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Brush & Co. Lodging Notes and Random Thoughts – March 2018

Scott Brush
lodging industry

March is certainly coming in like a lion – weather “events”across the nation – although here in South Florida we seem to be enjoying an early Spring.cauldron_of_gold.jpg

Hopefully your positive expectations for 2018 will be fulfilled – and surpassed – and you will find a real pot o’gold!

 


More From The Not-Quite-Crystal-Clear Ball

” U.S. Hotel Industry to Sustain Modest Growth in 2018” according to Zacks Equity Research as reported in Zacks.com. Consistent with the projections from STR, CBRE and PwC, the article indicates that “Despite the prevailing challenges such as unfavorable government policies, uncertainty in specific markets and RevPAR pressure, economic fundamentals appear strong enough to support modest growth in the hotel space in the short-to-medium term, and without any additional stimulus.”

Hotstats.com reports for ” January 2018: RevPAR Grows But Profit Slips for Hotels in the USA“. Profit per room dropped by 0.5% in spite of an increase in revenues as RevPAR grew by 0.6 percent due to increases in both occupancy and ADR.

” CBRE: Supply Growth to Peak in 2018” as reported in Hotel Business. In the recently released March 2018 edition of Hotel Horizons, CBRE Hotels’ Americas Research “is forecasting the net addition of approximately 101,000 rooms to the U.S. lodging supply inventory during 2018, an increase of 2% over 2017 average annual daily supply. This is the largest number of new rooms to enter the market since the 130,000 rooms that came on in 2009.”

Lodging Econometrics in an article in Hotel Business on the ” U.S. Hotel construction Pipeline – Present & Future ” says that 975 hotels/116,838 rooms opened in 2017, a supply growth rate of 2.3% and estimates that 1,145 projects/130,209 rooms will open in 2018, a supply growth rate of 2.5% and an increase of 17% in the number of projects.  Upper Midscale hotels represent 47% of the pipeline while Upscale represents another 32%.

” Nationalism is a threat to hotel industry says Marriott’s CEO “. In an interview with BBC journalist Tanya Beckett backstage at IHIF in Berlin, Arne Sorenson, referencing the Brexit vote, Donald Trump’s election and a swing in opinion against immigration in many countries, said: “The risk for us in the travel business is that even though travel is different than immigration, if people aren’t careful about the way they talk about it, they seem to be the same issue.”

Suzanne R. Mellen, Senior Managing Director and Practice Leader of HVS Consulting and Valuation, article ” Impact of Countervailing Forces on Hotel Values and Cap Rates “indicates that “After more than five years of relative stability, new factors are at play in the hotel investment market that will affect hotel capitalization rates and values in a changing economic landscape. Hotel sales transaction activity declined in 2017, while cap rates continue to rise modestly, and hotel values held stable. The outlook for 2018, while uncertain because of the changing political and economic landscape, is more positive than a year ago due to the tax reform’s favorable treatment of commercial real estate and a more optimistic business environment.”

Brookfield Asset Management Inc., Canada’s largest alternative asset manager (and the 2014 buyer of Thayer Lodging Group, Inc. which makes it a player in the hospitality industry) said in an article in Bloomberg – ” Brookfield Selling Assets to Build War Chest for Next Downturn” – that “We see no signs of underlying economic issues, despite the U.S. economy being nine years into this expansion. While this economic cycle shows no immediate signs of ending, it is clearly in its mid- to later-stages of an elongated expansion, and so we are being cautious, preparing for less robust times.” Cause for caution includes equity markets hitting record highs, government bonds historically expensive, corporate and high-yield spreads at record lows, and “bitcoinmania” taking hold, creating a market capitalization of $500 billion with “as far as we can tell, zero intrinsic value.”
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Branding/Un-branding/Collecting

Hotel Owners and Brands need to work together, but it’s not always a happy combination.  A lot depends on who holds the most “cards” in any relationship. An article based on comments at the IHIF in Berlin entitled ” Hotel owners increase demands on brands ” is a look at current thinking. “As costs increase and the price of assets rise, brands must work with owners to increase efficiency and productivity. And while hotel owners remained committed to the global flags, they are still insisting on more transparency and greater emphasis on the contribution of F&B and non-rooms income.”

Brand Finance’s annual report on the most valuable hotel brands “Hotels 50 2018” lists Hilton as the most valuable hotel brand, but down 24% from last year while Marriott is listed second but up 8% while Hyatt, at third, dropped 13%. Top 5 largest positive changes in value include Jinjiang (+71%), Quality (+54%), Melia (+52%), Comfort Inn (+41%) and SpringHill (+40%). The bottom 5 value changes are: Hilton (-24%), Crown (-26%), Novotel (-26%), Four Points (-35%) and Sheraton (-50%). “The report goes on to also rank the 10 “Strongest” brands

Carlson Rezidor Hotel Group is now Radisson Hotel Group and John Kidd, the new CEO says “Carlson has a different future now as Radisson Hotel Group ” as reported in Hotel Management. At the same time Hotel Business reports that ” Radisson Ups the Ante With New Collection, Loyalty Refresh “. The Radisson Collection – which replaces “Quorvus Collection” – is “a premium collection of hotels in landmark locations” bringing together “the most distinctive hotels in the Radisson Hotel Group portfolio, with 14 hotels confirmed to join the collection following the launch” this summer. This collection joins the “Luxury Collection” (Starwood/Marriott), “Autograph Collection” (Marriott), “Ascend Collection” (Choice), Curio (a Collection by Hilton), and, I assume, forthcoming “collections” from all brands that don’t yet have one.

Collections are an attempt by chains to bring into the fold properties that really don’t fit their prototypes for existing brands. The other approach for some unique properties means going “independent” and associating with groups such as Preferred Hotels. Jena Tesse Fox reports in Hotel Management that ” Deflagged hotels a boon for Preferred Hotels & Resorts“. Growing numbers of independents are “a sign of the growing strength and acceptance of independent hotels by the traveling public, and their appeal to owners” according to Philipp Weghmann, EVP of Europe for Preferred.

HotelNewsNow in an article by Sean McCracken says “Independent hotels enjoying a strong transaction market” as more and more traditional lenders and hotel investors view them as viable and perhaps even desirable targets. Data from STR shows 125 independent properties were sold in the U.S. in 2017, including the $515 million Pacific Beach Hotel Waikiki (839 rooms at over $600,000 per room). On a per room basis was the 80-room Hotel Yountville at $1.2 million per key. “Through the course of the year, independent hotels should for an average per-room price of $202,000, which as more than the average for branded upper-upscale properties ($190,000) but less than half that seen for luxury branded hotels ($423,000)

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Airbnb

Airbnb continues to morph. Skift report that “ Airbnb is Set to Launch a New Tier of Select Properties “. Airbnb Select is a program in which selected hosts with high ratings and reviews can be part of a curated collection of listings that undergo an inspection and professional photography process as long as they meet a lengthy checklist of requirements for particular amenities and safety features. The listings will show up more prominently and they may be able to raise their rates. 

 

Getting closer to being hotels???? Another change – ” Airbnb does the inevitable: Invites more hotels to platform “. As reported in an article in Hotels, Airbnb’s announced independent-minded hotels that meet standards can list their rooms on the Airbnb platform. Add this to last year’s article in Skift “ Airbnb Experiments with Hotel-like Concept Outside Orlando “. Airbnd will partner with a real estate developer on an apartment building – “Niido powered by Airbnb” – that will allow residents to share their apartment for up to 180 days each year. 
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This n’ That

  • As an industry, tourism in its many forms uses a large number of immigrant workers, some are illegal whether the employer knows it or not but most are currently legal under one form or another. Many of the legal workers may lose their status as TPS (Temporary Protected Status) is being revoked for some. There are currently 300,000 foreign nationals with the largest numbers from El Salvador (195,000), Honduras (57,000) and Haiti (55,000). The Center for Migration Studies of New York estimates 81 percent of the over 32,000 Haitians with TPS in Florida are in the state’s workforce and may need to be replaced. There is already upward pressure on wages and replacing the lowest level employees will only get more difficult/costly.
  • The AHLEF has launched a pilot program to offer degree programs that employees for ten hotel companies participating will be able to pursue higher education at no cost to the employee – certainly a “benefit” for many. I was originally drawn into the teaching by one of my college professors who was building a program to allow current industry employees to work toward their Bachelor’s degree while still working full time. Classes were held in various hotels here in South Florida and the hotel got a complimentary class for one by providing a classroom. I hope that the AHLEF program succeeds and grows.
  • The telephone department has already lost its status as a line item on the P&L summary and recently Robert Mandelbaum, Director of Research Information Services for CBRE Hotels’ Americas Research has penned an article “Other Operated Departments Become Even More Minor” He points out that guests’ use of their own devices has resulted (between 2010 and 2016) in a decline in revenues from both telecommunications and movie rentals of over 50 percent while profits dropped by over 60 percent. Guest laundry and valet revenue has declined by over 14 percent while profits dropped over 40 percent.
  • The prolific hospitality industry pundit Stanley Turkel has written the 192ndinstallment of his series “Nobody Asked Me, But . . . No. 192; Hotel History: The Negro Motorist Green Book” which was published from 1936 through 1966.  The article, in Hotel Online, explained that it enabled the black traveler to travel when “faced (with) a swamp of Jim Crow laws and racist attitudes which made travel difficult and sometimes dangerous.” I remember speaking with an older (older than me at least) gentleman who recalled (with embarrassment) a time in the 1950’s when as manager of a Howard Johnson’s restaurant in Savannah, he was required to refuse service to a black couple.  It is not that long ago.

Brush & Company – Lodging Industry Consultants

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About the Author:

As President of Brush & Company since 1993, he has provided a variety of services to all facets of the hospitality industry, with a focus on hotel and resort operations. Mr. Brush has the education and recognized expertise to provide high-quality, principal-involved consulting services, including hotel market surveys, operational diagnostics, comprehensive property reviews, litigation support, independent impact surveys, and asset management. Scott Brush has spend over 45 years in hotel operations and consultancy from General Manager of mid-market, full-service hotels to home office overview of the Navy Lodge program to consulting in both a large firm structure as well as the individual approach of Brush & Company. Scott is a graduate (B.S.) of Cornell’s School of Hotel Administration and the graduate program of Durham University Business School in England (M.Sc.).