The recession, downturn or whatever you label it pretty much validates that as an industry, we are no longer in control of our destiny. Every time you think that the worst is behind us, some event, be it economic problems in the Euro Zone, an oil leak in the Gulf, or some other situation that in past recessions would have little effect on our emergence from a downturn, becomes a factor impacting the hospitality industry’s recovery.
Yes, this is the result of being tied to a global economy. When the going is good, everyone prospers, but when any type of disturbance happens, even off our shores, it has an impact here. Thus in the past few months it was Greece, and today it is speculation about Spain’s financial state, that keeps open the door of uncertainty.
At the same time, financial uncertainty abroad has prompted foreign investors to seek security in the US, leading to the acquisition of hotel properties here--the most notable of late being the failed Watergate Hotel in Washington D.C by a French real estate group. So too, there is quiet investment from China, much of it on the West Coast.
Foreign investment is required, for if we are to clean up the mess here, properties need to exchange hands. Up to this point, most of the US based owner/management groups with equity funds are sitting on their cash, believing that by waiting out the sellers on timing the market bottom, even lower prices can be found.
Sellers remain equally stubborn. Most have written down loans, do not wish to give away any more perceived value, and are looking at the improving occupancy figures as a sign they should wait. Maybe, but for those who continue to read the “tea leaves” for hotels in the second half of this year, if we manage to have positive news through the rest the year, “good results” will be moderate.
Which brings me to the just concluded NYU Hotel Investors Conference that often serves as a predictor of where the industry is headed. Before the Conference opened, we got a flurry of predictions that this conference would see a “blizzard” of deals. The blizzard turned into continued intransigence, and while a few deals did come to pass, the word from the reluctant buyers was let’s wait for the next industry event to test the “deal” waters again.
This reluctance comes despite Conference panelists, many of whom believe that the worst is behind us, painting a rosy picture for the remainder of the year. However, as I got around to owners at the event, there were still too many that just did not buy into the rosy picture, and these owners tended to be the ones with a vested interest in keeping the pressure on the lending community. There was one point that no one disputed: the recovery is “fragile.”
But what of the industry after we have turned the corner on the recession? What can we look for in the industry that emerges? Let’s examine the major trends in the past several months.
The announced buyout of Interstate Hotels and Resorts by Thayer Lodging and Jin Jiang from China has been consummated, and we now have a truly International Management Group. The new entity will have offices in Cairo and Shanghai, in addition to Virginia.
Meanwhile, Barry Sternlicht of Starwood Capital has bought a 42% interest in Hersha Hospitality Management --as opposed to the Hersha REIT--that is expected to result in a major management group serving the industry coast to coast In like fashion, Waterford Management Group, who essentially has been active in the Northeast, is looking to spread its management services across the country.
And just such an opportunity could emerge with Geolo Capital, which is being run by John A. Pritzker, of the Hyatt family, as he buys a portion of Joie de Vivre Hospitality and hopes to spread the JDV boutique concept beyond California and into other key markets across the country.
If you are looking for two plus two that could equal four, consider the very current announcement by Hyatt Hotels that it is putting its owned portfolio on the market for sale. That development could bring lots of the investor groups into play for Hyatt properties.
Add to this mix, the change of MGM Mirage’s name to MGM Resorts follows up on its desire, expressed two years ago, to create non-gaming luxury hotels. Initially pitched overseas with limited success, now it is an opportunity open to all.
Finally, another interesting ingredient, is the new direction of some franchise chains towards independents--most notably Autograph by Marriott and Ascend by Choice, who are saying, “So you want to stay independent. We respect that, and created a home for you with services you would not be able to offer as an independent.”
So while the trends are a plenty (and rest assured more are coming), at present the two groups that stand to benefit the most are the very good management companies, and the diversified, financially strong multi-unit owners. Stay tuned: the only constant is change!