ATLANTA—Asset managers hold a unique position within the hotel industry, working on behalf of owners to bridge the gap between ownership groups, operators and lenders.
Speaking with Hotel News Now during the recent Hotel Asset Managers Association conference, some top asset managers shared their perspective on the industry.
Here are some of the issues facing the hotel industry that asset managers are focused on.
1. Industry consolidation
Multiple sources at the conference said they are eagerly looking at what’s going on in the wake of Marriott International’s 2016 acquisition of Starwood Hotels & Resorts Worldwide.
There’s a lot to be both optimistic and nervous about regarding the acquisition from an asset manager’s perspective, but it’s too early to determine what the ultimate result will be, sources said.
“At this point, the jury is still out,” said Richard Musgrove, EVP at HotelAVE. “There are positives and negatives probably from both sides. There seems to be more embracing of it thus far from the Starwood (ownership and asset management) side.”
One thing that’s both a positive and a negative is the combined company’s added negotiating power.
“In terms of negotiating with vendors and providers, I think that’s a positive,” Musgrove said. “In terms of negotiating with the brands from an owner’s side, you’re dealing with a much bigger beast. You’ve cut the number of institutionally preferred brands out there, which means your options are much more limited in trying to cut a deal. And Marriott has never been the easiest company (to) cut a deal with, not in a bad way but because they’re such tough negotiators.”
2. Supply growth and cycle dynamics
Musgrove said he was surprised to hear how optimistic many of the attendees at the HAMA conference were still feeling.
“Many were saying they were still in acquisition mode, which I was surprised at,” he said.
Musgrove said he’s not only surprised to see additional development and acquisitions, but the type of supply people are seemingly interested in.
“I’ve been in a couple of markets where new full-service supply was just announced, which is interesting,” Musgrove said. “I’m wondering who is financing it. We’ll see how that transpires.”
3. Labor costs and issues
Kim Gauthier, SVP at HotelAVE, said the cost of labor is the top issue she heard from the conference.
“A lot of labor contracts expire next year, and everybody’s been pretty unsuccessful getting any relief,” she said. “And if we go into a downturn, we’re going to see margin erode so quickly.”
Gauthier said she worries that negotiating into a downturn will be the worst of both worlds from an ownership perspective, because before seeing the actual sustained impacts of the down cycle, employee groups will likely request pay increases more typical to the higher points of the cycle.
She said there are also other big labor issues looming, including the ultimate resolution of the National Labor Relations Board’s determination on the definition of “joint employer.”
She noted the industry also faces a shortage of qualified employees in some areas.
4. A strong start to 2017
On a more positive note, Richard Niedbala, SVP of asset management at Lodging Capital Partners, said he’s seen a general uptick in performance through the first quarter of 2017, which was welcome after relatively weak growth numbers in 2016.
He said this trend has been particularly true in the smaller markets represented by his company’s portfolio. He added there are signs the upswing could continue through the bulk of 2017.
“Overall it was a better first quarter, and the second quarter is looking stronger,” Niedbala said. “At this point, we’re cautiously optimistic about the third quarter. It seems like everything is up a little bit.”