Hotel asset managers remain positive amid labor concerns

Pictured from left to right: Chris Ostapovicz, VP, asset management at Host Hotels & Resorts and treasurer of HAMA; Matthew Arrants, ISHC, CHAM, EVP with Pinnacle Advisory Group and a member of the HAMA board of directors; and Melissa Silvers, principal of hospitality asset management firm SCS Advisors, and a member of HAMA’s board of directors. (An internal survey of the Hospitality Asset Managers Association shows rising uncertainty approaching 2019, mostly as a result of increased labor costs.)

DENVER—In taking the temperature of the current business climate, members of the Hospitality Asset Managers Association recorded a positive outlook among hotel asset managers for the near future, shadowed by rising uncertainty as 2019 approaches.

An internal survey conducted by the organization found more than 40 percent of its members are anticipating a 0- to 2-percent increase in revenue per available room for full-year 2018 versus the 2018 budget, compared to just 10 percent last year. At the same time, more than 60 percent anticipate between seven and 18 months remain in the current RevPAR growth cycle.

Matthew Arrants, ISHC, CHAM, EVP with Pinnacle Advisory Group and a member of the HAMA board of directors, said that despite the optimism in its memberships’ belief that there is still some runway left in RevPAR growth, this year’s outlook was host to more pessimism than in 2017. Most of these concerns are centered around rising labor costs, with more than 90 percent of HAMA members listing labor costs as a concern compared to 70 percent in 2017. These concerns, said Arrants, are rooted in increased union activity, low unemployment numbers and rising hotel supply.

Photo credit: HAMA

Tim Dick, director of the Atlanta office of financial services company Duff & Phelps, and member of HAMA’s board of directors, said many asset managers are anticipating a market correction, but they aren’t sure when it will occur. Labor concerns, he said, are also expected to only increase going into 2019, particularly as minimum wage increases continue to roll out across the industry. Arrants cited Disney’s wage increase to $15 an hour as just one example.

“Why be a housekeeper when [workers] can go and make more an hour in other industries?” Dick said.

Photo credit: HAMA

These rising labor concerns highlight the importance of training and mentorship in hospitality. Later during the conference, Peggy Berg, co-founder of nonprofit consultancy Castell Project, said it is up to hotel leaders to transform the industry into a more desirable place to work. She cited instances of students graduating with hospitality degrees and taking their skills to other industries, rather than keeping them in-house.

“When I talk with women, they say they don’t know about going into the hotel industry because they aren’t sure if they can move ahead if they want to have a family,” Berg said. “If that’s what we are telling women coming into our business, we’re toast.”

Photo credit: HAMA

HAMA’s report also highlighted policies for hotels to pursue to align reservation goals with the interest of owners, with more than 25 percent of respondents calling for shorter room cancellation windows and nearly 40 percent calling for more programs that allow travelers to select their guestroom for a fee.

“These are positive shifts, and we would like to see things get a little closer to the airline model,” Arrants said.

Melissa Silvers, principal of hospitality asset management firm SCS Advisors, and a member of HAMA’s board of directors, said fees and surcharges are also growing in favor in the organization as a way to offset wage increases.

“[Average daily rates] are going to be up 2-3 percent this year, but we still have to cover that wage increase and this is one method,” Silvers said.

“We joke that we love the fees, but we are also cognizant of the big picture,” Arrants said. “We are monitoring satisfaction scores, and that is the art of our business, finding that balance where we are hitting the right value. If your value scores are too high, then you aren’t charging enough.”

Photo credit: HAMA

Overall, HAMA’s members said they exceeded budget this year whereas last year the consensus was that its members were down overall. In 2018, 55 percent of HAMA’s members said they were exceeding their budgets with 44 percent of its members reporting being down overall.

When asked what the largest surprises of the year were, Arrants said stronger-than-expected demand stood out, but he was startled that rates haven’t managed to keep pace with increases in demand.

“I wish we saw more rate growth,” Arrants said. “That is the surprise, to me, that rates haven’t grown given the strength of demand so far this year.”