LOS ANGELES—The best thing to come out of the recent recession was a reminder that cash is king, according to outgoing Marriott International CEO Bill Marriott during Monday’s opening general session at the Americas Lodging Investment Summit.
Participating in a session at Los Angeles’ Nokia Theatre with real-estate guru Sam Zell of Equity Group Investments and moderated by Dale Anne Reiss of DLA Piper/Artemis Advisors, Marriott recalled a time when he learned the never-forgotten lesson about cash in hand.
“We were ready for this latest dip,” he recalled. “Back in (1989)-90 when things went down the drain, we almost went down the drain with it.”
He said Marriott, at the time, had about US$3 billion in hotel assets on its balance sheet, but when that recession hit, “buyers ran away. We had to stop construction on a number of hotels.” The company had to access all cash on hand at its approximately 100 restaurants to scrape up enough money to survive.
“We resolved we never would ever get in a position like that again,” he said.
Seemingly a number of other companies have the same resolution.
“Corporate America has more cash on hand than ever before,” Marriott said. “That’s probably the brightest thing on the landscape.”
Zell agreed that cash is the biggest advantage a company can have.
“Liquidity equals value,” he said. “At no time in my career has it ever been more clearly brought home to me than in the (2008)-09 period. If you had liquidity, you had value. … Everything comes down to liquidity, everything comes down to exit strategies, everything comes down to knowing when you get in how you are going to get out.”
Real estate, in general, is not yet out of the woods when it comes to having a difficult financial environment, Zell said.
“There has been a very limited solution to the overleveraged real-estate industry,” he said. “Pretend and extend was a really great thing in (2008)-09, but reality is going to have to take its place. An enormous amount has to be done in 2012 and 2013 to recapitalize overleverage assets all over this country.”
He said the one silver lining for all real-estate classes is that the supply-and-demand equation is leaning in favor of demand, but one major obstacle remains.
“Nobody seems to get much traction on rates … that’s a function that we’re still in a very slow environment,” Zell said.
Political fallout
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Bill Marriott |
Neither Zell nor Marriott were complimentary of the Obama administration.
Zell said the single biggest mistake made during the recession “was the fact that Congress turned the recession into a political event. We spent a trillion dollars and accomplished nothing.”
Zell questioned where all the “shovel-ready” projects that were touted when the stimulus package was announced during the early days of the recession have gone.
“We still have almost 9% unemployment, far too much regulation, the government is too intrusive, labor unions are running the federal government,” Marriott said as a round of applause swept over the 2,400 attendees of the conference. “That is hard on operators.”
When asked what the greatest risk in today’s domestic policy and political environment, Zell did not mince words: “The single biggest risk is the re-election of Obama in November of 2012,” he said.
Zell called Obama a “law professor” and said “law professors don’t make decisions. Part of the reason we have as slow a recovery as we have … Washington has created so much uncertainty in the rest of the economy. Uncertainty leads to people not making decisions. Our country is sitting there trying to figure out what to do.”
Zell accused government agencies such as the Environmental Protection Agency and the National Labor Relations Board of turning into “rogue bodies with no checks and balances.”
Marriott said he agreed with Zell’s assessment.
“The uncertainty is the biggest problem we have in America today,” he said. “Nobody knows what’s going to happen to America, nobody knows what’s going to happen with all of the regulations that have been put into play.”
Building a culture
The two industry icons also addressed leadership issues and styles. They agreed that establishing a quality company culture is the most essential step in building a company that survives in the long run.
“From the very beginning, our attitude was that culture was critical. We knew of no successful business that didn’t have culture,” Zell said. “The optimum scenario was one of total access.”
He said there is a door in his office that has never been closed to represent the open-door culture of the company.
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“As an entrepreneur the biggest risk I have is getting surprised,” he said. “The way you get surprised is if the people that work for you don’t have access and can’t tell you what’s going on.”
Marriott, who assumed the president’s title of his company in 1964 and is becoming executive chairman and chairman of the board at the end of March when Arne Sorenson takes over as CEO, added that surrounding yourself with smart people also is essential in building a successful company.
“When it’s all said and done you have to set the goals, make sure everybody’s hungry,” Zell said. “You have to create an environment where people get off on succeeding. Create a situation where you are predictable and those people you depend on are predictable.”
However, it was a case of unpredictability in 1980 that led Marriott International to the position it is in today, according to Marriott. At the time, the company was solely focused on building big-box hotels that contained hundreds of rooms and plenty of meeting space.
His team suggested they look into creating smaller hotels to grow the business and the solution was Courtyard by Marriott, which now has more than 900 properties in its portfolio.
“Having never gone down-market with the Courtyard brand we probably never would have explored other brands,” said Marriott, whose company now has 16 hotel brands in its portfolio.