News for the Hospitality Executive
|By Jim Butler, Hotel Lawyer | Author of www.HotelLawBlog.com
March 7, 2007
Wasn't it only “yesterday” that a few hundred million dollars seemed like a lot of money and made the headlines? After Blackstone's $39 billion purchase of Equity Office Properties deal was topped in deal size by Kohlberg Kravis Roberts’ bid for Texas Pacific Group (TXU) for about $45 billion, it almost seems like everyone yawns at “mere” billion dollar deals, much less something smaller. For example, did you notice any major headlines in the past couple of weeks about Winston Hotels being bought by Wilbur Investment for $850 million, or Apple Hospitality being bought by ING Clarion Partners for $890 million, or Hilton selling its Scandic Hotel chain to a private equity group for about $1.1 billion?
Nobody I know was particularly excited about these deals despite their size, which would have claimed headlines only a year ago. As I have commented before on www.HotelLawBlog.com, it really does seem that “Size no longer matters . . . at least in the hotel industry.”
But what does the big dollar focus on hospitality mean from private equity and celebrities— as we have discussed with such players as Bill Gates and Prince Al Waleed, Blackstone, Morgan Stanley in its acquisition of CNL Hotels & Resorts, Barry Sternlicht on his investments in China and India, as well as his launch of new brands such as the “1” and the Crillon, Paul Allen, Shaquille O’Neal, Donald Trump, Magic Johnson, Andre Agassi and Seffi Graf?
By themselves, these events show that smart money has tremendous confidence in the U.S. economy and in the lodging sector. They also validate the industry metrics of sustained profits and continued good times for at least several more years. But, combined with a few other factors, they also reaffirm the general belief that this is a great time to be developing hotels — particularly in a hotel mixed-use context — if it is done well. Let's take a look at this and consider if we can get it right this time!
The fundamentals all point the right way.
For several years the hospitality industry has enjoyed record profit levels, and the fundamentals all seem poised for sustained profits and growth. These factors were discussed in my last posting on www.HotelLawBlog.com entitled “How good is the hotel business and how good can it get?”
If anyone needed more confirmation of the ripeness of the time, Hilton announced on February 27, 2007 that it intends to develop 1,000 select service hotels in North America by 2012, and an additional 1,000 properties by 2017.
So what are the concerns?
Although the times may be better than ever before, many worry that our industry has a history of “committing suicide” by overbuilding until the supply exceeds demand so greatly that it drives average daily rates (ADR), revenues per available room (RevPAR), and profits into the red.
And indeed it is true that the growth in supply has drifted up in the past few years, and growth in demand has moderated over this same period as reflected in this chart from Smith Travel Research.
But look at the huge gap between the soaring supply growth and demand growth over the past 3 years! And anecdotally speaking, have you tried to get a hotel room in New York City recently? Could you get one at all? How hard did you have to look? What did you pay? Did you notice that the ADR for the Four Seasons in Manhattan has broken the all time record of $1,000 per night? And that the ADR for Manhattan has hit a new all time record of $230 per night?
Maybe we don't need hotels EVERYWHERE, but clearly we need hotels in many markets around the world where demand greatly exceeds supply. This is simply a matter of developing “smarter” — where we do our analysis of the market strengths and weaknesses, barriers to entry, and other relevant considerations, and we build “for the future” with appropriate design and structure for our target market.
This may mean more lifestyle oriented hotels, with design, service, technology, greenness, as well as proper mixing of uses with other real estate types such as residential, retail, office, shopping center, entertainment, wellness and spa so we can live, work and play in an attractive, cost-effective, and exciting environment that make old designs dated.
So how do we develop hotels “smarter” and how do we get it right this time?
How do we avoid the mistakes of the past? How do we develop smarter and better so that we are financially more secure and stable — and more profitable and insulated from cyclical downturns?
This will be the focus of JMBM’s conference this coming week —
The Hotel Developers Conference™ in Rancho
Mirage, California on March 7-8, 2007
There is still some room for last minute registration if you haven’t signed up yet.
This conference is focused on hotel development and construction — but particularly on hotel-enhanced mixed-use where a hotel is the “sparkplug” for the project, designed to enhance the excitement and sustain attendance and involvement of project visitors.
Why focus on hotel-enhanced mixed-use? Because everything we see suggests that hotel mixed-use is the hottest thing going in the industry and holds the greatest potential for developers and other stakeholders in a new project. You won't want to miss this conference if you are involved in – or considering – any kind of hotel development, but particularly hotel-enhanced mixed-use development.
What is hotel mixed-use? What does it mean to some of the most successful developers in the country? Hear their stories. Why did they do it? How did it turn out? What uses mix well together? When do you add club, fractional, spa, retail, residential, office, sports, waterpark or other components? How do you integrate the elements? What drives the economics and what are the IRR premiums? What's happened to change the feasibility of going “green”? Can you afford not to go “green” anymore? Where are we in the condo hotel phenomenon?
We have the top leaders of the industry answering all these questions and more at The Hotel Developers Conference™ (March 7-8, 2007) in Rancho Mirage. (Contact Info: Phone: (310) 201-352 ) Some of the companies sharing their experience are listed below.
Owners and developers such as: Ensemble Real Estate Services, Excel Realty Holdings, Gatehouse Capital, Gencom Group, General Growth Properties, HEI Hospitality, Irongate, John Buck Company, Palladian Development, Shea Properties, Triyar and Winston Hotels.
About the Author:
|Also See:||Why Are Bill Gates and a Saudi Prince Buying Four Seasons Hotels Now? / Jim Butler / February 2007|
|Two Deals that May Change the Lodging World Forever / Jim Butler / January 2007|
|International Hotel Investments: Hotel Developers Should Keep their Eyes Wide Open; The Plays to Make Successful International Hotel Investments / Jim Butler / January 2007|
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