Shrinking margins, downturn on minds at Hunter Conference

ATLANTA — Despite the lodging industry's concerns around shrinking margins and the possibility of an economic downturn on the horizon, executives at the 31st annual Hunter Hotel Investment Conference underway here are showing a cautiously optimistic attitude toward the future.

The Hunter Hotel Advisors’ three-day event kicked off yesterday afternoon at the Atlanta Marriott Marquis, drawing some 1,800 attendees. Following opening remarks by conference chair Lee Hunter, COO/Hunter Hotel Advisors, the day’s opening sessions delivered insights from leading executives on the current state of the industry, as well as a dive into the economy vis-a-vis lodging.

President’s Panel

In an interesting twist away from the traditional baseball analogy of "What inning are we in?," panelists were asked to compare the industry to a different concept, song, candy or animal. 

Ken Greene, Radisson Hotel Group’s president/Americas, tackled the question: “If you had to describe the hotel industry as a vehicle, what vehicle would it be?" Greene admitted, with a little hesitation, that his first thought was the Mystery Machine from the Scooby-Doo cartoon. With the industry’s rapid evolution, he explained, everybody is just “trying to really figure out what’s going on and it is a little bit of a mystery right now.”

One of the issues facing the hotel industry is shrinking margins and Vision Hospitality Group’s President/CEO Mitch Patel cited rising wages as one of the leading causes. Demonstrating the nature of the problem, Corry Oakes, CEO/co-founder of OTO Development, highlighted a recent internal survey of 10 of his company’s properties that found payroll rose 8.5 percent between 2017 and 2018, a number, he noted, that revenue per available room had not matched.

Patel said another source of diminishing margins stemmed from rising land costs. He recalled In 2014 his company opened a hotel in Nashville, where the land was purchased at $30 per square foot. Today, he said, land across the street now sells at $300 per square foot.

“We’ve had this kind of long-term trend of margin erosion and short term, over the last couple years, it has exploded,” said Oakes.

The panelists offered different solutions for countering diminishing margins, but formed a consensus around the importance of innovation and technology. Greg Mount, president/CEO of RLH Corp., offered his company as an example, mentioning a robot arm RLH showed off last December that would work alongside housekeepers. Greene called for the management side of hospitality to embrace technology, saying, “A person sitting in a room doing yield management can’t compete with having the right technology in place.”

Adam Sacks stands on stage talking
Adam Sacks, president of Tourism Economics, explains what people view as the biggest economic risks. Photo credit: Chuck Dobrosielski

Expectations for the Economy

Another factor causing anxiety about the future is the fear of an economic downturn. Several panelists pointed out that in recent history the economy has experienced a recession approximately every 10 years, suggesting, perhaps, it is overdue for another.

Adam Sacks, president of Tourism Economics, directly addressed this question in his session. His answer? No. “There’s no such thing as an expiration date on an expansion,” he told the audience. While he did not see any bubbles or crises that would signal a downturn, Sacks still advised attendees to prepare.

He also offered an overview of the hotel economy and how it has tracked over the past few years. Some takeaways included: spending on lodging in the United States has grown significantly more than other segments in the past seven years; domestic air travel appears to be driving U.S. hotel room demand; the U.S. is outpacing its G7 counterparts; and wage growth has been key to the economy’s good footing.

The speakers sit next to each other across the stage
[From left] Teague Hunter, Dan Hansen, James Merkel, Tyler Morse and Scott Trebilco discuss the industry's outlook. Photo credit: Chuck Dobrosielski

State of the Industry

A panel examining the "State of the Industry" brought together leaders from the investment and management side of hospitality, including Dan Hansen, chairman/president/CEO of Summit Hotel Properties; James T. Merkel, CEO of Rockbridge; Tyler Morse, CEO of MCR and managing partner of Morse Development; and Scott Trebilco, managing director of Blackstone Group.

Moderated by Hunter Hotel Advisors President Teague Hunter, the discussion included addressing concerns such as oversupply and lengthy construction times. The executives also outlined what has worked for them, which—across the board—largely meant finding properties where they could add value.

Morse said he found such value by choosing properties that clearly wasted money. “We have a mantra at our company. If you walk into a Hilton Garden Inn at 9 p.m. and there are two people behind the front desk, ask who owns the hotel because we would like to buy.”