Author of www.HotelLawBlog.com
9 June 2008
Hospitality attorney on the latest outlook and sentiment of the hotel industry from New York. As a hotel lawyer, consultant, and deal maker, I am always listening and thinking. Here’s what resonated with me at the New York hotel investment conference last week.
PEARLS OF WISDOM
There were just too many pearls of wisdom gathered in New York for one blog. So to make them more digestible, we have broken them into segments as follows:
State of the U.S. Lodging Industry
What’s Weekday vs. Weekend demand tell us?
Whither Lodging Demand, GDP and the Cost of Gasoline?
Top Quips, Quotes and Insights from the 2008 NYU hotel conference
All these segments will be posted shortly, so check back if you don’t see the one you want.
It was only a few months ago that hotel industry pundits speculated that we were only in the 3rd or 4th inning of the good times for the hotel industry’s surge in growth and profits. Now, at least a few revel in predicting looming bankruptcies, receiverships and workouts. So what were industry leaders saying in New York last week?
The top Quips, Quotes and Insights from the 2008 NYU hotel conference
In the hallways of the Waldorf=Astoria, at the parties and receptions, and in even a few of the sessions, here are some of the top Quips, Quotes and Insights gathered from the 2008 NYU hotel conference, at least from a hotel attorneys’ point of view.
J.W. “Bill” Marriott Jr., Chairman & CEO, Marriott International, Inc.
International development is big, in fact, 40% of Marriott’s new development is outside the U.S. In Thailand we now have 11 new hotels. India is bigger than China for us. Russia and Eastern Europe are attractive, too.
Barry S. Sternlicht, Chairman and CEO, Starwood Capital Group L.P.
Mexico is a new force. It is a huge destination. People don’t get sick there anymore. From the U.S., we are in the same time zones. The weak dollar makes Mexico a bargain. All this makes Mexico big.
Jonathan D. Gray, Senior Managing Director, Blackstone Real Estate Advisors
“There are fewer hotel rooms in India than there are in Orlando, and India has 1.2 billion people.
China, Brazil, Mexico and so many other countries are all so underserved.
There is a huge opportunity for large branded companies — the technology, the brand, and the organization.”
Randell A. Smith, CEO, Smith Travel Research
“In the hotel industry, we always think that whatever is happening now, will keep happening for ever. If things are going well, we think it will last forever. And if things are slowing down, we think that will last forever, too.”
Bjorn Hanson Ph.D., Global Hospitality Industry Leader, PricewaterhouseCoopers LLP
“For the past 25 years, the relationship between GDP and lodging demand has been very close. If the economy grew by 1%, then demand would go up 1%. There is some decoupling, but the economy is still the best predictor of lodging demand.
Gasoline prices are another factor in lodging demand. For every 10% increase in gas prices, PwC has calculated that lodging demand declines by .5% — a significant effect on lodging industry.”
Mark V. Lomanno, President, Smith Travel Research
“Discounting? We don’t think that lowering room rate generates demand.”
Stephen L. Van, President & CEO, Prism Hotels & Resorts
“Workouts? All is quiet on the CMBS hotel market front — no workouts, receiverships or foreclosures. At the last peak of troubles, our REMIC operation managed 50 hotels for lenders. Now, we manage zero!
There is something like $8 billion of CMBS debt coming due in the next 12 months with a 1.2 DSC coverage and nothing to replace the existing debt. So I guess we will see what happens.”
Bernard Baumohl, Executive Director, The Economic Outlook Group, LLC
People talk about whether we are in a recession. That is irrelevant. Whether the economy grows or shrinks by one percent, people behave the same way.
Is the worst over? I think YES. We are probably 2/3 of the way through. We may see more homes lost in next few months . . . but the worst is over. The hemorrhaging is done.
We expect healthier levels of growth starting the second half of next year.
1. In early 2009, we will see the bottom for housing. We are seeing people buying. Lenders are starting to lend again, particularly in California. Housing affordability is biggest in 5 years.
2. The credit freeze will slowly start to thaw in second half of 2008 and look better by mid 2009.
3. And most importantly, while consumers are struggling now, it looks like mid 2009 will mark the return of the consumer. Unemployment is still just 5%. Not all regions of country are hurting. The farm states and oil states (about 12) are doing well.
Abid J. Gilani, Senior VP, Mortgage Banking, Marriott International, Inc.
“Financing is available at $30 million and below relatively easily, but is difficult above that amount.”
James T. Merkel, Managing Director, RockBridge Capital, LLC
“We are seeing a lot of delay in the market.”
Kevin D. Mahoney, Chief Operating Officer, Stonebridge Companies
“We are experiencing a de-leveraging of the hospitality industry, and of all real estate.”
Barry S. Sternlicht, Chairman and CEO, Starwood Capital Group L.P.
“There is no need for another hotel, but there is a need for another experience.”
Chad L. Crandell ISHC CRE, President, Capital Hotel Management LLC
“Energy is the budget buster. Water, sewer, fuel oil, gas, everything. Lift (airline delivery of passenger and airline capacity or number of seats available per time period) is down and that is a big issue.”
C.A. Anderson, EVP, Acquisitions & Development, Interstate Hotels & Resorts
Interstate is going international. We signed our first management agreement in India and now have 18 in the pipeline. We are doing a joint venture with HP Rama in India, and we opened the Hilton Moscow.
Barry S. Sternlicht, Chairman and CEO, Starwood Capital Group L.P.
Foreign investment is attractive. Half of our money last year was invested in India. But don’t underestimate the U.S. We have a stable government. We understand the tax system. We don’t have currency issues. We understand it all. In China, they keep changing the rules and the tax regulations. With foreign investment there, it is two steps forward, one step back.
John V. Arabia CPA, Senior Lodging Analyst, Green Street Advisors
We think that the airlines have a new importance as part of the delivery system to our hotels. And it is a big concern. BA just added a $430 fuel surcharge on all long haul flights. Total airline “capacity” is down by 2-3% from airlines going out of business. In addition, airlines have cut back capacity by 10-12%. Up to now, the industry has never seen more than a 5% cut in capacity.
In Hawaii, Aloha and ATA are gone, and that was 8-10% of lift in Hawaii. Pricing is a big issue now for Hawaii. You cannot get a ticket to Hawaii for less than $1,000 and could be almost double ($1,500-$1,800) soon.
Seat prices are up 6% this year, but airline analysts think that fares have to go up 20% for airlines to break even.
Put 15-20% increase in fares, and cut back in seat capacity of 10-12% and there has to be a significant impact on the industry.
Other information.
We have a lot of free, valuable information on the hotel industry at www.HotelLawBlog.com. If you want more information on Outlook and Trends for the industry, GOOGLE “hotel lawyer”, click on the first non-paid entry (the blog), scroll down the right hand side to “TOPICS” and click on “Outlook and Trends.” There you will see all the latest articles on this subject in chronological order.
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $87 billion of hotel transactions and more than 100 hotel mixed-used deals in the last 5 years alone. Who’s your hotel lawyer?
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Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $125 billion of hotel transactions, involving more than 4,700 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.
Jim Butler is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.
Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $87 billion of hotel transactional experience, involving more than 3,900 properties located around the globe. In the last 5 years alone, Jim and his team have assisted clients with more than 100 hotel mixed-use projects — frequently integrated with energizing lifestyle elements.
Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.
Jim is frequently quoted as an expert on hotel issues by national and industry publications such as The New York Times, The Wall Street Journal, Los Angeles Times, Forbes, BusinessWeek, and Hotel Business. He is the Conference Chairman of The Hotel Developers Conference™ and Meet the Money®.
Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.