ATLANTA — Too often hoteliers are so immersed in executing their business plans they miss golden opportunities that suddenly arise, according to hotel experts speaking at the 28th annual Hunter Hotel Conference. During the “State of the Industry” panel, executives from Blackstone, Starwood Capital Group, Rockbridge, MCR Development LLC and Apple Hospitality REIT took the stage to discuss opportunities they see in the marketplace.
Tyler Morse, CEO and managing partner of MCR Development, said the lodging industry in the United States will present ample opportunities in the next couple years.
“The hotel space in particular in the U.S. economy is going to be great in 2016 and 2017. The rest of the world is kind of a disaster,” said Morse. “Funds are coming to the U.S. as a flight to quality. The U.S. is where the growth is, and the hotel business is a beneficiary of that.”
In a real-world example of being opportunistic, Brian Kim, managing director of real estate at Blackstone, spoke about how the firm’s recent $6.5 billion sale of Strategic Hotels & Resorts to Beijing-based Anbang Insurance Group Inc. wasn’t the original strategy for Blackstone. Having just closed on the Strategic purchase in December 2015, Blackstone’s original plan was to sell off the 16 high-end hotels individually over time.
“When we bought Strategic we figured there was always going to be a strong bid for high-end luxury hotels,” said Kim. “We just didn’t think we’d sell it all to one buyer. We thought we’d sell them individually over time, but we were approached and we thought [the Anbang offer] was the right thing to do for our investors.”
An even bigger opportunity in the lodging industry is the potential merger between Starwood Hotels & Resorts Worldwide and Marriott International, a potential $12.2 billion deal.
“It’s not every day that your $6.5 billion hotel sale gets overshadowed,” joked Kim.
Anbang Insurance recently threw a potential wrench in the merger deal with an offer that exceeds Marriott’s bid by $800 million. Suril Shah, managing director of Starwood Capital Group, said that the merger would be an attractive opportunity for Marriott, but Starwood needs to take a long look at the Anbang offer.
“Starwood has to look at [the Anbang offer] because it’s a 9 percent premium,” said Shah.
Besides the mega deals in the headlines, the panelists also talked about the need to diversify geographically, even if it’s outside the company’s investment strategy. The need to diversify is amplified in today’s marketplace with so much hotel development in the pipeline, 75 percent of which is in the select-service space, according to Shah.
“In any specific market, new supply can be a problem. When you diversify and have a broad base, one or two new hotels in a submarket won’t impact your overall portfolio. To the individual investor with five or eight hotels [in one market], yes watch supply,” advised Shah.
What to do About AirBNB?
During the “Innovations and Travel” discussion, speaker Terry Jones, founder of Travelocity.com and Kayak.com and chairman at WayBlazer.com, spoke at length about how hotel owners need to “gain the edge,” much in the same way that AirBNB has in the past several years. Not owning any real estate, the community-driven hospitality platform has shaken up the industry. However, the hotel panelists predict the online marketplace won’t be a disruptor in 2016 and 2017 the way it has in recent years.
“While there is demand for this product, there isn’t infinite demand,” said Morse. “We’ve seen the run-up, but it will stabilize.”
Morse also addressed the state of New York’s proposed legislation to fine New Yorkers who rent out their apartments via AirBNB. Morse is confident the proposed legislation will level the playing field by removing some of the advantages AirBNB has enjoyed to this point.
“AirBNB is going to have to put in fire code and safety measures and pay taxes. It won’t be the Wild Wild West like it is right now,” said Morse.
James Merkel, CEO of Rockbridge, said that AirBNB exploded at the same time that the hotel industry recorded its strongest period of growth, and that hoteliers need to pay attention to the trend to see new opportunities.
“Hotels have the ability today to go directly to their customers in a way they never have before,” said Merkel. “You’re seeing a change in the landscape of how brands can cater to what the customer wants.”
Morse said that building and investing in suburban hotels is the “anti-AirBNB” strategy because the online hospitality platform doesn’t have much clout in the suburban markets.
“AirBNB isn’t a factor in suburban New Jersey or suburban Denver, it just doesn’t matter,” said Morse.
The Hunter Hotel Conference concludes Friday, March 18 at the Atlanta Marriott Marquis. This year’s conference attendance surpassed the record-setting 2015 event by 8 percent, according to Bob Hunter, CEO of Atlanta-based Hunter Hotel Advisors and conference co-chair.
— John Nelson