As owners, investors and operators met in Los Angeles for the Americas Lodging Investment Summit, a healthy dose of optimism permeated the conference halls and the plaza in front the Starbucks next to the JW Marriott host property.
Richard Stockton, CEO of Braemer Hotels & Resorts, summarized his thinking on stage by saying that “last year we were cautiously optimistic; this year we are optimistic.” This positive outlook was evident in many conversations surrounding the conference.
I think it is fair to assume that investors and owners in the industry are, by default, a “glass-half-full” crowd, so the speakers on stage are often looking for silver linings, but this year’s upbeat expectations may be justified.
The optimism is partially fueled by positive 2024 revenue per available room, or RevPAR, growth projections. Amanda Hite, president of STR, a CoStar Group company, presented the new RevPAR growth forecast of 4.1%, which is driven by 3.1% room rate, or ADR, growth. All chain scales are forecast to show RevPAR growth, and even in the battered economy chain scale, RevPAR is expected to grow by 1%.
The conference started out with Geoff Freeman, CEO of the U.S. Travel Association, calling for simplifications in the international inbound tourist process.
According to his statistics, a domestic tourist spends $500 per trip, a tourist from Canada and Mexico spends $1,200, but a leisure traveler from Europe or Asia spends $4,000 per trip. But the U.S. ranks only 17th on the list of the top 18 travel markets in ease of travel, so attracting these high-paying tourists is challenging.
Once those travelers seek to book a trip, they often find room rates that are typically not available to them as those rates are meant for wholesale channels only. But somehow the rates appear available on a consumer’s screen. Expedia Group CEO Peter Kern suggested that operators should be aware of the issue, even though it is very hard to police.
Kudos to conference host Jeff Higley, president of the BHN Group, for allowing Kern to speak, since this was the first time in the past 20 years the CEO of a large online travel agency, or OTA, was on the opening panel of a U.S. major investment conference. His appearance shows just how much the large OTAs are part of the hotel ecosystem now. It helped that Kern appeared open to opportunities for collaboration with brands and owners.
On the capital markets side, the expectation for Fed rate cuts permeated the conversations on and off the stage.
David Duncan, president and CEO of First Hospitality, asked his four Wall Street panelists for a one-word outlook for 2024 and their answers were: “Positive, better, decent and it depends.”
Even if rate cuts are coming later in the year, the consensus was that knowing that interest rates have peaked will make underwriting that much easier in the coming weeks and months.
The sale of the Arizona Biltmore from Blackstone to a British fund for over $1 million per key may have served as the unofficial starting gun to an active trading year.
John Murray, CEO of Sonesta International Hotels, agreed and his affiliated REIT has put a 22-hotel portfolio, including some extended hotels, on the market and is expecting brisk activity.
But the often-discussed price-reset has not happened yet, and especially for downtown business-travel oriented hotels, the determination of value is difficult as buyer and seller price expectations still vary widely. But many funds that have been raised over the past few years still look to deploy capital, a motivation that may go hand in hand with diminished owner appetite to fund the required property improvement plans, or PIPs. This in turn may push some owners to sell and allow for price discovery but may also get funds to act for “fear of missing out” on the possible value acceleration.
Labor and insurance cost increases, which were on everyone’s mind last year, are still a point of discussion, but many suggested that the steepest growth rates are behind us.
Elevated insurance costs are clearly connected to higher damage costs due to weather disasters, so I thought it was interesting that climate change did not get mentioned more often. Carnival Cruise Line President Christine Duffy had to start her sustainability comments with “I talk about this every day, and we have not talked about it here.”
Looking ahead, 2024 could shape up to be an active year on the development and acquisition front in a positive RevPAR growth environment.
It will be interesting to observe hotel operator and owner sentiment over the next few quarters and then compare notes at the investment conference in New York in June to see if the optimism expressed at ALIS was too much — or not enough.
Jan Freitag is the national director of hospitality analytics for CoStar Group.
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