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Happy Holidays from Integrity Hospitality Advisors

December 20, 2010 By ces959 1 Comment

The holidays are upon us and the New Year is quickly approaching.   We look for further clarity and greater rewards in the coming year in our wonderful industry as we move from crawling out of recovery to momentum and building into the new year.

I’d like to take a moment to wish all of our family, friends, colleagues, and clients a warm and healthy holiday season. We hope that you are able to spend time with loved ones and share many happy moments over the coming weeks.

This is a season to reflect on the many blessings in life, to put aside the challenges of a year past and to look forward to the good things that lay ahead.  Here is to a happy, healthy and prosperous 2011!

Warm wishes, Happy Holidays and Merry Christmas!
Integrity Hospitality Advisors

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Your Hotel’s Value Equation – What have you done recently to add value?

July 21, 2010 By ces959 Leave a Comment

Today’s continuing difficult operating and capital constrained environment continues to beg the question, “What have you done recently to address and enhance your hotel’s value equation?”  The economy, price wars, diminished demand and escalating costs have done their part to erode the value of your real estate.  Your loan(s) may be coming due with limited options in today’s tight credit market and little ability to recapitalize on depressed values.  While occupancy is on the rise in most markets, ADR continues to be the challenge facing everones budgets and is keeping all values in marginalized positions.  Many operators and owners are looking at the budgets that were put together in the depths of the depression last year where visibility was only clear to those who had access to a “time machine” (i.e. no one) and saying, “Wow, we’re beating our budgets by ‘X’ and value is on it’s way back!”   However, budget is not the only consideration that a prudent owner and their operator should focus on.  Frankly you may be leaving significant value on the table by not going deeper into the bag of tricks that is necessary to create value when you need it most.

Examples of items you may be overlooking that a prudent and partnership oriented management company or asset managers should have you looking at are:

  • Have you reviewed your property taxes recently and how they equate to the value of your hotel in today’s market? If you haven’t and haven’t gone to your local municipality to file an appeal given the precipitous value erosion of the past 2 years, you are leaving money on the table.
  • Have you reviewed any outside contracts with companies that provide services or labor to your hotel? No doubt they have gone through a retrenching and cutbacks in taking advantage of softness in labor prices, availability of labor “capital” and other steps to increase margins on their “fixed” contract business…shouldn’t you share in some of these efforts or re-bid the opportunity?
  • Taking advantage of government tax credit programs when hiring certain class and types of workers – there are significantly profitable programs in place that with the help of one of a number of organizations and coordination with your H/R department. These programs assist you in setting up profit sharing program with the company (no cost to you) to document employees who you are already hiring, running them through a system that properly documents, submits and then provides you tax credits for you from the turn over and hiring that you already undertake can be substantial benefits to you and your organization. This is especially true if you have multiple properties.
  • Energy audits and credit programs – have you looked into programs that provide rebates and credits to you through proven energy programs?
  • Have you evaluated and done a cost savings analysis of your Insurance and Healthcare Costs?
  • Have you reviewed your management costs from both the expenses that your management company is charging to you and the level of benefit costs they are passing along through your P&L?
  • Is the brand you are affiliated with asking for more in the way of upgraded amenity or other standards, PIPs, product upgrades and what are you doing to work through or avoid costly items and defer or exempt your hotel?  Have you approached them for a break in fees if they have added new product to the market that may be eroding your limited demand?
  • How good a job is your manager doing at controlling and working current employment levels, combining jobs, evaluating schedules to maximize efficiency?
  • When was the last time you took a close look at your administrative expenses at the hotel level and tested those assumptions?

Looking at all corners of the value equation is important in addressing how your management company, asset manager and you as an owner plan and structure value in today’s difficult operating and lending environment.  An experienced and proactive approach is essential to creating potentially millions of locked up value in your hotel real estate.

We suggest and encourage you to work with a qualified and experience consultant and/or asset manager to assist you in assessing, evaluating and delivering on your hotel asset.  Our preference and desire would be for you to give us a call to discuss how we can work together in a collaborative, cooperative and proactive manner to unlock the value equation for your hotel.  We look forward to speaking with you!

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Where do owners, funds & hotel companies go from here and where you can use help?

January 28, 2010 By ces959 Leave a Comment

2010 is going to be another rough year for hotel owners, managers and brands. While there is little in the way of new construction deals materializing, hotel companies continue to nurse along existing stalled developments, public/private deals and the few brand conversions that come their way – all are welcomed with open arms.  The brands are taking this time to introduce more new brands and catching up with those “lifestyle” brands that led the way with design innovation, fresh ideas and product offering that appeals to the newer generation.  They face uncertainty regarding exactly when that new traveler they are targeting and designing to will have the opportunity to experience and become brand loyal to “their product.” They also wonder when the resulting success of those new brands via new development will come their way and start the development ball rolling again.  The answers to both questions rely heavily on the capital markets, a rebound in demand and how rapidly both begin to show their new colors.

Brands are also taking this time try to clean up and reinvent old brands that have lost their swagger or look for new brands to buy and expand their reach.  Some brands are taking this opportunity to expand their presence by fishing at the trough of hotels that have dropped or been forced to drop their more upscale brand affiliations. In many cases these hotels suffered from bad timing of capital expenditures and lacked cash to update the hotel to meet brand standards.  A few of the expanding brands are cashing in by providing money, great terms and most importantly, “time” to get everything done to meet their new brand standards.

With the incredible tangle of institutions and servicers burdened with bad assets while at the same time new and existing funds flush with capital are searching for bargain-priced deals that may or may not materialize, it helps to have someone in your corner to sort it all out.  Hotels in markets that have good bones, are in excellent locations in quality markets will not be trading at pennies on the dollar.  Yes there will be bargains, but those with capital on the sidelines hungry for deals do not want to stretch on deals, make bets and lose long term on assets they purchase that are not fully vetted by those who have been here before – return sensitivities demand excellent execution.  Qualified, experienced consultants will be kept busy over the coming 12 months, inundated with projects that I suggest will include:

  • Working with receivers, attorneys, and lenders to figure out what to do with their distressed assets. Particularly, stopping the bleeding, recovering value and working proactively with the in-place or newly hired management company.
  • Assisting funds to quickly discover the true value, vet the assets and the market and thus help insure the return associated with an asset they are considering buying;
  • ·Providing due diligence expertise and offering hands-on assistance in making critical decisions and sorting the wheat from the chaff.
  • Strategizing with groups on what assets to save, which to invest in today and which to send back to the lenders or discount and trade.  A consultant’s past experience in a down cycle is essential in this process.
  • Assisting in repositioning strategies and brand negotiation of PIPs. In certain cases tying up the brand before others obtain it or working a deal to your best advantage.
  • Continuing to review, recommend and execute sales, marketing, revenue management and top line plans – advice that is critical to recapturing value, average rate and performance in a competitive environment.
  • Asset managing hotels on behalf of investors keeping a watchful eye that the investors returns are maximized and capital investment managed properly/protected.

Value and greater certainty will be created in hiring smart consultants who can help you make good decisions. Veterans of previous downturns will help you understand the risks, upside, downside, and pitfalls in each market.  They will help you avoid critical mistakes that could kill fund performance with a few bad or ill thought through asset acquisitions that in the coming competitive environment may damage returns – they will end up proving their worth in saving some of you in support of the old adage, “That was the best deal we never did!”.

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A year later, the haze is lifting…on our hotel industry

January 28, 2010 By ces959 Leave a Comment

After attending ALIS 2009, I was struck by the heavy dense fog and the somber mood at the event. The confused and befuddled wandered through the mist aimlessly looking for answers as if they had been sideswiped and had not yet regained their footing. They were still dusting themselves off and counting their digits to make sure everything was still “intact”.  In an industry of optimists, it was the worst of times and yet we didn’t know the worst was yet to come. There was yet no “new normal”.  There were only questions and the road we were traveling needed headlights on high beams to somehow see a foot past the fog we were all enveloped in.  There was no clarity and certainly no one with credible advice.  No navigation system could tell us the way to go to get out of the fog…we had to just let it lift. Only those who went through the RTC debacle (like this author) had even the slightest notion of what this type of uncertainty felt like.  We were pretty sure we were in for a long, long year.

Having now attended ALIS 2010 and survived that long, long year, the “new normal” is upon us. As I heard someone put it, ‘the new normal is “not as bad”.  There was cautious optimism in the air. A new reality is emerging and while we don’t precisely know what that new reality is, we seem to think we have a better understanding of the steps it will take in moving the swallowed hippo (CMBS and troubled assets) through the anaconda (pipeline of doom!).  We look forward to emerging from the darkness of stalled and burdened balance sheets to the days where loans can be made again at reasonable leverage levels.

The new normal has asset management and management companies turned into receivers and lawyers into workout specialists. Brokers are coming out of the shell created by BOV mode (broker opinion of value) and are starting to see the glimmer of light that signals deal flow some 12 – 14 months after this all began. Everyone seems to be anticipating the spoils to come. The spoils, however, will be in small doses but steady in coming…at least for the time being from what we heard, or until larger transactions and assets appear from the deep dark holes of bad debt pressure and the inability to dip into more equity & pay your lender what is required to extend for 3-5 years.   All in all, it appears at least that a process is emerging that is understandable and it is putting the kick back in the step of our industry – not to mention returning people to productive and gainful employment.

While the confusion and uncertainty continues, there are signs of clarity peaking faintly through the haze – take the time and energy to tap the resources necessary to make your 2010 opportunity a lower risk and better informed reality.

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This year it’s still all about the transient customer. Get back to sales basics, get assistance from your brand regional sales and staying ‘on’ relationships

December 31, 2009 By ces959 Leave a Comment

What a change in the hotel business as we know it, eh? If you are lucky enough remember this iconic group from the 60′s, one can almost hear Peter, Paul and Mary singing the updated hotel version of Where have all the flowers gone?, … “Where have all the the conventions and groups gone?….Long time passing”. Those of us who have been in the industry for a while have not seen a drop off in group business like this for this extended period of time….ever?

I completed a few sales audits at hotels in a major markets and while pleasantly surprised at the continuity of systems and energy of the DOS’s, sales managers, etc., I was struck by the lack of detailed examination and analysis that had occurred relative to focusing and targeting the competition and their natural transient customer for the hotels. As far as background goes, these are newly opened hotel which couldn’t have been built and opened from a timing stand point at a worse time in our industry. The brand I have been auditing is still in it’s infancy thus not as recognized as old standbys but promises to be a “hot” star on this brand’s horizon.  The locations are “A” locations when there is convention and group business a plenty but a “B” location when relying on drive in or pure corporate transient customers.

Sales Directors and corporate sales departments need to continually shift and refocus their strategies when confronted with the dramatic shifts in business that have occured in the past year.  Group business in secondary or tertiary location convention centers are only attracting the flower shows, occational concerts, flea markets and the like.  The rotational convention business is now able to book in much larger, and from their standpoint, prestigious venues in more primary locations as rates have dropped and availability of space is abundant.   An amazing opportunity for some of the groups that in the past have not had the opportunity to hold their events in downtown and otherwise untouchable locations when times are good.  Thus hotels in proximity to those secondary venues and convention centers that were built under the auspices of “if we build it they will come”, are suffering.
Having a brand is certainly a plus as frequency program users and loyal brand travelers will seek out brands they are comfortable with and provide the benefit of loyalty program points.  The individual hotels who pay for these brands must find ways to further tap into and market/sell to those loyal customers whether they be individuals or companies that have local or national negotiated agreements with those brands.

  •  Think about using some of your marketing dollars  buying and providing frequency point bonus offers to those in companies who book the business – remember the old “secretary clubs”….is it time to revisit that program if you don’t have it in order to get back in the offices of those who book business travel in local businesses?
  • Offerings of double points to frequent program users who stay at your hotel for specific need periods of time is always a winner but you need to make sure all your web channel notifications are updated and posted.

Are you taking a close look and analyzing carefully weekend and weekday trends that are playing out in your comp set and how others are playing the rate game for business?  Getting back to basics and making sure that all in your hotel have their eyes, ears and sales hats on is critical as we move toward rosier booking times.

Another dilemma has often been how to tap into that database or customer base from the brands.  This is where your sales & marketing teams needs to work closely with the brand regional sales management and sales teams in mining the opportunities with them for your hotel.  Don’t take no for an answer as the natural tendancy from the brand marketing and sales system leaders is to deny access to national negotiated accounts for fear of unwanted pestering, sales abuse and other fears.  In today’s environment, savvy sales departments are finding ways to tap into and market their product directly to the national accounts especially when those accounts sit with demand at their back door.
Take the time to begin to sew the seeds of this years short term booking windows with all leads you can source, all the programs you can put in place and stay on top of them all year long.  Measure them, make sure your GM is in lock step and making the sales close if you need it.  Your persistence, time and energy will win you room nights and success as this turn around year begins.  Good luck to all!

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Do we need a new model of “doing business” in America?

April 8, 2009 By ces959 Leave a Comment

Life as we know it in the hotel industry is over, at least for the time being until someone stands up and says, “Enough already Mr. Elected Politician – you’re killing us!”

The hotel industry has been hit with a wave of group cancellations, reschedules, demolition of the “incentive trip”. No more pre-TARP banquets, events or parties that feature any type of high profile entertainment intended to thank and woo high net worth investors and clients that have blessed companies with loyalty, business and the ongoing revenue streams. The days of the extravagant schmooze, ice carvings with flavored vodka flowing into frosted martini glasses, lavish banquet spreads, spa and shopping junkets for wives as well as the obligatory celebrity golf scrambles may just be a thing of our past – at least until TARP is repaid or the government just gets too busy to check the schedules of it’s TARP recipients. Creating the relationships, incentivizing associates and top performers and providing formats for attracting and informing clients in a fun, albeit top end way that produce premium business for your business is down right un-American these days.

No, it’s back to creating and competing for the base business that has traditionally been the core of business in our industry – staid and information filled meetings, Power Point presentations, white boards, coffee breaks, low budget lunches, rubber chicken dinners and cash bars. One day meetings packed with information. Regionalized business generation vs. global business events. The illustrious Senator John Kerry, Barney Frank (both from MA) and our new Commander in Control, President Obama, have seen to it the great unraveling of our business – they have come forward and until very recently were bending over backwards in an effort to make sure they were involved in destroying the economy of doing business in America with our business taking the front end ramming from their train.
It’s reported on Forbes.com that some recipients have responded to lawmakers’ criticism by scaling back. American International Group Inc., Wells Fargo & Co. and Citigroup Inc.’s Primerica unit have canceled corporate events set for resort locations. Goldman Sachs Group Inc., which received $10 billion in TARP funds, this month moved a technology conference to San Francisco from Las Vegas, citing the “new landscape for our industry.”

President Obama has declared in so many words that companies that utilize tax payer funding and use it by staying in hotels, providing entertainment that resembles anything other than a sit down meeting for their clients and guests are Un-American!

Senator Kerry has announced the “TARP Taxpayer Protection and Corporate Responsibility Act”. The Act would prevent ANY recipient of TARP funds from hosting, sponsoring or paying for conferences, holiday parties and entertainment events with TARP funds. Penalties would include fines and forced reimbursement of all TARP funds. A bank receiving TARP funds could still host a party for clients provided it receives a waiver from Treasury Secretary Tim Geithner, who would have 30 days to issue the waiver upon receipt of the request. This is the same Tim Geithner who is working on the details of the financial system and automotive industry plan which he has so far done such a “great job” in addressing. In other words, the revenue management for many of our industry bretheren has just come under Mr. Geithner’s perview…what a relief. I’m almost sure the first thing he will do every morning is come into his office, pull the stack of waiver requests that include meeting space confirmations and banquet event orders banks and other institutions for approval of their hotel and restaurant based functions. Riiiiiiiiight!

What the administration is suggesting in it’s actions is that we must come up with or there must be a new way of doing business, creating relationships, capturing share of business other than getting to know your customer and client the old fashion way.

So what is the new model or do we need a new model? Is this just a phase of political grandstanding that passes us by only to revert to the norm? My guess is that it is. Unless the government is really positioning for “Command and Control” of the institutions to which they provide TARP/TALF funds, which from the way they have addressed the auto industry may be their true modus operendi, we should be back to growing our business by early to mid 2010. That being said, 2009 is a total wash and the havock and erosion of value on our hotel assets as a result of this rhetoric has been devastating and magnified the events of this deep resession into a hotel downturn tsunami.

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ALIS 2009 or “All Liquidity Is Lost”

January 29, 2009 By ces959 1 Comment

Sunny San Diego was brisk, blowy and had a bit of a chill in the air, similar to the atmosphere inherent in the conversations, demeanor and chatter among nearly 2400 of our closest friends at the ALIS conference.  Having just returned from ALIS 2009, which this year appeared to stand for “All Liquidity Is Lost” – My take is that the industry is not only on its heels, as is the rest of the economy, but bracing for more rough road ahead before it starts to get better.

Opening conversations with historically upbeat industry executives started with a glass half full, “Doing OK, but just trying to keep the lights on”, to those who were already sick of trying to come up with something upbeat or clever, “I just don’t know…this sucks!”.  Our industry is in a place that it hasn’t been in quite some time and to many, it has never been in this specific place before.   To most of us it came without warning or the ability to see it coming.  In short – at ALIS, there was little clarity on when the financial markets will find the magic key that opens the balance sheet doors so that banks and institutions can get in the business of lending again resulting in business and commerce acceleration which will impact the hotel industry by putting more heads in our beds.

Hotel real estate brokers at ALIS commented that ’09 will continue to be a very challenging year from a valuations and financing standpoint however deals will still get done.   They proposed that this is “the best time” to buy as there is little clarity in the markets thus values are at historic lows for those that want or truly need to sell.  Transactions above the $20 million level, the level at which they were relatively easy to finance prior to the fall of ’08,  are difficult due to financing constraints at and above these levels;  however for transactions below the $20 million level, financing through regional banks and in the secondary financial markets can get a transaction of this size done, but at significantly less leverage, full recourse and higher debt service coverage ratios.  Construction financing is reported to be all but non-existent in today’s environment.  A great time to “land bank” and/or pick up broken development deals from those who got caught in bad timing, have run out of patience or money or both.  If you have the ability to hold for the next 12-18 months or build with cash now and open your hotel in what may be the start of the next big run up in demand in 2010-2011 for our industry you may be in for a good ride from an investment perspective – long term.

In the vein of “what’s old is new again” and when people discussed the “what” in the way of solutions for breaking the lending dams loose, there was much discussion of the establishment of a “Good bank/Bad bank” by the government as a highly likely scenario for freeing up the credit markets.  Conceptually, as those of us know who have gone through this with the RTC back in the early 90′s know, a “Bad bank” is a form of financial engineering designed to remove impaired assets from the balance sheets of banks and investment banks. In discussions with friends at ALIS and other good friends at SJC Capital Partners in Stamford, CT, the bad bank scenario as currently contemplated, may potentially be structured as follows:

  • The Treasury Department establishes the “Bad bank”, capitalizing it with remaining funds from the TARP.
  • The “Bad bank” raises additional funds needed, either by borrowing from the Fed or selling shares to private investors.
  • The “Bad bank” uses the funds it raises to buy toxic assets from a given bank(s). It holds the assets to maturity or sells them as the markets revive.  Losses are divided among the “Bad bank’s” investors and taxpayers.
  • The Treasury and/or investors commit additional capital to a given bank, compensating it for losses realized from selling toxic assets.

The advantages of this scheme is that a “Bad bank” structure may resurrect trading of mortgage-related securities by establishing valuations for these assets. As the market recovers, or if housing prices begin to rise, the bad bank could break-even or generate a profit.

The disadvantages of this may be if the “Bad bank” overpays, the banks that sell the toxic assets to the “Bad bank” get a windfall at taxpayer’s expense.   If the government underpays for assets, “Good-banks” won’t have an incentive to sell toxic assets to the “Bad bank”.  If “Good banks” are compelled to accept low-ball bids from the “Bad bank”, the selling “Good bank’s” balance sheet could suffer.

Should the U.S. government elect to move forward with the “Good bank-Bad Bank” structure”, in order to properly address the current problem, it is estimated that the U.S. government will need to raise between $1.0 -$2.0 TRILLION to capitalize the “Bad bank”.  Yikes!

Last week with in Davos, Switzerland, George Soros made an interesting observation that was brought to my attention recently.  In Soros’ view, most of the large U.S. banks are “Bad Banks” already with their continually deteriorating balance sheets.  Hence, Soros proposed establishing “Good banks” – that is, establishing new legal entities that buy the good assets from banks and leave the bad assets behind with the TARP funds that have already been disbursed.  Hmmm….don’t think anyone wants to trust the government to oversee that particular scenario.

Our wonderful industry is in for difficult times no matter what happens.  One can only hope that the Fed, our new Treasury Secretary and President Obama work through the issues thoughtfully and with good pace.  A Bad bank scenario is a most likely scenario – if that is what is going to happen, let’s get on with it.  Any signs of a return to a normalcy in business;  the stopping of hemorrhaging of RevPAR declines in our markets or the glimmer of  ability to find available and reasonable debt to begin the wheels of acquisitions and development started again; will be a day we can all hope for and certainly none too soon.

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