 Panelists in New York [from left] Jackson Hsieh, managing director and global head of real estate, lodging & leisure group, UBS Investment Bank; Steve Joyce, president & CEO, Choice Hotels International; and Michael S. Kaufman, chairman, National Restaurant Assn., discussed issues facing the industry. |
NEW YORK–Revenue per available room forecasts, rate cutting considerations and refinancing issues headlined the discussion at last month's American Hotel & Lodging Assn. Hospitality Leadership Forum, held in conjunction with the 93rd annual International Hotel/Motel & Restaurant Show.
During the U.S. Lodging Industry Summit Panel, Mark Lomanno, president of Smith Travel Research, said STR forecasts RevPAR will rise 0.4 percent over 2007's year-end value. STR predicts it will drop 2.5 percent in 2009, and increase 1.5 percent in 2010.
PricewaterhouseCoopers' director Warren Marr predicted 2008 will finish with RevPAR down 0.8 percent, and in 2009 RevPAR will decrease 5.8 percent.
Panelists agreed that average daily rate drops precipitate RevPAR declines.
"Now, one out of four properties in the U.S. is reporting declining room rates and declining occupancy," Lomanno said. "Lowering room rates in this environment does not work."
To that end, Lomanno said STR is "the only group thinking ADR will be positive in 2009."
PwC now is forecasting 2008 to finish with an ADR up 3 percent and predicts 2009 will be down 2.4 percent.
It all comes back to rate, panelists said.
"If you look back at 2001-2003, we had the perfect storm from a rate perspective," said Douglas Shifflet, chairman and CEO for D.K. Shifflet & Associates. "Now all the brands have rate parity with transparent sites. This time, the bigger concern is that the unemployment estimates are much more severe and elongated. This time we're looking at five quarters of unemployment rates above 7 percent."
Lomanno again warned against rate cutting. "In an upcycle, hotels follow the behavior of the best performer," he said. "In a down market, that flips and they follow the first guy who cuts and runs."
Peter Yesawich, chairman and CEO of Ypartnership, pointed out trends for smart rate cutting. "Where discounting works is in the discretionary part of your business—leisure travel and the meetings component," he said. "Rate cutting has to be applied selectively."
On the construction pipeline side, Pat Ford, president of Lodging Econometrics, reported that at the end of the third quarter of 2008, the construction pipeline had 5,650 projects in it, comprising 740,000 rooms. Those numbers were down from the second quarter, which Ford called the cycle's peak. "Construction starts have declined over the past three quarters, and in the third quarter, 350 projects were canceled," he said.
He compared 2007's total real estate transactions—3,325—to the 2008 year to date number of 827 transactions.
Lomanno forecasted a quick comeback whenever it happens. "Whenever the recovery comes, it will happen quickly," he said.
"We have nothing wrong systematically, like the airline and auto industries do," Ford said.
CEO Leadership panel
At the CEO Leadership Panel, Jackson Hsieh, managing director and global head of real estate, lodging and leisure group at UBS Investment Bank, said refinancing is a big concern.
"In the U.S. alone there were $120 billion in hotel loans secured on Wall Street. They've got to fix this financing market because these loans come due, you can't pay it back and you have to go through the foreclosure process."
Steve Joyce, president and CEO of Choice Hotels International was the panel's optimist.
"Third quarter, Choice Hotels were down one-sixth [revenue per available room]. That's not good but it's not the end of the world. Then you had the onslaught of very bad financial news, compounded by our 24/7 cable network scenario where people fed on fear, saying the world is ending, seeing investments cut in half and everyone hyperventilated. You're going to have a trough, the question is how deep. When the world takes a breath, things will settle out."
