Published on: May 7, 2019

The 2019 LIIC Top Ten — Hotel Real Estate: Mostly Sunny Days Clouded by Labor Issues

By Jim Butler and the Global Hospitality Group®

07 May 2019

Greetings from Los Angeles and the beautiful Hyatt Regency LAX!

Today, we kicked off Meet the Money® 2019 – the National Hotel Finance & Investment Conference hosted by JMBM’s Global Hospitality Group® – with the LIIC Top Ten. Presented by my friend, Mike Cahill, CEO and Founder of HREC and one of LIIC’s co-chairmen, the LIIC Top Ten reflects the perspectives of the industry’s most active members in the hospitality market.

— Jim

About the LIIC Top Ten

For the past 15 years, the members of the hotel industry’s preeminent think tank, “LIIC – The Lodging Industry Investment Council,” are annually surveyed to develop a list of the major hotel investment opportunities and challenges for the coming year. This exhaustive survey results in the LIIC Top Ten, a highly regarded profile of investment sentiment and attitudes for the lodging industry for the forthcoming 12 months. Altogether, the members of LIIC represent direct acquisition and disposition control of well over $60 billion of lodging real estate.

Members are currently extremely active and have the pulse of the market, with 64% of LIIC hotel investors having successfully sold a hotel in the last 12 months and 50% purchased a lodging asset. In defiance of any late cycle concerns, 93% are looking to buy more hotels over the next 24 months.

The hospitality industry’s most influential investors, lenders, corporate real estate executives, REIT’s, public hotel companies, brokers and significant lodging equity sources are represented on the Council. LIIC serves as the leading industry think tank for the lodging real estate business (www.liic.org).

2019 LIIC Top Ten Survey Results:

Hotel Real Estate – Mostly Sunny Days Clouded by Labor Issues: Overall, the 2019 LIIC Survey indicates mostly sunny skies for the next 12 months, with labor difficulties squeezing margins in a slower ADR growth environment. An overwhelming 90% believe the limited pool of labor has directly impacted property level gross operating profit in the last 12 months. How can owners solve the labor problem? 67% advise investing more in current employees, 46% suggest targeting young high school talent and 41% believe increased use of immigrants will help.
Hotel Property Values Still Increasing: Over the next 12 months, 40% anticipate that lodging real estate values will increase up to 5%. 37% believe values will be flat in comparison to 2018. Similar to last year, Upscale (35%) and Upper Upscale (29%) are preferred targets for buyers today. 40% believe hotel going-in capitalization rates will rise slightly, with 37% believing rates will be flat.
Top Three Threats to Your Hotel Investment:
- Low Unemployment (availability of labor): 67% of LIIC members believe the lack of suitable employees is the number one threat to hotel investment. An increase from 49% in 2018 and 26% in 2017.
- New Lodging Supply/General Oversupply: The former top investment concern in 2018, new hotel supply, is now a close second (64%).
- Federal and/or State Minimum Wage Hikes: In this low RevPAR growth environment, profitability margins are being squeezed quickly and with additional minimum wage hikes on the horizon, LIIC members are worried.
Hotel Transactions for Calendar 2019? In an abrupt turnaround from last year, 43% believe the total dollar volume of U.S. hotel transactions in calendar 2019 relative to year-end 2018 will increase, and 28% believe volume will be flat. The total number of assets forecasted to be sold by year-end 2019 is positive, 39% up, 36% flat and 25% down.
Hotel Debt: Investors still like the current debt market, with 78% of owners planning to refinance in the next 12 months. 58% believe hotel acquisition lending conditions will be stable with current levels over the next 12 months. Interestingly, 25% believe the availability of debt will improve, frequently citing more debt fund activity.
Investors Remain Contradictory on New Hotel Development: While 64% of hotel owners cringe about the negative impact new lodging supply is having on their hotel investments, 67% are pushing forward and believe it is still a good time to build, if selective about product and market. 82% of relevant LIIC members actually have new hotels actively under development, with 85% believing Select Service is the best product type.
Hotel Buyers Frustrated?Quantity: In a reversal from last year, 36% of investors believe that an “above average quantity” of hotels are available for purchase, 39% at “average quantity.”
Quality: 66% believe the overall quality (desirability to purchase) of assets on the market is average. In the next 12 months, regional owner/operators and major private equity are expected to lead the hotel investment buyer pool in the purchase of Upscale Select-Service hotels.
Scary Hotel Markets? LIIC members were asked in which three of the top 25 markets they “would not consider buying a hotel.” This year, LIIC members shuffled their cards, electing the same five scariest markets while merely changing the order:
- Norfolk/Virginia Beach (33%; up from 4th last year)
- Nashville, TN (31%; down from 1st place last year)
- St. Louis, MO-IL (28%; down from 2nd place)
- New York, NY (24%; up from 5th place)
- Detroit, MI (21%; improving, down from 3rd)Sleeper – where to buy? New Orleans! Only one vote against, time to buy in The Big Easy.
Opportunity Zone Investment? Trump’s real estate gift, opportunity zones, appears less desirable than anticipated, albeit still significant. 36% of LIIC investors are planning to concentrate future lodging investments within tax advantaged Opportunity Zones.
What about a recession? “Once bitten, twice shy” hotel investors still see a national recession in our near future. 43% believe it will occur in 2021, followed by 25% in 2020. A brave, Nostradamus-esque few (19%) do not see a recession in the next four years.

LIIC Bonus Questions:

Twitter? You won’t reach top hotel investors on Twitter, 78% do not use it at all.
Pay College Athletes? 44% of LIIC believe NCAA Division I college athletes should be additionally compensated with salaries or stipends. Capitalism rules!
No to check-out! Only 11% of the nation’s top hotel owners visit the front desk to formally check-out after a stay. Labor savings!

Mike Cahill, LIIC co-chairman, produced this year’s survey (www.mikecahill.com). Mr. Cahill is CEO and Founder of HREC – Hospitality Real Estate Counselors, a leading international hotel and casino brokerage and advisory firm (16 offices nationwide) specializing in lodging property sales, debt financing, consulting and litigation support (www.hrec.com). James Few and Morgan Wheeler, Associates in HREC’s Denver office, assisted throughout the process.

For additional information, please contact:

LIIC – The Lodging Industry Investment Council
www.liic.org

Co-Chairmen
Mike Cahill, CEO & Founder, HREC: mcahill@hrec.com
Sean Hennessey, CEO, Lodging Investment Advisors: shennessey@lodgingadvisors.com
Jim Butler, Chairman, JMBM’s Global Hospitality Group: jbutler@jmbm.com

Jim Butler

Jim Butler is recognized as one of the top hotel lawyers in the world. He devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion.
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Robert Braun

Robert Braun is a partner in JMBM's Corporate Department and a senior member of JMBM's Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. Bob represents owners in both transactional and operational issues. He advises clients with respect to business formation, financing, mergers and acquisitions, venture capital financing, joint ventures and strategic partnerships. He has represented hotel owners in the negotiation of several hundred management agreements, as well as spa management and franchise agreements. Bob also advises hotel owners regarding telecommunications, software, internet, e-commerce, data processing and outsourcing agreements. To read Bob's articles, go to www.HotelLawBlog.com and select "Management Agreements." For more information, please contact Bob Braun at 310.785.5331 or rbraun@jmbm.com.

Marta Fernandez

Marta Fernandez is a partner in JMBM's Employment and Labor Department and a senior member of JMBM’s Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. As a management labor lawyer with more than 20 years of experience, Marta specializes in representing hospitality industry clients in all aspects of labor and employment including labor-management relations such as union prevention, collective bargaining for single as well as multi-employer bargaining units, neutrality agreements and defense of unfair labor practice charges before the NLRB. She defends employers in administrative and litigation claims, such as employee claims of sexual harassment and discrimination and counsels clients in preventative strategies such as executive training, arbitration enforcement, and policies and procedures. To read Marta's articles, go to www.HotelLawBlog.com and select "Labor & Employment." For more information, please contact Marta Fernandez at 310.201.3534 or at mfernandez@jmbm.com.

Guy Maisnik

Guy Maisnik is a partner in JMBM's Real Estate Department and a senior member of JMBM's Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. Guy's deep and broad transactional practice includes complex real estate finance and venture capital transactions, including project finance, commercial finance, leveraged leasing and real estate acquisitions. He assists clients with development, leasing and disposition, loan portfolio acquisitions, loan and debt restructure, workouts and real estate exchanges. Go to www.HotelLawBlog.com for current information in these areas. For more information, please contact Guy Maisnik at 310.201.3588 or mgm@jmbm.com.

David Sudeck

David Sudeck is a Partner in JMBM's Real Estate Department and a senior member of JMBM’s Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. David has significant experience in the vacation ownership arena, focusing on the formation and registration of condominiums, timeshares and fractional interest regimes. He negotiates hotel, spa and restaurant management agreements, and assists client in the development, acquisition, sale and leasing of hotels, golf courses and restaurants. For David's take on current issues in the timeshare arena, go to www.HotelLawBlog.com and click on the topic, "Timeshare." For more information, please contact David Sudeck at 310.201.3518 or dsudeck @jmbm.com.

Robert Kaplan

Robert Kaplan is a partner in JMBM's Bankruptcy, Insolvency and Restructurings Group and a senior member of the Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. Bob represents lenders, special servicers, hard money lenders, community banks, national banking associations, distressed debt investors, and equity investors, positioning them for the best possible outcome by acting expeditiously to preserve value and increase cash flow. His industry experience and his knowledge of the current capital markets -- where distressed assets often include complex deal structures and securitized loans -- allows him to bring creative and effective strategies to the table. When aggressive litigation is the best strategy, he is a vigorous and effective advocate for his clients. Bob represented the securitized lender in the Chapter 11 bankruptcy case filed by the Clift Hotel in San Francisco, and in the subsequent negotiations and successful sale of the loan to a third party. The lender -- acting by and through GMAC Commercial Mortgage Corporation as special servicer -- was the holder of a $60 million loan secured by a Deed of Trust on the Clift Hotel. He has also served as counsel to CapMark, J.E. Robert Company, Inc., AMRESCO Management Inc. and Midland Loan Servicer in their capacity as special servicers on troubled hotel loans in CMBS pools. For more information, contact Robert Kaplan at 415.984.9673 or rkaplan@jmbm.com.

Martin Orlick

Martin Orlick is a partner in JMBM's Real Estate Department and a senior member of JMBM's Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. Marty specializes in representing hospitality industry clients in Americans With Disabilities Act (ADA) compliance and defense. He has represented more than 500 businesses in ADA issues, many of them hotels and restaurants, as well as hotel mixed-use properties. Marty is a member of the American College of Real Estate Lawyers (ACREL) and a frequent speaker on the ADA and other topics. To read Marty's articles, go to www.HotelLawBlog.comand select "ADA." For more information, please contact Marty Orlick at 415.984.9667 or morlick@jmbm.com.

Scott Brink

Scott Brink is a senior member of JMBM's Global Hospitality Group® and a partner in JMBM's Labor & Employment Law Department. Scott is a management labor lawyer with more than two decades of experience representing employers in all aspects of labor relations and employment law including union prevention, collective bargaining negotiations, defense of unfair labor practice charges before the NLRB, wrongful discharge litigation, individual and class action employment discrimination and wage-and-hour claims, sexual-harassment litigation, arbitrations, personnel policies, California wage and hour law, and employee discipline and discharge. An experienced trial attorney, Scott has litigated a number of high-profile and complex cases involving a wide range of labor and employment law matters. For more information, contact Scott Brink at RSB@jmbm.com or 310.785.5365.

Travis Gemoets

Travis Gemoets is an experienced trial attorney and represents management in all facets of labor and employment law, including wage/hour class actions, claims of discrimination, harassment, wrongful termination, trade secrets and unfair competition, union/management relations and workplace violence. He is a member of JMBM's Global Hospitality Group(r), in which capacity he negotiates union contracts and resolves labor disputes throughout the country, defends class action claims, develops strategies for the mass onboarding and separation of employees, and recommends proactive changes to employers' policies and practices in order to minimize potential liability risks. Reach him at 310.785.5387 or tgemoets@jmbm.com.

Mark S. Adams

Mark S. Adams is an experienced trial lawyer and a member of JMBM's Global Hospitality Group® and Chinese Investment Group™. He focuses his practice on business litigation including contracts, corporate and partnership disputes, and hospitality disputes and litigation. On behalf of hotel and resort owners, Mark has successfully litigated the termination of long-term, no-cut, hotel management agreements, franchise agreements, fiduciary duty issues, investor-owner disputes, TOT assessments, and more. He has wide-ranging trial experience in a variety of commercial disputes, including complex multi-party litigation and class actions. He has tried numerous cases in state courts, federal courts, and in domestic and international arbitrations, and is a frequent author and speaker on trial practice. Mark's trial wins have been covered by Forbes, Reuters, and other publications. He has obtained two of California's annual 50 largest jury verdicts in the same year. Mark has taken or defended nearly 1,000 depositions throughout North America, Europe and the Middle East. He has been quoted as an expert on noncompete agreements in the Wall Street Journal. For more information, contact Mark at 949. 623.7230 or markadams@jmbm.com.

Bennett Young

Bennett Young is a partner in JMBM's Bankruptcy, Insolvency and Restructurings Group and a senior member of the Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. His clients include lenders, financial institutions, secured and unsecured creditors, distressed investment funds, businesses, receivers, special servicers and creditors' committees. Ben represented the owner of a partially completed multi-billion dollar resort property in the restructuring of its finances and has represented lenders to hotels and casinos. For more information, contact Ben Young at 415.984.9626 or byoung@jmbm.com

Sheri Bonstelle

Sheri Bonstelle is a partner in JMBM's Government, Land Use, Environment and Energy Department, and a member of JMBM's Global Hospitality Group®. She represents owners and developers in land use, zoning, environmental, litigation and construction matters. She manages all aspects of the entitlement process, including representing clients before local and state agencies, commissions and councils. Sheri also represents clients in a variety of land use and real estate litigation matters in state and federal courts, including cases arising under CEQA and other environmental laws. Her hotel experience includes handling the adaptive reuse of an historic office building as a luxury boutique hotel. For more information, please contact Sheri Bonstelle at 310.712.6847 or SBonstelle@jmbm.com.

Kevin McDonnell

Kevin McDonnell is a partner in JMBM's Government, Land Use, Environment and Energy Department, and a member of JMBM's Global Hospitality Group®. Kevin represents developers and owners of hotels in a broad range of land use and zoning issues including entitlements, code enforcement, easements and parking requirements, as well as related Parcel Map and Tract Map subdivision issues. His hospitality experience includes hotels, condo-hotels and mixed-use projects. A registered Civil Engineer and Structural Engineer in California, and a former building official for the City of Los Angeles, Kevin brings unique experience and insight in Zoning and Building Code applications and Code Enforcement issues. For more information, please contact Kevin McDonnell at 310.201.3590 or kkm@jmbm.com.

Jamie Ogden

Jamie Ogden is a tax lawyer at Jeffer Mangels Butler & Mitchell LLP. He advises individuals and businesses on a range of tax planning, tax controversy and estate planning matters. Jamie’s experience includes all tax aspects with respect to the hospitality industry, including acquisitions and dispositions (including Section 1031 exchanges), financing and management agreements. He also serves as lead tax counsel on M&A transactions, financing, internal corporate restructurings and deferred compensation matters. Jamie also works frequently with litigators on the tax aspects of litigation, judgments and settlements. Jamie has extensive experience with foreign compliance matters, including each variation of the IRS amnesty programs. In addition to his experience in private practice, Jamie also brings several years of service from both state and federal government. For more information, contact Jamie at JOgden@jmbm.com or 310.201.3510.

Wei Deng

Wei Deng is General Counsel of Bosen American Capital, Inc. where in addition to his legal duties, he is responsible for sourcing, evaluating and proposing United States investment opportunities to the company. Wei was previously with JMBM, where he focused on transactional and litigation matters.

Jay Thompson

Jay Thompson has extensive experience representing private companies, business owners, family offices and investors in mergers and acquisitions, private equity and venture capital transactions and private securities offerings. Jay serves as general counsel to many of his clients, their management, and board of directors, helping to shape and execute their business strategies, facilitate growth and liquidity, as well as to advise them on day-to-day legal and other strategic issues. He is known for his practical approach to business issues. Contact Jay at JThompson@jmbm.com or 949.623.7258

Marianne Martin

Marianne Martin has nearly fifteen years of experience advising clients on a variety of commercial, financing, bankruptcy, restructuring and M&A matters, with a particular niche dealing with distressed and/or turnaround situations. Her clients frequently include private equity and hedge funds, independent sponsors, family offices, public and private corporations, financial institutions and banks, healthcare-related companies, municipalities and venture capital funds. She has represented clients in various capacities, including as borrowers/debtors, lenders, acquirers, and agents/trustees in negotiating and documenting complex commercial transactions, out-of-court restructuring transactions and advising on purchasing considerations in secondary market debt transactions. Contact Marianne at MMartin@jmbm.com or 310.201.3531

Trevor Countryman

Trevor Countryman is an associate in the firm's Real Estate Department. He advises clients in all aspects of real estate transactions including property acquisitions and dispositions, financing, leasing, development and construction. Trevor's clients range from large funds to individual developers and opportunistic investors, engaged in deals involving office, retail, multi-family, single-family, mixed-use and hotel properties. Contact Trevor Countryman at 310.201.3546 or TCountryman@jmbm.com.

Vanessa Han

Vanessa Han is an associate in JMBM's Corporate group. Vanessa can be reached at VHan@jmbm.com or 310.785.5383

Vince Farhat

Vince Farhat is Chair of JMBM's White Collar Defense and Investigations practice. Vince has extensive jury trial experience and focuses his practice on representing companies and individuals in criminal and civil investigations and prosecutions by government enforcement agencies, as well as complex federal litigation. He also advises companies in connection with complex and sensitive internal investigations. Prior to joining JMBM, Vince served as an assistant United States attorney in the Major Frauds Section of the U.S. Attorney's Office for the Central District of California. Contact Vince Farhat at 310.785.5382 or VFarhat@jmbm.com.

Sarah G. Hartman

Sarah G. Hartman is a partner in JMBM's Litigation Group and a member of JMBM's Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. Sarah is an experienced litigator who advises and represents clients through all aspects of litigation, from inception through trial and appeal. She advises and represents clients in the hospitality industry, including the termination of hotel management agreements and franchise agreements. Sarah also advises and represents clients on women's health technology issues, intellectual property matters, and complex commercial disputes, including breach of fiduciary duty, fraud, breach of contract, unfair competition, products liability, employment litigation, class action defense, false advertising and other complex financial disputes. Contact Sarah Hartman at 949.623.7243 or SGHartman@jmbm.com.

Michael H. Strub, Jr.

Michael H. Strub, Jr. is a partner in JMBM's Litigation Group and a member of JMBM's Global Hospitality Group® -- a team of seasoned professionals who have helped clients around the world with more than 4,700 hospitality properties worth more than $125 billion. He is a highly skilled trial and appellate attorney who has handled high-stakes, complex commercial and business cases for 30 years including disputes arising out of hotel construction, lending, and bankruptcy. In addition, he has represented plaintiffs and defendants in business and commercial disputes in a variety of areas. Contact Michael H. Strub, Jr. at 949.623.7233 or MStrub@jmbm.com.

Ask the Hotel Lawyer™ is a quarterly column that I write for JMBM's Global Hospitality Advisor®. If you have a question you would like to submit to Ask the Hotel Lawyer™ please use the comments box below. While your question may not be of sufficient general interest for the column, I will try to respond to you individually if you leave your contact information below.
Jim Butler.