Hotel & Motel Management - November 3, 2008 - (Page 64)

64 News H&MM November 3, 2008 | HotelMotel.com LIIC’s mission The Lodging Industry Investment Council (www.liic.ws) is the premier think tank in the hotel industry. Its members include a diverse mix of 70 inﬂuential leaders in the real estate and ﬁnance ﬁelds. Membership is by invitation. Co-chairmen: Mike Cahill, president and founder of HREC—Hospitality Real Estate Counselors; Sean Hennessey, CEO of Lodging Investment Advisors, Jim Butler, partner, Jeffer Mangels Butler & Marmaro Mike Cahill Jim Butler Sean Hennessey www.HotelMotel.com/digital_edition Rate-cutting debate Continued from page 4 agreed, laying out a scenario: “The fact is, when you’re on the ground running the hotel and your competitor [cuts rates], you’re going to blink, or somebody’s going to force you to blink who supervises you, or [are you] going to tell your investor, ‘Nah, we’re just kind of holding the rate?’” Chad Crandell, president of Capital Hotel Management, was the ﬁrst to say “panic.” “If you’re in a market where [The Ritz-Carlton Hotel Co.] or Four Seasons [Hotels and Resorts] are dropping the rates, you have no choice,” he said. “If luxury panics, everyone else follows suit because I can’t have a Sheraton that charges $189 with a Four Seasons at $199. Most of those customers will go grab that Four Seasons experience over my Sheraton experience. That’s what we’re seeing in a lot of our markets. There’s a little panic. The business model we’re seeing is that it’s a lot easier to operate when you’re operating at a higher volume and compressing rates to get that last dollar. When the opposite occurs, they can discount to maintain that 74-percent occupancy. I won’t say it’s quite the panic we saw last cycle, but we clearly are seeing rates drop, and drop fairly quickly in key markets.” Mike Cahill, CEO and founder of HREC–Hospitality Real Estate Counselors, asked Freitag if STR forecasts revenue per available room decreases similar to 2002, when, Cahill said, “RevPAR decrease for the country was 1.5 percent, which was the worst scenario in 10 years.” Freitag said that’s not in the forecast. “I have to come back to rates,” he said. “We learned our lesson. If you look at the rate decrease post 9/11, it was probably a lot stronger than we reported versus what the consumer actually felt. … The message I get from this conference is that there are a lot of opportunists out there who are waiting, and I think that’s true for the economy overall.” Comparisons to 9/11 “If you asked us all eight months ago, it was, ‘Industry fundamentals are good, this is a debt-driven crisis,’” Cahill said. “Where did we all miss the boat? Was it just because there have been so many factors? No one predicted the ﬁnancial crisis. No one predicted oil prices would stay high. If you look at post 9/11, it was a period of an unprecedented historic event, and now, just through naturally occurring [events], you’re talking a worse RevPAR growth factor for the industry?” Jim Butler, attorney for Jeffer Mangels Butler & Marmaro, said the current ﬁnancial crisis reminds him of 9/11. “In NYC, it’s like an atom bomb went off,” he said. “It’s devastated employment; it’s devastated the psyche. That panic— [the government] bailout, Merrill Lynch sold off, Goldman converted—this stuff has just got everybody stunned.” Doug Dreher, president of The Hotel Group, pointed to the myriad issues distinguishing the present economic environment from a post-9/11 scenario. “You have foreclosures, subprime loans, oil prices, the dollar’s down, de-leverag- ing, consumer conﬁdence down,” he said. “There are so many different factors causing this uncertainty, whereas after 9/11 … we actually had a rally after it.” Robert Stiles, EVP, principal and head of the western region for Cushman & Wakeﬁeld Sonnenblick Goldman, made the connection to the consumer as well. “The de-leveraging really is going to be extreme on the individual citizen level,” he said. “They represented two-thirds of our [gross domestic product] before spending increased after 9/11. That same de-leveraging is going to happen all the way down to the consumer. People are having a harder time getting credit cards, home equity loans; home values are down.” Group vs. transient The shift in group and transient business many LIIC participants noted is happening at a time when rates and occupancy potentially will feel a big impact. Referencing higher-end segments, Freitag pointed out that: “Year to date through August 2007, business was skewed toward transient. This year we’re seeing that flipping. We’re seeing more groups being accepted, bolstering the occupancy. Because you’re shifting demand to lower-rate rooms, obviously the rate growth is compressed,” he said. “What we’re seeing in some markets is 20-[percent] to 30-percent drop in transient demand this month,” Van said. “Something dramatic is happening, particularly in markets like New York, but we’re seeing it in others.” Cheryl Boyer, president of Lodging Advisors LLC, noted the poor timing of the rate debate. “You’re negotiating your corporate rates for next year in the midst of everything that’s happening,” she said. “I reached out to a bunch of regional directors of sales and marketing in the New York area to take a pulse, and for the ﬁrst time ever I’m hearing that people are looking at where they can strategically lower rates for some of the key customers they want to hold on to who brought volume to the hotel.” Bernie Siegel, principal with KSL Capital Partners, noted the real estate and insurance businesses, what he called “the most proﬁtable segment of demand,” are out of work and not traveling for leisure or business. “Transient definitely has fallen off the cliff since Labor Day,” Crandell agreed. “That has a lot of operators worried. If transient goes, there’s no yield management in that scenario.” How does segment play into the group versus transient business scenario? “If you’re talking about a 120-room hotel in Mexico, there’s no issue there,” said Steve Kisielica, principal of Lodging Capital Partners. “But if you’re talking a 500-room Hawaii incentive house where you need group business, it’s one of the easiest things for a company to take off their budget. That’s an issue.” sricca@questex.com Pictured [from left] Glyn Aeppel, partner and CIO at Andre Balazs Properties, Larry Shupnick, SVP of acquisitions and development for Interstate Hotels & Resorts, and Bill Reynolds, managing director and chief acquisitions ofﬁcer at Thayer Lodging Group. CIRCLE NO. 134 H&MM | STEPHANIE RICCA http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition http://www.liic.ws http://www.kenyonappliances.com http://www.kenyonappliances.com

Table of Contents Feed for the Digital Edition of Hotel & Motel Management - November 3, 2008

Hotel & Motel Management - November 3, 2008 Contents The Rate Debate Accor Defines Motel 6 Prototype Rollout Holiday Inn Eyes Upscale, Timeshare Perspective Economy Sets Tone at The Lodging Conference Mellow Vibe Meets Bold Design at HD Boutique Expo IH/M&RS to Focus on Going Green Legally Speaking Sales Clinic On Finance Travel Trends Cornell Insights Franchise Law HotelWorld Update Trends & Stats Energy Star Update Energy Star Update An Industry Connected People on The Move Annual GM Survey Point-of-Sale Systems IH/M&RS Product Preview Outdoor Lighting Refrigeration Marketplace Ad/Editorial Index Classifieds Checking Out

Hotel & Motel Management - November 3, 2008

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