Articles Posted in Outlook and Trends

Published on:

1 April 2013

Hotel owners: How the appellate decision in Marriott International v Eden Roc can affect your hotel investment (and why you should understand the law behind the court’s decision)

As we reported in our 27 March 2013 blog, a New York Appellate Division court made it possible for the owners of the Eden Roc Renaissance hotel in Miami Beach to oust Marriott as its operator — despite the long-term hotel management contract between the two, which would have lasted another 43 years. (See “Marriott loses appeal in Eden Roc case: Why all long-term hotel management agreements are now terminable.”)

Setting the stage: owner-operator disputes over hotel management agreements

The relationship between a hotel owner and hotel operator is complex. While the owner bears the financial risk of the hotel’s success or failure and its gain or loss in value, the operator has the exclusive right to manage the owner’s business and is paid “off the top” whether the hotel is profitable or not. The contract between the owner and operator — the hotel management agreement — typically transfers control of the hotel’s assets to the operator.

Hotel owners nationwide are keenly aware of both the benefits and impediments of long term hotel management agreements with branded operators (and nearly all such contracts are long term, often running 40 or 50 years). On the upside, the brand can provide stability, consistent standards, a reservation system, marketing expertise and professional staffing. But the downside can be hard for owners to live with — brands can rigidly incur needless expenses, be unresponsive to market conditions and impervious to the owner’s need to run a profitable business and protect its asset.

While the majority of hotel owners and operators work hard to achieve a balance that is a win-win for both parties, it is easy to understand how things can go badly, fast.

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Published on:

15 March 2013

Great opportunity . . . and danger . . . await shopping center owners who seek to add hotels to their shopping centers, malls and retail centers.

An interesting confluence of factors has ignited a wave of hotel development — adding hotels to shopping centers, malls and retail centers. This trend is already underway and will be headline news for the next couple of years.

There are compelling synergies for both the shopping center and the hotel. These have been thoroughly documented by major players. One major shopping center owner performed a multi-year study on its 200+ properties and found that the right hotel can boost gross sales at shopping centers 20% to 40%. And the associated hotels also get a boost in Revenue Per Available Room (RevPAR) of 30% to 40% over hotels in their competitive set.

If you need more information on the basics — why people are adding hotels to shopping centers and malls — look at the articles posted on www.HotelLawyer.com. From the home page, scroll down and look on the right-hand side for under “Hotel Development” or go to www.hotellaw.jmbm.com/hotel_development.

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Published on:

21 February 2013

US Attorney’s Office announces criminal convictions arising from Host’s claims against Molinaro Koger

On February 19, 2013, the US attorney’s office announced that Jonathan Propp, 48, of McLean, Va., pleaded guilty today to conspiring with others to steal more than $20 million from Host Hotels and Resorts L.P. (Host), one of the nation’s largest hotel owners, by executing a series of illegal sales of hotels.”

According to court records, Propp was the chief operating officer of Molinaro-Koger, an international hotel real estate brokerage firm headquartered in Tysons Corner, VA From 2009 through 2012, Propp conspired with others to illegally sell hotels owned by Host to straw buyers, who would then immediately sell the properties to a buyer at a higher price, with the conspirators pocketing the difference. Propp admitted that he posed as a straw buyer, forged signatures, and obtained a driver’s license for one of the straw buyers who had died before the fraudulent sale could be completed.

Todd Lawyer, 53, of Fairfax, VA, also pleaded guilty today for his role as a straw buyer in the conspiracy. The conspirators earned more than $20 million by illegally flipping the hotels.

In addition, Propp admitted that he participated in a scheme to steal and launder an additional $15 million from deposits provided by prospective buyers of hotels, which they purported to hold in escrow but instead used to pay for personal and business expenses. Propp used the money to pay Molinaro-Koger’s expenses and employee salaries, despite knowing the escrowed funds were obtained fraudulently.

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Published on:

21 February 2013

Hotel Lawyers with Lodging Industry assessment: Demand is strong, supply is weak. RevPAR is healthy. What’s not to like?

We continue to receive calls from hotel owners, developers, investors, lenders, and members of the media asking, “What is the hospitality investment outlook for 2013 and beyond?”
There is a growing optimism among industry veterans and many of them are revitalizing acquisition (and a few development) projects. The level of activity has kicked up a notch or two.

One thing that everyone likes: barring unforeseen events, the stage is set for continuing improvement in hotel industry fundamentals and hotel valuations for at least 5 years – through 2017.

This presents a very attractive backdrop for investors, and experienced investors are already putting their plans in motion.

1. Fundamentals: What the numbers say

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Published on:

16 February 2013

Hotel Lawyer on the Pros and Cons of dual-branded hotels

Dual-branding of hotels in a single structure or complex is quite a trend in the hotel industry and has been picked up by the popular press.

The hotel lawyers in JMBM’s Global Hospitality Group® have been working on dual-branded hotels for some time, so we thought we would share some our observations on the pros and cons of this approach.

My partner, Bob Braun, has worked on many hundreds of hotel management agreements and franchise agreements, and has written this article to provide an important update on this subject.

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Published on:

27 January 2013

Hotel Lawyer with the mood of the hotel industry from the ALIS conference

If you didn’t attend the ALIS hotel conference in Los Angeles this year, you really missed something!

Hotel investment conference attendance is a barometer for the health of the hotel industry. Companies send lots of delegates to these conferences when they are doing well, expect increased business, and are optimistic about the future. By that standard, things are really looking up for the hotel industry in 2013 and beyond!

But industry fundamentals also backup this optimism. And there was more consensus than we have seen for many years that things are good and continuing to get better – – with at least a five-year run of improving economics and values. (5 years!)

But there is more good news . . .

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Published on:

31 October 2012

New Expedia Traveler Preference Program: What owners should know about the potential negative impact to their bottom line

It is so true that the devil is in the details. Take for example, the new “Expedia Traveler Preference Program.” It seems straightforward on the surface. The new program from Expedia lets guests pay the hotel directly at checkout, rather than to Expedia at the time of booking. This is a positive option for US hotels that would like to attract more European guests through Expedia as these guests prefer to pay the hotel at checkout rather than at the time of booking–six months before their vacation.

A negative impact of up to $2.1 billion in hotel values

Seems like a simple enough change, approved … roll it out …. But wait! What are the financial implications for hotel owners of this rather straightforward guest oriented program? Expedia handles 5% of all US hotel Rooms Revenue, so maybe we should look a little closer. Peeling back a few layers of this seemingly benign change in process could have a negative impact on US hotel ownership to the tune of $2.1 billion in real estate value unless concessions by Expedia, brands and managers occur!

Hotel owners get stuck with the increased costs

The issue is not that Expedia is allowing guests to pay the hotel directly; rather the controversy revolves around the fact that the new model increases the cost to a hotel to acquire the same business and that the entire burden of this added cost falls on ownership, while Expedia and the hotel brands and management companies (the two constituents that negotiated the agreement) benefit from the change.

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Published on:

Hotel Lawyer with Robert W. Baird hospitality research on hotel industry trends

We are very pleased to report that David Loeb has agreed to share his Robert W. Baird hospitality reports with us, and has agreed to make them available on HotelLawyer.com. Just click on the “Resource Center” and then “Industry Presentations.”

Here are the first two reports on C-Corps and REITs and Highlights from the Lodging Conference.

The first is the presentation given by David to the hotel industry think tank, the Lodging Industry Investment Council, on October 3, 2012, titled Hotel Update: C-Corps and REITs.

The second is a fascinating summary of RW Baird’s take on the state of the industry after more than 15 meetings with industry leaders in Phoenix. It is dated October 8, 2012 and is titled Highlights from The Lodging Conference, Select-Service Bullishness, Open Debt Markets.

Highlights from RW Baird’s reports

We asked David to give us his bullet point summary of the highlights in these reports, and here is what he said:

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Published on:

16 October 2012

What happens to the hospitality industry with certain likely political and economic scenarios?

Here is another insightful analysis of hotel industry performance and forecast. But unlike many industry analysts, Mark Woodworth and his team at PKF Hospitality Research forecast the effect of how Washington deals with the “fiscal cliff” deadline and related budget issues.

What happens if the automatic budget cuts currently the law of the land kick in because Congress can’t agree on an alternative course of action? What happens if they “kick the cliff down the road.”?

The results may surprise you. One scenario likely leads to a recession in the first half of 2013, but in any event Woodworth and his PKF team say ” Under all scenarios considered, 2014 will be a great year for the industry. It remains a great time to be investing capital in the industry.”

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Published on:

10 October 2012

Where are we and where do we go from here?

Vail Brown is Vice President, Global Business Development & Marketing, with Smith Travel Research, and recently presented a comprehensive report on the hotel industry performance at the Phoenix Lodging Conference, entitled ” Statistics, Trends and Projections for 2013 & Beyond.” See HotelLawyer.com at for the full presentation or click here.

All Smith Travel presentations can always be found at www.hotelnewsnow.com. Click on “Hotel Data Presentations”. We appreciate their consent for us to post the presentation on HotelLawyer.com as well.

We caught up with Vail after the Phoenix Lodging Conference and asked her what she thought were the most notable developments at this moment. She gave us three key observations from STR’s standpoint as it relates to the U.S. hotel performance data through year to date through August 2012.

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