LIIC: Industry settles into comfort zone
LIIC: Industry settles into comfort zone
03 JUNE 2015 8:48 AM
Members of the Lodging Industry Investment Council speaking during a pair of HNN roundtables earlier this week couldn’t find much to complain about when it comes to where the hotel industry is in the current cycle. 
NEW YORK CITY—Robust. Busy. Exciting. And fun. Those were just a few of the superlatives members of the Lodging Industry Investment Council used to describe the state of the hotel industry.
During a pair of roundtables sponsored by Hotel News Now that were held prior to the start of the 37th annual NYU International Hospitality Industry Investment Conference, LIIC members spoke at length about the good times in their respective businesses.
“We are buying; we are developing; we’re selling,” said Ben Brunt, principal and executive VP of acquisitions and development at Noble Investment Group. “We are busier than we have been in ages. It’s a fun time.”
The LIIC members appear to have good reason for the optimism. Vail Brown, VP of global business development and marketing for STR (HNN’s parent company), said 97% of United States markets achieved positive revenue per available room at the end of 2014.  
Mike Cahill, CEO and founder of Hospitality Real Estate Counselors, said industry transaction activity is picking up, too. 
“Buyers are saying, ‘I’m going to underwrite this with no growth in cash flow and my yield is fine,’” he said.
The good times are likely to continue to roll for some time, as several LIIC members said they can’t see a short-term end to the positive industry fundamentals. As was unveiled Monday on Day One of the NYU Conference, STR is forecasting increases in key industry fundamentals in 2015 and 2016. 
Jim Butler, a partner and chairman of the global hospitality group at law firm Jeffer Mangels Butler & Mitchell, said the growth should be sustainable. “The one word I haven’t heard a lot (during the roundtables) is ‘frothy,’” he said. 
Discipline reigns
Speakers during the roundtables said that industry players are by and large staying disciplined.
Today’s industry climate has little in common with 2007, said Supertel Hospitality CEO Bill Blackham.
“In 2007, everyone was throwing money out the door for the sake of getting in,” he said. “There was not a rationality. It was more of a frenzy.”
Tom Naughton, chief investment officer at Clearview Hotel Capital, agreed the industry’s financing scene is in a good place. “There’s tremendous liquidity,” he said. “The lending market is totally liquid. The transactions market is totally liquid.”
Blackham said that while hotel credit is not at 2006 or 2007 levels where 75% leverage was widely available, it’s also not at the levels of a few years ago.
“It’s not 2011 where it was shooting fish in a barrel,” he said.
Combine the industry’s discipline with a low national unemployment rate, and that’s a recipe for success, Naughton said.
“You have corporations that have to travel and consumers that want to travel,” he said. “When people have money in their pocket and want to travel, that’s great. I’m pretty confident people will have money to go on a plane or get in their car.”
Party spoilers
There are some factors dampening the overall mood in the hotel sector, however. For example, Robert LaFleur, an analyst at JMP Securities, said shareholders haven’t shown as much excitement over the industry as the fundamentals might otherwise indicate.
“I’m very focused on the disconnect between the conversation we’re having here and how everything’s very good and systemically everything’s very good and the severe case of the willies that our equity investors have right now,” he said. Year to date, the Baird/STR Hotel Stock Index was down 0.8% as of 2 June. 
While there is a lot to be happy about in the industry, LaFleur said all is not perfect. “We don’t have great room rates in this cycle,” he said. “We have OK room rates.”
Still, hotel stocks in general have shown some growth. Responding to a question from Cahill, LaFleur said if a prospective shareholder had bought every hotel stock back when the downturn began, he or she would have seen a return of three or four times. 
After three hours of mostly glowing talk about the industry, Cantor Commercial Real Estate’s Bill Weber joked about the overflow of good vibes coming out of the roundtable discussions.
“What could possibly go wrong?” he said, drawing laughter from other roundtable members.

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