we provide to our teams.”
Tax reform creates new questions
The leaders said benefits of the recently passed Tax Cuts and Jobs Act will continue to be more apparent as time marches on.
Sturdivant said MMI Hotel Group is looking deep into the federal tax changes to ensure it is correctly approaching the way its different entities are structured.
“The tax implications (are) playing out in interesting ways,” Sturdivant said.
While a number of high-profile U.S. companies were in the spotlight for providing bonuses and raises to employees after the tax act passed, that didn’t filter into the hotel industry as much, speakers said.
“We’re proactive about it … we’re not waiting for the question we’re being asked,” Sturdivant said. “We talk about the uniqueness that we have and the difference we have with some of the other entities out there. It’s different when it’s a publicly traded corporation (giving bonuses).
“The hospitality industry is full of small businesses,” he added. “When you walk in back-of-house spaces you realize this isn’t the same as the big boy, 100,000-employee company,” Sturdivant said. “It’s about being honest and upfront (with your employees).”
Cataldo said his executive team had questions about the tax-reform law similar to the one Sturdivant described.
“It’s all tied together … those are all going to impact our industry,” Cataldo said of issues running from tax reform to immigration.