Articles Posted in Outlook and Trends

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
15 April 2014

DTLA against the San Gabriel Mountains - WSJThe coolest new downtown in America

If you haven’t been to what the cognoscenti now call “DTLA” (downtown Los Angeles) for a while, you might not recognize it. Gone are the days the sidewalks were rolled up at 5:00 pm and you had to go to Hollywood or Santa Monica for drinks or some fun. Earlier this year, Brett Martin of GQ magazine dubbed it “the coolest new downtown in America.”

In fact, the introduction to Brett Martin’s article is a great summary of the miraculous change in the demographics of DTLA that provide part of the reason that everyone seems to want to buy or build a hotel in Los Angeles today. Here is what it said:

America’s Next Great City Is Inside L.A.

For decades, Downtown has been the dark center of L.A.: a wasteland of half-empty office buildings and fully empty streets. But amid the glittering towers and crumbly Art Deco facades, a new generation of adventurous chefs, bartenders, loft dwellers, artists, and developers are creating a neighborhood as electrifying and gritty as New York in the ’70s. Brett Martin navigates his way through the coolest new downtown in America.

What does this “renaissance” mean in terms of the LA market for hoteliers?

Expanding markets are good for the hotel business. DTLA has become a destination and a hub of activity and excitement. Los Angeles has had so little hotel development over the past few decades, that it is one of the most underserved markets in the US now. And as hotel room rates jump, it is suddenly feasible to buy or build hotels that made no economic sense just a little while ago.

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Published on:

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
17 January 2014

The article below was first published by HotelExecutive.com (© 2014) and cannot be republished without permission.

Hotel Industry Outlook: Jim Butler’s Top 10 for 2014

by
Jim Butler | Chairman, JMBM’s Global Hospitality Group®

Top 10 for 2014 — Hotel Executive Annual Outlook
A lot of exciting things are happening in the hospitality industry as 2014 opens. Based upon more than $68 billion of hotel transactions, JMBM’s Global Hospitality Group® has made its “top 10″ pick of the events, issues, trends, and developments that will have the biggest impact on the hotel industry.

1. 2013 will prove to be better-than-expected, but 2014 will get even better. Sunny times ahead.

Better-than-expected results for 2013 will lay a solid foundation for continued growth and profitability over the next several years. Supply growth will be only about .8% – well under the long-term average of 2%. Demand growth will exceed projections, probably reaching 2.2% to 2.4%. Most importantly, ADRs have been increasing at about 4.4%, bringing disproportionately greater profit straight to the bottom line. And finally, RevPAR growth will be somewhere in the range of 5.6% to 5.9%. The numbers for the upper end of the market segments are even better.

Depending upon whose numbers you select (STR, PKF and Pwc), 2014 just gets better. Supply growth will edge up to 1.1%. Demand will grow at somewhere between 2.1% to 3.1%. Occupancy growth will approach 2%. ADR growth will range up to 5.2%, with RevPAR growth between 6.0% and 7.2%. At the luxury end of the market, RevPAR growth is projected to grow at 8.3% in 2014.

These sound industry fundamentals are reinforced by the improving American economy. Recently revised GDP growth for the third quarter 2013 is at 4.1% — the strongest advance in nearly two years and only the third time the economy has expanded that quickly from one quarter to the next since 2006.

Although this is expected to moderate in the fourth quarter of 2013, GDP growth for 2014 is expected to be strong, accompanied by lower unemployment, increased consumer spending, more exports, revitalization of the home building industry and weaning the economy off of Fed bond purchases.

There is a remarkable relationship between growth in GDP and growth in employment on the one hand and the health of the hospitality industry on the other. The confluence of strong industry fundamentals and an improving economy signals a forecast of more sunny days ahead for some time to come.

2. This will be a great time to buy and sell hotels.

Transactional activity has been building and will continue to do so. In 2013, the industry will record about $18 billion of hotel transactions, compared to $13 billion in 2012 and $19 billion in 2011. This is not close to the frothy levels of $23 billion in 2005, $31 billion in 2006 and $27 billion in 2007. But it represents a vibrant, and probably more sustainable level of activity – well up from the $2 billion nadir of transactions in 2009 – without the risks of a bubble market.

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Published on:

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
14 January 2014

Hotel Lawyer: The growing problem of security breaches with sensitive customer information.

The recent headlines about the Target and Neiman Marcus security breach with customer credit cards highlights a growing crisis that concerns owners and operator of hotels as well as retailers. In this article, Bob Braun, one of the senior members of our Global Hospitality Group® who focuses on data security — when he is not working on hotel management or franchise agreements — gives us some thoughts on what to do about this problem.

The Target and Neiman Marcus breaches:
What hoteliers need to know
by
Robert E. Braun | Senior Member, Global Hospitality Group®

The Target and Neiman Marcus problem. The massive security breach of Target’s customer data may affect more than 110 million Americans — potentially about 1 in 3 persons living in the United States. Followed in quick succession by another 40 million customers of Neiman Marcus (and more disclosures expected soon from other retailers), it is time for us in the hotel industry to look at our own policies and procedures, and to think about how we should respond to these malicious attacks.

Hoteliers beware. Hotels are obvious targets for identity and financial theft for many reasons. Hotels transact business through credit cards, and those credit cards are kept on file and can be accessed multiple times during a guest’s stay. The possibility that a credit card charge will be recorded occurs with each night’s room charge, room service, bar or restaurant bill, spa charge, and so on. Every charge is another opportunity for an identity thief to access the information using sophisticated computer hacks and other malicious software, generally without the hotel’s knowledge.

The need to respond to guest demands is another source of insecurity. The Identity Theft Resource Center noted, “The ability to connect to the Internet is an integral part of many individual’s daily life. This has led to the increased demand for public WiFi.” As a result, hotels find themselves compelled to offer wireless internet, and that service is almost always unsecured. But an unsecured wireless network is “just as dangerous as leaving files of your most important personal documents on a street curb for all to see. Hackers can easily get into an unsecured wireless network and get financial information, business records or sensitive e-mails.” (PC World, “Got Wireless Security”). At the same time, hotels have little say in the matter. Guests demand wireless internet service.

Finally, hotels have employees — lots of employees — and many of them have access to the credit card and other personal information of guests. No matter how well trained and supervised, more personnel correlates to greater risk. The fact that low-level employees typically have access to key guest information, and that there is, historically, a high turnover in hotel employees, exacerbates the problem.

What happened to Target? While investigations are continuing, sources have reported that investigators believe the attackers used similar techniques and pieces of malicious software to steal data from retailers. One of the pieces of malware is a RAM scraper, or memory-parsing software, which allows cyber criminals to grab encrypted data by capturing it when it travels through the live memory of a computer, where it appears in plain text, the sources said. While the technology has been around for many years, its use has increased in recent years as retailers have improved their security, making it more difficult for hackers to obtain credit card data using other approaches.

The lesson? Even as merchants become more vigilant and focus on the security of their systems, criminals have become more sophisticated and are investing more time and effort in crafting their own systems.

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Published on:

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
13 December 2013

Hotel Lawyer with some insights on buying and developing golf courses.

Hotel investors suddenly seem to be buying or building more golf courses. With the right expectations and circumstances, golf courses can make sense — particularly as an amenity for hotels, residential development and other real estate. But as more hospitality clients look at golf courses, it seems appropriate to consider the drivers of this renewed interest, and some of the similarities golf courses share with other hospitality investments such as hotels. And finally, we want to look at some of the big factors that make golf courses very different from other hospitality investments, so you can avoid some unnecessary pitfalls.

Why the increased interest in golf courses?

Interest in golf courses has likely increased for a number of reasons, including the continuing overall improvement in the economy, favorable projections for the hotel industry, the return of home builders to the active market, and the likely surge in new development in 2014 and beyond. In addition, it is now well proven that “mixed-use” really works, and that includes adding a golf amenity for hotels, condos, residential and other real estate product. On top of all this, there is a wave of Asian investment and tourism — particularly Chinese — that favors golf.

Many of these investors and developers are familiar with hotels, and have established teams of experts that are familiar with hotels — but they often don’t have golf course-specific experience and capabilities.

That is why it is important to realize that hotels are different (from golf courses) though they share a number of characteristics and are often both regarded as “hospitality” product. Recognizing the similarities and the important differences will enable investors and developers to fill in potential gaps of expertise to avoid unnecessary problems.

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
4 December 2013

Hotel Lawyer on the jump in hotel development and investment activity.

These are getting to be pretty exciting times to be in the hotel business. Hotel industry fundamentals have continued to improve since the Great Recession and none of the experts see a particular event or reason that fundamentals will stall. Although occupancy growth rate is slowing in some sectors, ADR growth generally continues to drive greater profits to the bottom line.

All this activity creates “management agreement opportunities”

New development is finally coming back, and 2014 may be a break-out year for long-delayed projects. The volume of purchase and sale transactions continues to grow. And owners or investors are seeking to maximize hotel value by repositioning existing assets.

The confluence of these factors is creating a lot of hotel management agreement opportunities for hotel brands, operators and owner/developers.
The 2 most important things affecting the value of your hotel

In the midst of all this activity, hotel developers and investors should remember that two of the most important things they can do with their hotel asset are to

  1. Choose the “right” brand and operator
  2. Negotiate a management agreement that preserves a reasonable amount of value, control and flexibility

And . . . get practical guidance on these issues from experienced veterans representing your interests (and only your interests) at the earliest possible time in the process.

New White Paper on short term management contracts
In case you missed it, Hotel Management recently published an excellent white paper that is highly relevant to all of these hotel management agreement opportunities. The article is called, “The Evolution of Short-Term Management Contracts“. Click here to download a PDF of the article.

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By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
20 September 2013

Since August 2011, HotelLawyer.com has been following some of the significant events in the unfolding story of surrounding Robert T. Koger and his fraudulent schemes. But yesterday (September 19, 2013), Jason Freed of Hotel News Now published a great article that provides a more comprehensive timeline and overview, and puts together the whole story from many parts of this fascinating tale. I highly recommend it.

I was pleased to be interviewed by Jason to provide some background and insights, and to be quoted in the article. To read this article, click on the link below.

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Published on:

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
18 September 2013

A version of this article was first published in the September 21, 2013 issue of Hotel Business and is reprinted with permission.

The number of hotel transactions is up by more than 50% for the first 6 months of 2013 over the comparable period last year, and is expected to top $18 billion for 2013, according to Jones Lang LaSalle. And HVS reports that the sales transaction volume of hotels is now intersecting its 22-year moving average, and predicts that hotel values will continue to grow at an average of 12% for each of the next 3 years (substantially less than the past couple of years, but still a nice increase in value).

These numbers are only the tip of the economic iceberg that hotel owners and investors analyze in depth, to help make decisions as to the right time to buy and sell hotels. As they delve deeper, they are finding a confluence of economic and market conditions that spell “opportunity.”

But how can it be a great time to buy and sell hotels? Why does the same environment indicate such different courses of investment strategy?

We will look at some of the factors that create this fertile ground, while keeping in mind that every owner and investor has a specific circumstance, investment horizon, capital situation and objective, and every hotel property has a specific condition, value, and potential for additional appreciation.

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Published on:

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
17 September 2013

The hotel world has been fascinated by the civil litigation and criminal actions swirling around the former President and owner of Molinaro Koger, Robert T. Koger.

In response to many inquiries, the hotel lawyers of JMBM’s Global Hospitality Group® has posted the 17-page affidavit sworn to by an FBI special agent with more than 17 years of experience, most of it in investigating white collar crimes like those charged against Koger.

If you just want the highlights, see the articles listed below.

If you want to read the details, click here to download a copy of the FBI affidavit on USA v. Koger.

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Published on:

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
11 September 2013

Hotel Lawyer with the latest on the arrest and jailing of Rob Koger, formerly of Molinaro Koger

There are some significant new developments in the saga of Robert T. (“Rob”) Koger and the high profile civil and criminal cases surrounding him. Here is the latest. (Earlier articles are cited below.)

On Monday, September 9, 2013, Robert T. Koger, 47, was arrested and brought before a federal judge in the Eastern District of Virginia. At the detention hearing, a court determines whether an accused will be released from jail (on bail or otherwise) before the trial. In Koger’s case the court found that Koger is a “flight risk” and he will therefore be held behind bars where he will stay until his trial for mail fraud and other criminal charges.

Background on the case

Koger was one of the principals in the Virginia-based hotel brokerage firm of Molinaro Koger, Inc., until the publicity of Koger’s fraud and deceptions of client Host Hotels & Resorts led to the demise of his firm.

Earlier this year, on February 19, 2013, the US Attorneys’ office announced that the COO of Molinaro Koger (Jonathan Propp) had pled guilty in federal court to conspiracy to commit wire fraud as part of a 3-year, $20 million “straw buyer” scheme involving the sale of hotels for the account of Host Hotels & Resorts.

It was only a matter of time until action was taken against Koger, and now the public process has started with the arrest and incarceration of Koger.

What happened at Monday’s hearing?

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Published on:

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
15 August 2013

Hotel Lawyer on the reported sale by Marriott of 3 Edition hotels.

Craig Karmin and Alexandra Berzon of the Wall Street Journal broke a big story yesterday evening which appeared in the August 15, 2013 US edition of the paper at page C3. The headline is “Marriott Close to Deal to Sell Three Hotels to Abu Dhabi Fund.
The story, in which I am quoted, describes reports from people close to the deal, that Marriott International is about to close a sale of 3 Edition hotels in London, New York and Miami Beach. The reported buyer is Abu Dhabi Investment Authority, or ADIA.

Other highlights of the article:

  • Marriott has said that it planned to invest up to $800 million in the 3 hotels
  • David Loeb of RW Baird estimates that Marriott has already spent about $575 million to buy, convert and upgrade the 3 properties
  • Marriott is expected to make a profit on the sale

So what does this transaction mean?

Here is what I think this transaction means:

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