Darkness Before Dawn for Hotels

NEW YORK CITY-The nation’s lodging industry is in for more difficulty over the next several quarters, yet a moderate recovery is expected in 2010. That’s the consensus of a group of industry experts participating in Wednesday’s GlobeSt.com Webinar titled “Hotel Operations: Solid Gold Strategies for Your P&L,” sponsored by Real Estate Forum Magazine.

The five panelists participating in the hour-long discussion, moderated by Real Estate Forum senior editor Maria Wood, presented their insights on a range of topics, from overcoming downward pressure on room rates to attracting companies facing tighter travel budgets. They added that development of new rooms is being slowed by the ongoing credit crunch, which could help hotel chains maintain occupancy.

“There’s no question that the horizon is getting darker out there,” says Mark Woodworth, president of PKF Hospitality Research. He pointed to various slides during the presentation showing continued declines through the remainder of 2008 and into 2009, with a rebound the following around mid-2010.

Daniel Lesser, senior managing director-industry leader of the Hospitality & Gaming Group with CB Richard Ellis, says he doesn’t expect declines in the hotel industry to be as severe as in 2001-02, when revenue per available room was negative for five consecutive quarters. “RevPAR continues to increase, albeit at much slower rates,” he says.

The panel advises hotels to hold the line on room rates several ways, from enhancing customer service to taking advantage of promotions offered by major hotel brands. At the same time, they caution against heavy payrolls and operating expenses.

Energy savings and green initiatives may lead to savings, as well as a way to attract environmentally conscious guests as well as corporate clients with their own green initiatives. “If you’re LEED-certified, it’s all the better,” observes John Hamilton, senior vice president of acquisitions and business development for Pyramid Advisors LLC.

Hotel chains, no matter how large or small, need to impress upon and motivate the staff at each location to perform at their best, says Mark Laport, president and CEO of Concord Hospitality Enterprise Co. “It’s how you win in a bad economy,” he says.

Geoffrey Davis, president of HREC Investment Advisors, observes that hotel operators who got overleveraged over the past few years could find themselves under duress now. “What you did in the up market determines whether you survive in the down market,” Davis says, adding that 450 properties across the country are currently on watch lists.

Lesser adds that there are plenty of opportunities for cash-rich investors to acquire existing hotel debt at substantial discounts, some as much as 20% off par value. He believes the industry will recover along with the rest of the economy, adding: “This is still a very high-level growth industry in the long term.”

The GlobeSt.com Webinar Series is produced by Incisive Media, which also publishes Real Estate Forum and four regional magazines. Replays are available over the next several weeks.