Members of the Lodging Industry Investment Council talk about how the industry is evolving, both through internal machinations and external factors, and how to best change with it.
LOS ANGELES—As the industry continues through its current cycle, there are a lot of changes happening, some that create new challenges and others that open up new ways of thinking and, thus, new opportunities for hoteliers.
During a meeting of the Lodging Industry Investment Council at the 2020 Americas Lodging Investment Summit, hoteliers discussed how they can best adapt to changes in the industry, both to those that have already happened and those they see approaching fast.
The industry has seen a divergence between large and small third-party managers, Waramaug Hospitality SVP Craig Nussbaum said. He warned that larger management companies will have to keep a close eye on the costs of chargebacks, and owners might be looking at revisiting management contracts as a means of keeping net operating income flat.
Following the Aimbridge Hospitality and Interstate Hotels & Resorts merger in 2019, three different owners called Prism Hotels & Resorts expressing that the newly merged company was too big for them, company President and CEO Steve Van said. He said some owners could be worried about being lost in the combined company’s 1,400-property portfolio.
Hospitality Ventures Management Group EVP and Chief Development Officer Mary Beth Cutshall said her company has also heard from owners looking to move to a third-party manager with a smaller portfolio.
“We’ve even had a major brand recommending us, and one of the guys’ analogy was, ‘Do you want to be the bagel, or do you want to be the poppy seed?’” she said.
With a smaller operator, owners can get the CEO’s number and call to talk, Cutshall said. That CEO will look at the profit and loss statement every month.
“It’s also about the cultural fit, as well,” she said. “If you get bigger and bigger and bigger, how do you maintain and manage culture, and how does that translate to the ownership’s experience?”
Larger companies aren’t going to be able to move as fast as smaller companies, said Robert Leven, chief investment officer at Procaccianti Companies. That’s not a knock against anyone, because it’s true for anyone reaching a certain size that the ability to make changes and execute things gets more difficult, he said.
If entrepreneurship can save the industry through this next deal, it’s through third-parties, Van said.
“You’re not going to find it in the giant companies. You’re going to find it in companies that are hands-on and fix things and get them done, new stuff, come, let’s try.”
F&B turning around
Hotels are starting to recapture the sense of being a community space after having lost that mystique for many years, said Michael DeNicola, principal at EMA Lodging Group, and that has been largely through improved F&B.
“They gave it away to everybody,” he said. “They gave it away by being a lousy product: not the right service, too expensive.”
Hoteliers have learned from that, he said. A high-end luxury hotel now has a food-and-beverage outlet that’s a completely different experience, and not necessarily expensive. It competes with the local restaurants and it’s fun, he said.
F&B has been ancillary for so long, which is why so many people are spending money on it now, DeNicola said.
“The main thing we do when we first get into a full-service hotel is change the food and beverage,” he said.
The bistro concept might have been fine 10 years ago, but it certainly doesn’t fit today’s traveler needs, he said. The customer now wants to come in and have more of a bar experience that has food, like Marriott International’s Moxy or even a Hyatt Place with its rectangular bar.
Van said success in F&B comes down to hiring the right people.
Roughly five years ago, Prism hired Heinz’s corporate VP of food and beverage, the first person to fill a role like that at Prism, Van said. The new F&B exec turned things around to achieve F&B market penetration of 180% in Los Angeles, he said. She did it by going to five different gastronomical neighborhoods in Los Angeles and came up with five different types of food to serve, he said, adding that he’s never seen a restaurant like this in a hotel.
“The decision on our part was just to swallow the overhead and get this great person and then all of a sudden step off,” he said.
The new supply of Airbnb units have doubled in the past two years, and that has to have some effect on compression and rates, especially during conventions, Cutshall said.
There are people who have an extra unit and decide to rent it out, she said. They have a fixed cost, and they can drop the rate whenever they want, she said.
“If you’re Joe and Betty Smith and you’ve got a lovely garage apartment in a cool in-town neighborhood and all of a sudden things slow down, you don’t mind dropping it a ton because that’s your party money or whatever it might be,” she said. “I don’t think we’ve ever had to deal with that before. And that’s the unpredictable piece that will impact our (average daily rate).”
DeNicola said in his suburban town, there’s one house known as being the party rental house. The local city council decided to ban short-term rentals in the town while still allowing longer-term rentals, he said.
Some bigger cities with high numbers of homeless people are taking a tougher approach as well because many potential homes have been taken off the market and turned into commercial short-term rentals, he said.
“The real issue is, if that person is renting out their room in the same house that they’re sleeping in, let’s be honest, that’s not causing the problem,” he said.