New York -- Are hotels back? You bet, and more than 1,100 attendees at the recent 17th Annual NYU Hospitality Investment Conference at the Waldorf-Astoria hotel in New York City provided proof positive that years and years of toil and turmoil are finally turning around, big time. The largest turnout in years heard panel after panel of experts praise the industry's health and well-being.
Jonathan Tisch, conference chairman and president of Loews Hotels, New York, was eager to put his stamp on the proceedings. His theme was one of community responsibility, and it makes sense. Hotels employ a large percentage of the minimum-wage hourly workers in cities all over the country, and in many ways, have a responsibility to give something back if possible. Tisch and other conference speakers also hammered home the importance of managing hotel properties to make sense of the bottom line.
"At the end of the day this is still a business," Tisch reminded attendees.
In an opening session on the economy and industry outlook, moderated by Jack Rodman of E&Y Kenneth Leventhal Real Estate Group, the state of the industry was deemed healthy.
Susan Wachter, assistant director at the Wharton Real Estate Center and chairman of the Wharton Real Estate Department at the University of Pennsylvania, Philadelphia, said that demand for hotel rooms is at its highest level since 1982 and, and even though the pace of growth is slowing, "You in the hotel industry will do fine. You will thrive in '95, with the caveat that we not repeat the overbuilding of the 1980s."
Randell Smith, president of Smith Travel Research Inc., Gallatin, Tenn., said hotel occupancies were at 65.2% in 1994, the highest in 12 years. "This has been a remarkable turnaround for the industry," said Smith. He is not alone in advocating that demand growth for hotel rooms is tied closely with the country's gross national product (GNP), as a good indicator of where the industry is headed.
Room rates are increasing faster than the Consumer Price Index (CPI), and Smith expects them to continue increasing for the next two years. On the budget front, fixed charges have declined for both full-service hotels and limited-service hotels. "I think we're looking at a great 1995 and 1996," said Smith.
Caren Kline, corporate vice president of marketing for Dallas-based Wyndham Hotels & Resorts, gave a rousing speech to back up many a positive factor. "Here it is 1995 and we did survive," said Kline. And her new slogan, "It'll be fine 'til '99," was a clear winner among attendees.
According to Kline, three things will ensure the industry's prosperity -- limiting new, moving average room rates upward and managing new revenues to the bottom line.
Kline pointed to three factors that successful managers must key on -- technology ("Avoid amenity creep. Provide access to services, but don't over invest in physical amenities."), labor (demographics are changing, there is greater diversity in the labor pool, more competition for employees, and managers are restructuring) and consumer needs ("Any company that is not truly consumer-driven will be left behind").
Mark Woodworth, industry chairman in Coopers & Lybrand, LLP.'s national hospitality consulting services division, Atlanta, predicts there will be an "economic lull" in 1997 and 2003, with room starts averaging 62,000 to 72,000 units per year for the next 10 years. Occupancies will stay above 60% through the year 2000, returning to 70% by 2000. "We think the outlook is good and we are very optimistic," said Woodworth.
So who's financing the industry right now? The consensus said Wall Street is leading the way, with foreign banks also doing.
No question that Wall Street is shaping much of the fundamental change occurring in the hotel industry. Bjorn Hanson, industry chairman of Coopers & Lybrand's hospitality division in New York, said the hotel market has gained respect on the Street, and the fact that 1995 will be the most profitable year ever for the nation's hotels hasn't hurt the industry's credibility.
Mergers and acquisition activity can be expected to pick up as clear-cut market winners outpace their rivals. Peter Krause, managing director of Morgan Stanley & Co., New York, predicted there will be $3 billion to $4 billion in m&a activity this year.
Why does Wall Street like hotels? "The ADRs [average daily rates] are up, occupancies are up and there are low construction levels," said Charles Anderson, vice president of real estate at Nomura Securities, New York.
Stephen Rushmore, president of Hospitality Valuation Services, Mineola, N.Y., provided some guidelines for hotel investing, late-1990s style: Buy first-class, luxury full-service properties. Sell economy and mid-rate properties. Look for low-cost equity capital (pension funds, opportunity funds). Build in niche markets. Go south, west, east and north (especially Canada).
"And there sits Stephen Rushmore, a man who wants everyone to know he comes from a long line of Rushmores, including his father who has his name on a mountain..."
Dean Anthony G. Marshall of Florida International University introducing the president of Hospitality Valuation Services at NYU's Hospitality Industry Investment Conference.