At Lodging Conference, the end is not near

PHOENIX — The lodging industry is all about what's next. It talks in cycles and where it fits within it. At the current moment, its position is a cozy one—cushioned by strong demand, still-limited supply growth, low interest rates and a looser lending community. For those gathered at The Lodging Conference here at the Arizona Biltmore, the message was clear: the end is still not in sight.

But when will the end to the current good times come? As Harry Javer, co-founder and producer of the conference, said, channeling Tom Corcoran, chairman of the board of FelCor Lodging Trust, "Who says it has to?"

Well, one day it will—at least dampen. But now is not the time to discuss the inevitability of that. "It is not the end," STR SVP Jan Freitag said, citing year-to-date RevPAR growth of 4.8 percent and a RevPAR forecast of 6 percent for 2016, driven by ADR growth. "The fundamentals are strong," he said.

Fellow prognosticator, Mark Woodworth, senior managing director of PKF Hospitality Research, echoed Freitag's sentiment. "The very good will continue," he said, "through 2017." PKF predicts demand to climb 2.2 percent in 2016, with supply inching up 1.8 percent, still below the historical pace of 2 percent. PKF also forecasts occupancy to be 66 percent in 2016, ADR to grow 5.9 percent, leading to a forecasted RevPAR growth of 6.3 percent. (These are U.S. numbers.)

In baseball terms, according to JP Ford, SVP of Lodging Econometrics, "We are going into the top of the 7th inning." He added that strong numbers are still being sustained due to "very good disciplined growth."

Top-End Talk
That's what the consultants had to say about the industry, what about the C-level execs?

In one View from the Top session, global growth was touched upon by Simon Turner, president of global development at Starwood Hotels & Resorts Worldwide. "China is huge engine of growth," he said, noting Starwood's some 150 hotels there. "There is a different feel there than a year ago." Meanwhile, he alluded to Brazil as a country that is still challenging. "When see emerging markets crumble, we track that," he said.

Meanwhile, Eric Danziger, the newly minted CEO of Trump Hotel Collection, made one of his first public appearances since leaving Hampshire Hotels and Resorts and taking over Donald Trump's hotel brand. According to him, the now one brand luxury collection could soon be two brands. "We are discussing a new brand," Danziger said. "I can't help myself. It's a new idea in a completely different space." Before he left Hampshire. Danziger created Debut Hotel Group, composed of five brands in differentiated segments.

When discussion turns to how and when the hospitality industry could sour, normally, the issue of supply is brought up. When the going is good in the industry, supply is typically restrained, allowing demand and rate to flourish. However, when supply creeps up, that's when industry fundamentals level off.

Liam Brown, president, U.S. & Canada select service and extended stay lodging and owner & franchise services, Marriott International, captured it best: "We are our own worst enemy when we keep building," he said, leaving out the fact that the only way Marriott grows its business and stock price is through new unit additions.

Meanwhile, Roger Bloss, president of Vantage Hospitality Trust, noted the rise in construction costs, another theme or trend at the conference. "We are only building where conversion doesn't make sense," he said. "Land is the difficult part."

Starwood's Turner said it only makes sense to build when it's viable. "We all want to grow as fast and smart as we can," he said. "But none of us benefits when we build a hotel that gets into financial trouble. If a deal goes bad, it reflects badly on our brand. It’s our brand on the door that the consumer is seeing."

In another View from the Top panel, one executive talked about an investment and development inflection point. Chinese fervor for top-shelf assets, for example, is reason to believe that some of North America’s top metro statistical areas (MSAs)—the New Yorks, Chicagos, Miamis—have become overpriced. The EVP and chief development officer, North America for Wyndham Hotel Group, Chip Ohlsson, said as much. "The top MSAs are getting frothy," he said.
Where to turn? As Ohlsson continued, "secondary and tertiary are the next markets to look at." In saying so, he has made a declaration that markets once reserved for smaller, local investors and REITs looking for portfolio buys, should now be considered in play for institutional money, sovereign wealth and private equity.

Beyond supply creep, the other threat at the conference was Airbnb. To illustrate how much the home-sharing site has grown, Jay Patel, chairman of AAHOA, said that the association had recently reached out to Airbnb to, perhaps, discuss some kind of partnership, but received no response. AAHOA is an organization whose members own the vast majority of hotels in the U.S.

That was one of the questions: Will hotel companies work in tandem and either list their hotels on the popular site, or, rather, list homes on its own site?

Wyndham's Ohlsson made the case that Airbnb doesn't hurt Wyndham as it "skews more luxury," he said. Fellow competitor in the space, Choice Hotels International, and its chief development officer, David Pepper, said that Airbnb is leaning more toward an OTA model. "We fight them through brand loyalty," he said.

Marriott, for one, has at least had discussions with Airbnb, Brown said. "We can learn from them about experiential travel, but ensure they play by the same rules. We all believe in competition. Should we give inventory to them? Are they a 'frenemy'? We haven’t figured it out. It's a case of keep your friends close and keep your enemies closer."