If the adage, “The more things change, the more they stay the same,” is true, then it’s no wonder why the current climate feels a lot like the late 1990s. Of course, back then I had fewer gray hairs and the only tweets I knew of came from flying, feathered friends.
So, while personal appearances and technology have had major redesigns during the past dozen years or so, it seems like déjà vu all over again (thank you, Yogi Berra) in some regards.
Like the late ’90s, we’re coming out of a terrible recession that sent most of the world reeling. If I need to expand on what we’re experiencing now, I will assume you’ve watched too many episodes of the X-Files.
You might also recall that in the late 1990s we were entering into a boom that sent tech-related stocks through the roof. Remember webMethods? How about PurchasePro? Those stocks reached the stratosphere before the bubble burst in March of 2000. I wonder if the same thing might be starting to happen again today. LinkedIn, the professional networking site, had its initial public offering on Thursday and shares reached US$122 each during the day before closing at US$94.25. I might not understand all of what LinkedIn has to offer, but that price seems a little excessive. Meanwhile, RLJ Lodging Trust had its IPO earlier in the week and closed Thursday at a little over US$18. Summit Hotel Properties went public in February and closed Thursday at a shade over US$11 per share. It all seems a little out of whack to me.
In the late 1990s, real-estate investment trusts were the kings of the hill, scooping up assets at seemingly outrageous prices. Every company wanted to become a REIT. After a then-little-known REIT named Starwood Lodging acquired ITT Sheraton right from under the noses of Hilton, there was a firestorm of anti-REIT sentiment. Some C-Corp leaders even went to Capitol Hill to convince lawmakers that some sort of regulation was needed to stem the rise of the REITs. That ushered in paired-share REITs, paper-clip REITs and the like. It also signaled the start of REITs not being able to operate properties and a slew of new management companies were born. The Tax Relief Extension Act of 1999 allowed REITs to create new incremental income streams through subsidiaries. Those subsidiaries could lease hotel facilities from REITs; however, the facilities must be managed by an independent contractor that is actively engaged in the trade or business of operating hotel facilities for any person other than the REIT.
Today, REITs are involved in nearly every major acquisition of hotels. The prices they’re paying leave heads shaking in disbelief. But the execs at these companies need to spend money to enhance their portfolios. Some of the funds being used to acquire assets have a lifecycle that dictates a “spend it or lose it” mentality. Who knows where this will all lead for REITs, but with the financial chaos of the last few years still etched in our minds, it won’t be surprising if more REIT reforms become reality.
The go-go late 1990s made a lot of rich men in the hotel industry. Profitability in the sector soared as operators became more efficient. We can only hope that’s history that repeats itself.