Panel debates external obstacles to recovery

6 Jul, 2011 By: Stephanie Ricca Hotel and Motel Management

New York–Just like no person is an island, no hotel (or hotel transaction) is immune to external factors.

In today’s hotel operating and purchasing environment, those external factors include still-high unemployment, a possible double-dip in the housing market and high fuel prices during summer travel season—just as the industry is experiencing tangible signs of recovery.

But how much do those factors really affect your business and how many have become simply the new normal? Members of the Lodging Industry Investment Council addressed these topics from a macro perspective at the New York University International Hospitality Industry Investment Conference in June.

“We’ve entered a unique period where we’re in an upcycle, but the last four months have been steady as she goes,” said Mike Cahill, CEO of HREC Hospitality Real Estate Counselors. “People are still buying. There’s a little more release from special servicers of better product, but relatively steady. Business as usual.”

In May, the national unemployment rate was 9.1 percent, according to the Bureau of Labor Statistics. May also brought confirmation from sources like Standard & Poor’s of a double-dip in the national home price index, citing prices down 32.7 percent from peaks five years ago.

On top of those numbers, fuel prices still average out at slightly higher than $3.50 per gallon [as of June 25], according to AAA, up from $2.75 per gallon during the same time in 2010.

LIIC think tank members debated whether these factors will make significant impact on a hotel industry recovery.

“The issue is whether the double-dip in the housing market and bad jobs report really means the seeming improvement in lodging will take a setback,” said Jim Butler, partner at Jeffer Mangels Butler & Mitchell. “I think the double-dip in the housing market is not significant [related to] the improvement in the lodging industry, because the uptick was fueled artificially by tax credits and it wasn’t very much.”

Timothy Dick, SVP of Trimont Real Estate Advisors, agreed, saying it’s all part of life in the hotel industry.

“People have gotten more comfortable with the shifts we’ve experienced,” he said. “There’s optimism but there’s also caution, what with gas prices and summer travel.”

Scott Socha, VP of business development for Delaware North Companies Parks & Resorts, sees firsthand how seasonal factors affect travel and hotel operations—Delaware North manages properties in America’s national parks and major cities. While weather can play a role in his property’s seasonal success—he cited closures so far this summer at Yosemite and Yellowstone because of rain—fuel prices aren’t much of an issue.

“Going back 40 years or so of parks data, gas can go up to $4 per gallon and traffic is still fine,” he said. “I don’t know what the breaking point is, but $4 isn’t it.”

It’s not so much about the cost of gas as it is the value, predicted John Arabia, CFO of Sunstone Hotel Investors.

“It’s less about the absolute value of gas than a recent change in value,” he said. “Consumers have now seen $4 per gallon gas a couple times, and people are almost budgeting for it. It’s becoming the new normal.”

LIIC members said the fuel factor depends on the market and the consumer’s travel habits.

“The cost of oil will affect different sectors different ways,” Arabia said. “The drive market will be affected one way. Now, when airlines start cutting capacity, that’s what to look for.”

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