ATLANTA—The U.S. government’s decision earlier this month to intervene on the markets on an unlimited scale until the economy gets back on track has hotel executives mostly optimistic. Although this third round of “quantitative easing,” or the “QE3” policy as it’s commonly known, is not viewed as a panacea.
“I think anything that helps … (gross domestic product) stay moving in a positive direction is going to help our industry,” said Paul Whetsell, president and CEO of Loews Hotels, during a panel at the International Society of Hospitality Consultant’s 2012 Annual Conference.
“We have political elections coming up, we have fiscal cliff facing us, we have Europe that’s out there, and we have a rather slow recovery, but it’s a steady recovery. … As long as we don’t have these tremendous uncertainties, these tremendous spikes that happen to us periodically in the cycle or some external force that happens to us … or we do it to ourselves like overbuilding … I feel confident our industry (will) react fairly well,” he said.
“Anything that keeps us in that type of positions is a positive,” Whetsell added.
Steve Joyce, president and CEO of Choice Hotels International, was less enthusiastic. “It can’t hurt,” he said.
But no amount of easing will address the “boatload” of distressed assets that were kicked down the road during the depths of the downturn, Joyce said. “Until you write them down and move them, it’s not going to make a difference,” he said.
Several waves of commercial mortgage-backed securities maturities could fix that, he added. “We need to get over that hump and have people address this and push things back to market,” he said.
Whetsell, however, was quick to voice his concern over a decline in asset values that could result. Loews owns and/or operates 18 hotels and resorts in the U.S.
Aging assets
Another drain on asset values in the United States is the ever-aging hotel supply, the executives agreed.
After easing brand standards during the downturn, most companies are pushing for property improvements to combat the effects of that trend, said Kirk Kinsell, president of the Americas for InterContinental Hotels Group.
Short of that, other savvy owners are refreshing or renovating rooms and lobbies simply because “it’s that stage of the cycle,” said John Murray, president and COO of Hospitality Properties Trust, which owns 290 hotels in the U.S., Canada and Puerto Rico.
HPT plans to spend $600 million on renovations during the second half of 2012, he said.
“We’re doing a lot of things. But the majority of what we’re spending our money on is not because a brand was heavy-handed. It’s because the properties needed to be retooled,” Murray said.
“We’re at a point in the cycle where the reinvestment has to occur,” Joyce said, adding financing to do that is sometimes difficult to obtain. Choice is attempting to ease some of that pressure by partnering with various lenders to create furniture, fixture and equipment programs for its franchisees.
“It is time. People have got to step up. … and I think most of the owners recognize that and have started moving,” he said.
Election impact
The executives shared mixed messages regarding the pending presidential election’s impact on the hotel industry.
“Regardless of who wins the presidential election, I think we’re in for another period of time of very little activity” in Congress, Whetsell said. “One may argue that’s not so bad. I think you’re going to see more of the same over the next four years … and that will be good for our industry.”
While Joyce agreed Congress is dysfunctional, he didn’t share Whetsell’s opinion on the positive nature. If President Obama’s administration stays in place, he said, that “could prove challenging for hotels.”
However, Joyce said the hotel industry is in too strong a position not to have a successful run.
“The interesting thing is almost regardless of the economy, we’re going to have a pretty good run because of low supply,” he said. “The areas (Choice hotels) compete in, they’ve actually declined. We’ve had supply reductions during the past two years. …
“And if we get any help from the economy, we’re going to have some great years—through ’16 maybe.”