2002 Performance and Perspective for the New Year

Sean Hennessey, who is the Practice Leader and Director of PricewaterhouseCooper�s Hospitality Division, started the panel discussion inquiring about everyone�s performance in 2002 and their perspective for the new year. 

Sean Hehir, who works for an opportunistic hotel investment vehicle, jumped in to explain his view on both domestic and international hotel markets. �We started out acquiring hotels from 1995 through 2000 and finished disposing of those assets from 2000 through the end of last year so we�re in a great position,� explained Sean, whose two new platforms, one consisting of domestic three- to three-and-a-half-star properties and the other an international joint venture with Leading Hotels of the World, are currently in acquisition mode. �The only challenge we�ve seen so far,� adds Sean �is finding the right product. But we have found that to be more of an issue in the U.S. market, where bid/ask spreads are higher than in Europe.� 

On the local front, Karen Rubin, with the Development, Feasibility and Investment Analysis division at Starwood Hotels and Resorts, shared her views on Starwood properties in New York City. With approximately 5,000 hotel rooms in the City and all brands represented, with the exception of the Four Points Sheraton, Karen said decreases were seen at Starwood�s hotels since September 11 th (as was true of the market as a whole), but the picture is looking brighter now. Having recently added two hotels to the New York City market, the W Times Square and Westin New York Times Square, Starwood sees hotel demand continuing to hold from 2002, with the biggest challenge being rate retention. She disagreed with the views of the Wall Street Journal�s Christina Binkley, whose article that morning suggested that hotel demand had fallen permanently from September 11 th . �Smith Travel Research numbers for the country show that demand activity was up in 2002,� Karen said. �That doesn�t mean rate, occupancy, or revenues were up but our industry clearly sold more rooms than 2001.� Karen concluded, �Demand for travel exists. We have the flu but we aren�t amputated.�

Stephen Brandman of the Pomeranc Group, owners of 60 Thompson, Hilton at Newark International Airport and the Ramada Plaza Hotel at LaGuardia, was next. �Airport hotels are most challenged after September 11 th ,� he said. On the boutique hotel side, however, Stephen added, �60 Thompson has done well in the two years it�s been open�, citing a year-end occupancy rate over 90% with average rates in the $300 range. The positive trend seems to be continuing in 2003 with an expected 95% occupancy at a $305 average
rate for 60 Thompson this February. The Pomeranc Group hopes to see the same success in their to-be-developed boutique hotel in Columbus Circle, across from the AOL-Time Warner development, as well as its newly acquired Sagamore Hotel in South Beach, Miami.

Brett Traussi, who heads the operation of the restaurants Daniel, Café Boulud, and DB Bistro Moderne, stated that they were fortunate to have a strong brand from Chef and Owner Daniel Boulud�s reputation for good food and excellent service. �2002 wasn�t the best, but we were happy to have it,� noted Brett, who added, �The top end of the market and hotel restaurants saw the biggest weakness�. Despite lower check averages and a 5% negative impact on covers from a harsher winter this year, Brett stressed, �When you call around for restaurants in New York City, it�s still hard to get in,� summing up that generally, the restaurant industry was still strong.

Deutsche Bank�s Gaming, Lodging and Leisure Equity Research Analyst, Marc Falcone, shed some light on Wall Street�s view of the industry. On the gaming side, Marc noted investor sentiment being the �worst it has been since 1998�, when Las Vegas experienced oversupply and not enough air service to the destination, yet in hindsight, 1998 �turned out okay� for the gaming sector. On the lodging front, Deutsche Bank�s initial coverage on the main owner and operating public companies in August 2000 projected a 5% year-over-year growth in RevPAR in 2003 compared with today�s forecasts for public, upscale companies of �-1% growth in 2003.� However, interest level for the industry is better than before. An evidence of the gaming and lodging industry�s strength is the recent raising of $2.6 billion in Stephen Wynn�s IPO for the development of his new Las Vegas Hotel, Le Reve, in 2005 without any revenue or earnings projections, casting a positive light on investor confidence. A recent development in the industry, Marc noted, was the increasing interest of hotels from the private companies. �Many public companies have balance sheet issues due to poor decisions made in the past,� Marc explained �That is why we�re seeing more bids for assets coming from the private side.� All eyes in the industry are also focused on the outcome of Six Continents� de-merger in the next few months.

Impact of an Impending War 

Upon Sean Hennessey�s question to the panel on the impact of an impending war on the industry, Steve Brandman reinforced his view on the vulnerability of airport hotels, stating, �Everything follows the news.� Marc Falcone added, �People stayed close to home after September 11 th ,� so gaming markets like Illinois and Indiana will not be as affected as Las Vegas if war were to occur. Additionally, a short war would be beneficial to the industry, since corporate spending would increase shortly after, contributing to a trickle-down effect on hotels, he explained. 

Karen Rubin�s advice to hotel managers during this time was to manage expenses more effectively, adding, �With technology, more expenses today can be made variable.� Her main concern beyond the war, however, was the airline industry and what key leaders were doing to salvage that problem.

Both Brett Traussi and Sean Hehir, who were adding new restaurants and hotels respectively to their portfolios, mentioned taking advantage of the lower costs for capital improvements. �We�ll be coming out with new product in the 4 th quarter next year,� said Sean, �We feel this is good timing.� 

The Internet

The panel also addressed the Internet, a heavily discussed topic at the recent American Lodging Investment Summit in Los Angeles among hotel owners. Sean Hennessey asked if it was a net plus for the industry. Marc jumped in to say that engines such as Hotels.com, Expedia, and Priceline were detrimental to rate at times like this, when occupancy levels are down and rate deterioration is rampant. He added, however, �When we are back in recovery mode, such engines may push occupancy north of 70-80%�, which helps to maximize hotel occupancy levels. Karen agreed and also mentioned the huge impact in changing the relationship hotels had with their clients.