Recovery Challenges

Speaking during a panel discussion entitled “Ramped Up Recovery: What’s Industry Outlook For ’23 And Beyond,” the group weighed in on a number of factors impacting a potential recovery, including urban market struggles and slowing transaction activity.

Robert Habeeb, CEO, Maverick Hotels & Restaurants, did acknowledge a spike in business travel, but emphasized there’s still a ways to go.

“I think you see a slow return of the corporate traveler, which is really good news for hotels but it’s a slow return. I would expect that the next couple of months will be very telling for us as we see to what extent the business traveler is back out on the road. I think there’s a lot of that going on, but the hole was so deep that it will be a while before we’re back to a normal cycle,” he said.

Charles Oswald, president and CEO, Banyan Tree Management, agreed and referenced the most recent 90-day trend report from STR as he pointed out some subtle shifts and what they mean.

“Weekends are declining in occupancy and trending down while shoulder [nights] are flat. Monday, Tuesday and Wednesday are still gaining and accelerating at a modest pace. That’s indicative of more corporate transient [travelers] that are starting to fill in that space,” he said.

To that point, Habeeb was quick to note that conversely leisure guests or “revenge travelers” have started to go the other way.

“The people who ran out after they were cleared to take their masks off and travel again are starting now to react to what’s going on with pricing and everything else. The fear has shifted from fear of the pandemic to fear of the economy and costs,” he said.

Meanwhile, the industry across the board has done well to maintain and even increase rates, according to Marco Roca Jr., vp, development, Aimbridge Hospitality, who also stressed the impact of rising costs.

“I think most brands and operators generally want to grow rate and that’s just naturally happened so it’s actually been a very positive part of this recovery story. However, costs are also up not necessarily commensurate with rate increases. What we’re really seeing is if you didn’t get some sort of an occupancy recovery those cost increases have made it very challenging without the rate increases,” he said.

Greg Winey, founder/principal, Northpointe Hospitality Management, LLC, also pointed to rising costs, specifically as it relates to workers, as he touted the importance of holding rate.

“We need a pressure relief valve; we’re all dealing with labor issues. As long as we can charge and continue to charge, I think everyone realizes that rate is here and it’s here to stay. It has to stay because we do have to pay for these additional expenses,” he said.

While leisure destinations and resort markets have generally outperformed since the outset of the pandemic, many major metropolitan hotels continue to lag.

“The urban markets are really tough right now. They are as much a product of what’s going on in the social environment as anything. The crime rate in Chicago is through the ceiling and we feel it with our leisure business, we feel it with our meeting business, we feel it in our corporate business,” said Habeeb.

According to Oswald, within Banyan Tree the company’s beach properties are “through the roof” this last year while other companies struggled in urban markets that are heavily reliant on office occupancy and are “not doing as well and many of their properties are struggling with profit margin.”

He added, “they’re simultaneously suffering some of the biggest increases in expense structure and unable to bring it to the bottom line… so it’s definitely an uneven recovery,” he said.

Winey agreed that the gateway cities “have been punished the most,” although he noted this market correction was somewhat predictable as he suggested that lenders may have been short-sighted.

“They also did the underwriting at 90% occupancy on a $400 rate in New York and that didn’t work out so well. The expectations were that this party was never going to end,” he said.

Finally, the executives explained that transaction activity within hospitality has been impacted largely by some of the macroeconomic factors, such as rising interest rates.

“The pace of deals has really slowed down. The situation in a nutshell is that with interest rates rising as they are cap rates are going to have to change. The seller’s expectation versus the buyer’s expectation are two very different things. You’ve got to be very cautious about the deal you do in the current market situation,” said Oswald, who added he thinks “things will normalize” eventually and interest rates will come back down.

Habeeb took it a step further.

“Honestly, I think it’s very likely that we’ll see distressed assets and distressed pricing finally in the next year or so because you’ve got all these CMBS loans that are coming due. You’ve got incredible pressure on costs driven by labor and you’ve got a recession,” he said.

Habeeb added he thinks the labor situation may get worse before it gets better for the hotel industry. “We still have a lot of challenges that we’re facing even though I agree it’ll all come back to normal [eventually]. But for the next 18 months it’s going to be tricky,” he said.