Hotels See 'Extended Run' of Stability

NEW YORK CITY-“I think we've got an extended run here,” Diamond Hospitality CEO Mark Brugger said Tuesday on day two of the 35th annual New York University International Hospitality Conference. The “extended run” Brugger had in mind was a period of stable fundamentals for the hotel sector, thanks to slow growth, muted development and an uptick in tourism both domestic and international.

The other lodging CEOs who shared the stage with Brugger at the Marriott Marquis here saw the near term in much the same way. However, Mitesh Shah, CEO of Noble Investment Group, pegged an uptick in the rate of growth to a resurgence in business group travel, which hasn't yet materialized.

With five owners represented in the group, there were at least three different philosophies in terms of portfolio composition. Brugger and his counterpart at FelCor Lodging Trust, Richard A. Smith, said they're shifting toward core cities and resort areas, shedding assets in secondary markets. Shah and Daniel Hansen, president and CE of Summit Hotel Properties Inc., lean toward select service, with Shah citing the sector's steadiness. Inland American Lodging Group's Marcel Verbaas said his company is more diverse in terms of product type, with a focus on assets that have long-term potential from a yield and valuation perspective.

The panel was titled “M&A in the Lodging Sector,” and moderator Arthur Adler, managing director and CEO with the Hotels and Hospitality Group at Jones Lang LaSalle, noted that there hasn't really been all that much consolidation during the current cycle. His panel didn't see much potential for mergers over the next 12 to 18 months, with Hansen noting that each of the companies represented there offered a “separate and distinct” way of viewing value creation. Joining one lodging REIT to another would dilute those viewpoints, he said.

There are also separate and distinct local conditions to contend with when expanding to global markets. Panelists during the “International Deals: How and Why?” panel that followed ticked off a litany of complexities ranging from regulatory regimes to cultural subtleties.

However, Benjamin Thomas Leahy, managing director and head of lodging group investment banking at Goldman Sachs, said the real challenge isn't overcoming these hurdles. Rather, he said, “If you're not going to these emerging markets, you're going to be left behind.”