As I am returning from this year’s NYU conference I think it fair to characterize the mood amongst the attendees as optimistic. From the opening CEO panel to the cocktail receptions to the conversation in the hallways it seemed that the attendees were happy to have weathered the storm. They are now looking for ways to capitalize on the ensuing boom—or at least to find the distressed debt rose amongst the thicket of default thorns.
Much of the upside focuses on buying/selling existing hotels and/or existing debt because the U.S. hotel development pipeline has declined to unprecedented levels. At the beginning of April, STR counted only 50,000 rooms under construction in the development pipeline, a number that is not likely to move much in the next 6 months. As Mark Lomanno presented in the conference’s opening session, we’re expecting the supply pipeline to increase only 0.7% this year and a paltry 0.5% in 2012.
View Mark Lomanno’s NYU conference presentation (sign-in/free registration required).
The hotels on the market are often being chased by multiple players with deep pockets and true bargains seem harder and harder to find. This is a markedly different tenor from the height of the crisis when everyone was expecting an RTC-like sell-off of underperforming assets that were supposed to flood the market. Though there still seems to be plenty of loans suffering on non-performing assets, the plethora of positive news from STR appears to have given banks further reason to “extend and pretend.”
I found it interesting to learn that a potential hiccup in that logic could be that brands, which over the last few years have been kind to owners by relaxing the brand standards, are now more insistent on keeping those standards intact and are not afraid to deflag those properties that don’t meet standards. And the only thing worse than a hotel in default is a deflagged hotel in default.
Markedly different from the upbeat mood was the private equity panel with two of the masters of that universe, Jonathan Gray of Blackstone and Barry Sternlicht of Starwood Capital. I got the distinct sense from Mr. Sternlicht that the wheels are coming off this bus, and sooner rather than later. Obviously he still thinks there are opportunities out there; otherwise he would just pack up his marbles and go home. But his “let me scare the pants off the audience” list of macroeconomic woes certainly was a sober reminder that there is something rotten in the state of Denmark, err, world economics. The moment that made most of us chuckle was his exasperated assessment of Russia and the lawlessness that keeps him from investing there: “They park in the middle of the highway!” Case closed.
On a topic closer to our hearts at STR, our new data gathering effort to quantify room demand and revenue by channel got rave reviews. It is interesting to me that the preliminary data shows that the online travel agent channel brings in only 7% to 8% of room demand. It seems that over the last decade the debate about the OTAs has had a much larger “share of mind” when talking about pricing power and shifting room demand. We are really talking about less than 10% of demand here, so I am glad that our studies can bring some good hard facts to the debate around the merits or pitfalls of utilizing the OTAs. Stay tuned for a lot more on this topic.
Finally, a classmate of mine now working for IHG was kind enough to invite me to the Icons of the Industry Award on Tuesday night presented by our alma mater, the Cornell Hotel School. And what a show it was. Drew Nieporent of Nobu and Montrachet restaurant fame was honored as was the Hilton family and the Hilton foundation for all they did and do in and out of the industry. Drew had his friends from the cast of the Sopranos introduce him and it was a fitting tribute to a room filled with what some call the Cornell Mafia. Congrats to Drew and the Hilton Foundation for an outstanding and well deserved award.