PHOENIX, Arizona—News and views from last week’s Lodging Conference in Phoenix:
* Yes, there was a subdued tone to the conference that drew about 1,500. But there wasn’t an air of desperation. There was uncertainty for sure, but it was backed up by an air of confidence. The general impression was that the hotel industry has seen economic turmoil in the past—in the early 90s when the savings-and-loan crisis reared its head and after 9/11. Maybe it was because this downturn could be seen coming a mile away, but even the unknown didn’t seem to scare attendees. There’s bound to be some worrying, especially after what happened in Washington yesterday when the bailout bill failed to pass, but last week in Phoenix, there weren’t any Chicken Littles running around.
* I’m convinced that sometime during the next 12 months Choice Hotels International will acquire an upscale full-service brand and launch an upper-tier extended-stay brand. It might require the Silver Spring, Maryland-based company to become an owner and a manager instead of only a franchisor, but it’s clear that Steve Joyce, the company’s new president and CEO, is open to using Choice’s strong balance sheet as leverage to grow the company. Joyce, who came to Choice this spring after nearly 20 years with Marriott International, is no stranger to aggressive growth. He said his favorite time with Marriott was when the company decided to aggressively grow its select-service brands. It’ll be fun to watch who Choice courts and ends up buying in the full-service arena. It’s also going be fun to watch the company’s friendly and knowledgeable development team launch another brand. The company considers the launch of its Cambria Suites brand to be a grand slam, and there are enough veterans at the company to remember the disappointing launch of MainStay Suites years ago.
* Hilton Hotels Corp. will also launch another extended-stay brand to go with its wildly successful Homewood Suites brand. Homewood took a number of years before it finally took root, but it grew tremendously once Hilton acquired Promus Hotels Corp. on the last day of 1999. Project ESP will undoubtedly attract the upper echelon of Hilton’s loyal and successful franchisee base.
* One brand that it doesn’t look like Choice will be able to acquire is Red Lion Hotels and Resorts. The Spokane, Washington-based Red Lion is a month or two away from wrapping up a deal to be acquired by Columbia Pacific Opportunity Fund LP. Columbia Pacific, put forth an unsolicited bid for Red Lion about three months ago, and it looks like the deal is all but done. Seattle-based Columbia Pacific is owned by Alexander Washburn, Daniel Baty, Stanley Baty and Brandon Baty, and it owned about 13 percent of Red Lion when it made the bid in June. As of March 31, the Red Lion chain comprised of 53 hotels with 9,266 rooms and 441,640 square feet of meeting space. It would have been a perfect fit for Choice, as Red Lion owns, manages and franchises, but barring a total breakdown, Choice is too late for this one.
* Memorial Day (the last Monday in May) and Labor Day (the first Monday in September) are looked at in the United States as the unofficial start and end of summer. This year, however, it appears that Labor Day is the start of something bad. A number of TLC attendees pointed to Labor Day (Sept. 1 this year) as the day the hotel industry began really feeling the pinch. Some say revenue per available room dropped dramatically after Labor Day. No reason to doubt them, which gives us all a reason to hold our breath when STR releases the September performance numbers for the U.S. around October 19.
* The U.S. government’s bailout of insurance giant American International Group will have a high impact on the hotel industry. Many hotel chains use AIG as their insurance provider, and when the government stepped in a couple of weeks ago to bail out the company it become a 79.9-percent equity shareholder. That’s good news for hotel companies that use AIG. They are still holding their collective breath, however, as AIG needs to retain its Class A rating. If it doesn’t maintain that financial rating , many of the hotel companies will be scrambling as they are required by contracts to have insurance through an A-rated carrier.
* Many hotel executives are finally taking the American Hotel & Lodging Association’s advice and fighting back and the proposed card-check neutrality legislation. If passed, the legislation would eliminate the requirement for secret-ballot elections when determining if a property wants to become a union shop. Many Democratic elected officials, including Sen. Barack Obama, back the legislation. If passed, it could present all kinds of problems for hotel owners, regardless of the size of the property. The legislation took center stage throughout the conference, and it looks like the AH&LA’s diligence is paying off.
* Speaking of the AH&LA, the association’s chief fundraiser, Toma Brashear, was awarded the Above and Beyond Award given by The Lodging Conference. There couldn’t have been a better choice. Brashear, who is only shy when it comes to getting publicity about his contributions, has helped the association raise millions of dollars for its political activism. During his acceptance speech, Brashear made one of the most poignant comments of the conference when he said everyone in the hotel industry needs to be aware of what’s going on. “Congress sometimes tries to shut us down without knowing they’re doing it,” Brashear said. That’s why it’s important to stay in touch and informed.
* One of the most uplifting conversations during the conference was with someone who said off the record that his company is involved with the possibility of building a resort in upstate New York that soldiers coming home from Iraq can go to. Funding isn’t in place, and of course there are plenty of hoops to jump through when dealing with the Department of Defense, but it sure is a great idea. Wouldn’t it be cool if the hotel industry in general banded together to make sure six or eight of these resorts were built around the country? It’s not likely, but it’s a heartwarming thought nonetheless.
* There aren’t many multi-property hotel portfolios being sold these days. The recent $39.5-million deal brokered by HREC’s Chicago office in which Shivam Hotel LLC acquired 13 Midwest properties from Midwest Lodging Associates was one exception. Several brokers told me that that multi-property deals are not on the front burner, they could sell single select-service assets, such as Hampton Inns and Residence Inns, all day long.
* It seems that any deal that has a chance to get done needs at least a 40-percent equity stake. Mezzanine financing is becoming more popular to help reach that figure. Cap rates in general are between 8 percent and 10 percent, and one financial expert told me that as long as jumbo loans for homes are above 9-percent interest, we’re in for a slow economy. Those jumbo loans currently are at 9.2 percent.
* About the only two U.S. companies talking about constructing hotels are Connecticut-based HEI Hotels & Resorts and North Carolina-based Concord Hospitality. The leaders of both companies said during the conference that they aren’t going to be shy about building because that means they’ll have fresh product in the market when the inevitable upturn arrives.