After spending a few days with 1,800 or so hotel industry participants at the Americas Lodging Investment Summit at and around the J.W. Marriott L.A. Live hotel in Los Angeles, the prevailing mood can best be described as “eager to move ahead.”
Congrats to Jeff Higley and his team at The BHN Group for pulling off the conference in a safe manner. Everyone in the audience had been vaccinated or tested, and a mask mandate was in effect and mostly adhered to.
More than a few panels missed presenters — I guess for health reasons — but other than that this seemed almost like a normal ALIS. Pat Pacious, CEO of Choice Hotels International, remembered with a smile the 2019 parlor game of “what inning are we in?” and mused that the industry just went through a "two-and-a-half-year rain delay."
But the sun was shining in Los Angeles and, just like in the olden days, attendees crowded the plaza in front of the Starbucks to finally meet again in person or meet a Zoom acquaintance for the first time in real life, with pants on.
The good news was everywhere. Leisure travelers single-handedly saved the industry, with trillions in accumulated savings and plenty of saved vacation days to spend. “Work from anywhere” translated to “work from hotel” and the convergence of business and leisure trips, “bleisure” for short, is here to stay.
One obvious example of this was cited by Stephanie Linnartz, president of Marriott International: “Thursday used to be a check-out day, now it’s a check-in day.” The data from CoStar shows strong weekend performance, and that is now even translating to higher performance in some city centers.
With the leisure traveler in mind, Marriott is rolling out a Ritz-Carlton cruise later this year and has added tens of thousand of villas to its program, and I am sure photos of each will likely grace the Bonvoy advertisements from here on in. All of this was in service of making the loyalty program more — in Linnartz's words — “sticky” to get business travelers to choose one family of brands over the other.
Other hotel brand company representatives also talked about brand extensions or new brands on the drawing board, so stay tuned for more announcements throughout the year.
If the first three weeks of the year are an indicator, there will be many more deals announced and the brokers and lenders I talked to had banner years and are ready for more transaction activity. “Everybody and their grandmother raised a $5 billion private equity fund,” quipped Rob Hayes, CEO of Ashford Hospitality Trust, so I expect prices per key for trophy assets or hotels in leisure destinations to easily fetch figures that match 2019 valuations.
It sounds like brands, after two years of working with owners on deferred property-improvement plans — also called PIPs — are finally eager to get hotels back to the brand standard, but are bumping into two issues. Owners’ reserve funds that were depleted to pay mortgage interest are slow to rebuild, and supply-chain issues are hindering room renovations, as eager as hotel owners may be. I think the PIP pressure on owners may lead some to throw up their hands and cash out. Interest in hotel assets is certainly high, especially when cap rates of other commercial real estate asset types remain compressed. I think this will drive a fair share of transactions.
There was lots to celebrate, but problems remain. Owners and operators continue to wrestle with issues that have no easy solutions or answers and what will make 2022 another challenging year for some. Terri Hack, president of Terranea Resorts, talked through her challenge to communicate and adhere to conflicting pandemic-related federal, state and county regulations that change quite frequently.
David Kong, former president of BW Hotels, who deservedly received the first Arne Sorenson Social Impact Leadership Award, called yet again for more diverse leadership in a business where the labor force is one of the most diverse of any industry. Sadly, the makeup of many C-suites does not reflect that and the effort to implement change is slow going.
On the operations panel, the conversation turned to the enormous amount of plastic waste that is being generated that has yanked the industry’s sustainability efforts back by many years. On the plus side, QR codes are replacing menus and in-room reading materials, so I guess that means saying good-bye to the trusted “Where Magazine.”
Participants on every single panel spoke about, wrestled with and bemoaned the main issue of 2022 which is well-reported and well-understood: labor costs and hiring, rehiring and retaining staff. No silver bullets were presented, but my favorite example of innovative thinking came from an asset manager who is working with the local YMCA to create a daycare center for housekeepers to retain staff. Other new approaches are needed, but one of the main solutions will be around higher wages and salaries. Hotels are behind many other industries and I am afraid that optimization and innovation can only go so far; eventually hourly wages have to be competitive. Good news is that thanks to demand and inflation, the top line for a lot of hotels is growing quite well, which may make it easier to digest expense increases.
My takeaways from this year’s ALIS are that the real estate side of the industry is doing quite well. But operationally there are still two very distinct arenas — one where there is almost too much demand, healthy pricing and not enough labor; and one where there is not enough group and corporate demand and where labor pressures are present as well.
Resilience and recovery are ongoing and were on full display during the conference. I look forward to seeing how the mood and data has changed and improved when meet again at the NYU International Hospitality Industry Investment Conference in June.
Jan Freitag is the National Director for Hospitality Market Analytics at CoStar.
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