Is this the beginning of the end? Well, that depends who you ask. More critically, that perspective depends on your goals.
The funny thing I’ve noticed about this hotel business we all love is how we all try to make a sweeping proclamation regarding the state of the industry. Stuff all we know into one tiny box. But, like life, it’s seriously impossible to do that for all facets and corners of the business at once.
Yet here I am at what may be my 10,000th conference and we’re all here doing just that. That conference, incidentally, is the Hunter Hotel Conference being held this week in Atlanta, and attendance here is bursting with would-be dealmakers. Totally record breaking; an enthusiastic crowd.
We’re all making declarations, positive our specific sweeping generalization is the right one. But what I have come to realize is all cycles do not affect everyone equally. Operations, development, financial; all function on different wavelengths, some with diametrically opposed goals. Develop too many hotels and operations suffer, for example.
My declaration is this: 2016 is going to be a record year for operations, but for anyone wanting to sell a hotel, now is the time to do it. It’s going to get tougher and tougher to find good buyers at the price you think your hotel is worth, and if you don’t sell now you may be stuck with an asset until the next cycle. As for development, well, it’s great goings right now, but do it while you can.
Bob Hunter, CEO of Hunter Hotel Advisors and creator of his titular conference, said that in an attendee poll conducted leading up to the event, 61 percent of attendees plan to develop a new hotel this year while 85 percent will finance for new purchases or refinance old hotels. WOW, that is a lot of influential people doing a lot of stuff.
Jim Merkel, CEO of Rockbridge, said during yesterday’s opening session there has been a level of uncertainty regarding the future state of cash flow, but it’s a good and necessary pause in the market. For now, he sees the transaction side of the business ripe with opportunity. “The underlying fundamentals are still solid and we are very comfortable with where the market is. The times are creating lots of opportunities and we doing lots of transactions and selling.
But others feel differently and are convinced the end is nigh. Not like "tomorrow" nigh, but more like "get things in order now so when the end does actually happen you don’t get smacked around as much" nigh. People still remember when the market evaporated at the start of the Great Recession, and this time many are saying to themselves, "if things are going this amazing it has to end soon enough."
Take, W. Chris Green, COO/principal of Chesapeake Hospitality, for example. He says there are too many factors pointing to a slowdown. “Rates are moving north, the stock market is stalled, supply is picking up volume and key rate segments are showing weakness. This all points to a flattening curve and considering the expense growth in labor, healthcare etc., margins will be under pressure. We are actively preparing our managed estate now as if the we already turning down, heavy e-commerce, revised sales plans targeting specific business lines to support RevPAR as needed, renegotiating supplier contracts and debt deals and finally getting our hotels in the best physical shape possible. I prefer to be 'early in' on prepping to avoid any surprises," he said.
I love that smart, thoughtful approach.
Ross Dorough, director of development with LBA Properties, also sees the signs as pointing to the end of these record-blazing times.
“Build as many as you can now because there is a perfect storm of the highest land rates and extremely high construction costs,” said Dorough.
He is currently doubling down on construction as he sees opportunity still in certain markets where he knows new product can fill a void -- he has a new one opening inn Cape Canaveral in a few weeks – but is staying away from markets like Miami.
“It is more of timing thing for us. We know what we are looking for and how to achieve that,” he said.