LOS ANGELES—Attendees at last week’s Americas Lodging Investment Summit overwhelmingly shared their optimism for 2023 while acknowledging that there are some factors in play that bear watching.
During the event at the JW Marriott and Ritz-Carlton LA Live, which attracted more than 2,600 attendees, Hotel Management met with a number of executives to check in on what their companies have been up to and what they expect for the year ahead.
In today’s round-up we catch up with First Hospitality and Outrigger Hospitality Group.
While hotels are First Hospitality’s main focus, restaurants and bars are taking up a bigger footprint in the company’s portfolio. First Hospitality conceptualizes, builds and manages the outlets, approaching each as an independent operation.
David Duncan, president and CEO, said a restaurant or a bar in a hotel is an extension of the brand and must be treated as such.
“A lot of hoteliers look at it as a cost center but in reality it's an extension of the front door, especially as you move into soft brand and more luxury,” he said. “We've built our portfolio into upper-upscale, full-service and luxury—and having really good restaurants and bars is key. You want to have a cool rooftop bar or a great dining experience.”
Previously, the industry would outsource these experiences, which Duncan said never worked because they weren’t aligned with the hotel. But while aligned, there still needs to be separation because running a great restaurant is quite a bit different than serving an amazing wedding, and hotels make most of their F&B money in banquet and catering, he said.
The financial aspect carries through to the actual restaurant itself and the inherent risk.
“You spent all the money building [the restaurant or bar]. It's all of your money to build the [furniture, fixtures and equipment] anyways,” Duncan said. “So you have $7 million into a space. I'm 100 percent at risk and then I outsource that and hope I get paid rent. Well, if it goes great, I get paid rent. If it doesn't, I spent $7 million and the lease is terminated. It's ours anyways; might as well own it and try to capitalize on that.”
On the hotel side, First Hospitality has 50 hotels with more than 8,000 rooms in its portfolio, comprising independent and soft brands, lifestyle and full-service as well as select-service and extended-stay. Growth last year was one third company acquisitions and two thirds third-party contracts, Duncan said.
Looking to 2023, he said there’s a huge pent-up demand for transactions.
“Properties have more debt than they did pre-COVID. They spent all the money on property taxes, not [property improvement plans], so they've deferred capital,” he said. “And up until now lenders have been more relaxed. Then you couple that with, say you had a $1,000 asset that's $650 in debt, which is 65 percent normally, you can't get that today and so that same exact thing that normally you could just refinance through, the new debt markets are like 55 or 50.”
That is going to put a lot of pressure on hoteliers to stop kicking the can down the road, Duncan said.
“The next couple of years, I think it'd be fascinating to see how it develops,” he said.” When you get into the urban core, are the offices really going to fill up and what does that mean and how does it change travel patterns? There [are] marathon days in Chicago where it’s $400, $600 a night. There's also Tuesdays in February that aren’t so great.
Outrigger Hospitality Group
Outrigger Hospitality Group is spending more than $250 million on renovations to various properties in Hawaii—and that number is going to grow substantially, according to President and CEO Jeff Wagoner. Work at the Outrigger Reef Waikiki Beach Resort has been completed, while the Outrigger Kona Resort and Spa renovation will begin on April 3. The Ohana Waikiki East by Outrigger project is slated to begin in September.
In addition, Wagoner said the company has a robust pipeline, and the majority of the hotels in the pipeline will need renovations as well.
“Our focus for 2023 is clearly recovery is still important and making sure that we're focused on our growth from a business perspective, not just adding hotels,” he said. “Working with our customers, whether it's wholesale partners, [online travel agency] partners, our direct partners, our group partners, to be able to get back to where we were in 2019.”
Before COVID, the Waikiki and Honolulu markets were driven by 50 percent international travelers. Boosting that segment up again is crucial for the company, Wagoner said.
“We have all of Australia back but we have very little of Japan back. Japan was the big driver of international and without that stock in the market that does really press us to make sure we're looking at other sources of business to be able to fill that,” he said. “There's a lot of focus on our operations and our commercial strategy right now. Secondarily, on the growth side, we've got several hotels in the pipeline, one of which, I'm pretty sure, will will come on early in the second quarter, which will be a significant add to the company. So we're really in a good place and looking forward to getting into 2023 a little further.”
Supply chain issues have been a concern for all types of properties in all types of locations, but island locations such as the ones in Outrigger’s portfolio face even greater challenges because of the need to ship almost everything.
“I look at it in two ways right now. One is, can you get product, and two is, what's the cost of the product? And what's the cost of the shipping? What I think is a little more problematic today now that we're a little farther out of the pandemic is cost versus access. For example, our property on Kona—we start [renovating] on April 3. We've got eight trailers [of products] already there. We had to rent a massive 65,000 square foot shopping center to store everything. But costs are high [and] shipping is still difficult.”
Wagoner said the company is still seeing cost increases of 20 percent to 40 percent on products.
Labor is another issue that has been plaguing hotels, but Wagoner said Outrigger has been lucky on that front, telling the story of a hotel that was nearing completion of a renovation during the pandemic. They called 60 employees to return to work and all 60 came back.
“I think that's because of a lot of different reasons,” Wagoner said. “I think in Hawaii we pay well. We take care of our people. We worked really hard to take care of their benefits through the pandemic. I think it paid off for us in that people appreciated it and when the opportunity was to come back to work, they came back to work.”