Contact Us
News

Trouble In Paradise: Atlanta Hoteliers Finding Headwinds During Boom Times

From rising construction costs, labor shortages and rising taxes to grappling with newer and flashier amenities and the uncertain impact of Airbnb, hoteliers have a host of issues in 2018.

Then again, those issues could just be the symptoms of being at the peak of the market.

Pyramid Hotel Group Senior Vice President John Hamilton with Peachtree Hotel Group Senior Vice President Brian Waldman

“It feels like we're teetering at the top. Not quite sure how much better things can get,” Peachtree Hotel Group Senior Vice President Brian Waldman said. “We think that whatever growth we do see over the next 12 to 24 months will probably be, you know, slight growth, somewhat muted. From our perspective, we do believe there will be a pullback at some point.”

Waldman was a speaker at Bisnow's Atlanta's Thriving Hospitality Market event Tuesday morning at the InterContinental Hotel in Buckhead. Waldman and other panelists from Atlanta's hotel industry all said business was strong at the moment, reflective of an overall booming economy. The issue is the nagging question: How long can these good times truly last?

“We do feel that there are more good days behind us than ahead of us,” Hotel Equities CEO Brad Rahinsky said. “We think we're dragging around the top right now, much like we did in '09, '10, when we were dragging around the bottom.”

Winter Construction Project Executive Heather Tuskowski consults with Noble Investment Group Vice President Lisa Smith and North American Properties partner Mark Toro during Bisnow's 2018 hotel event.

Even construction subcontractors are racing to secure hotel construction projects through the next year or so by becoming more aggressive in their bidding proposals, Winter Construction Project Executive Heather Tuskowski said. That, she said, is benefiting hoteliers by garnering more favorable costs.

“I think the subs are a little skeptical if the markets are going to stay hot into 2019,” Tuskowski said.

Atlanta's hotel market entered 2018 in a strong position, thanks to big events in the city and a broadening of Atlanta's hotel demand generators, including the burgeoning film industry. But there are headwinds in the mix now, including a struggle to find workers to fill hotels and a flurry of new hotels hitting the market in the next year.

Bisnow's 2018 hotel panel discussing disruptors and trends in the industry

The Labor Paradigm

“Where we have seen the biggest impact in our underwriting is actually in labor and property taxes, and I don't know that that's being appropriately factored into underwriting,” Waldman said. “That is what is negatively impacting more underwriting and killing deals.”

Pyramid Hotel Group Senior Vice President John Hamilton said costs for his business are jumping due to a lack of labor, coupled with paying overtime for employees working more than 40 hours a week.

“The cost of my operations has gone up,” Hamilton said.

Filling hotel staff positions has become a bigger challenge given that the U.S. is practically at full employment, Rahinsky said. The challenge is not just filling new hotels, but keeping valued staff at existing ones.

“We are as much a staffing company today as we are a hotel management company,” Rahinsky said. “If you're not taking care of your associates, somebody else will.”

While there are measures to finally expand transit throughout Metro Atlanta, the labor shortage is exacerbated by Atlanta's notorious commute times. That is especially true at North American Properties' The Hotel at Avalon in Alpharetta, a new luxury hotel in the Avalon mixed-use project more than 25 miles north from Downtown Atlanta, NAP partner Mark Toro said.

Georgia's plans to expand the bus rapid transit network up Georgia 400, with a future station across from the hotel, will help alleviate some of that labor crunch, Toro said.

“Transit access and transit service to major employment centers is becoming more and more a factor as we're chocked with soul-crushing traffic in Atlanta,” he said.

The Amenity Factor

The boom in lifestyle brands in Atlanta — hotels geared toward certain interests and customers — is becoming the norm as the bar for hotel amenities rises. 

“I think what used to be an amenity or value-add is now table stakes. The bar of expectation on amenities, even on the select-service level, has greatly increased,” Waldman said. “The good WiFi, flatscreen TVs, comfortable beds, good showers, that's table stakes at this point.”

Attractive public gathering spaces — much like in the office industry — are becoming prominent features at hotels, Noble Investment Group Vice President Lisa Smith said. That also goes for hotels tapping into the ambiance of the local community. Those efforts have at times killed some commonly expected amenities at hotels.

“Marriott's actually backing off their requirement for a pool, and that's not something a lot of us would have thought about back in the day,” HVMG Senior Vice President Mary Beth Cutshall said.

Hotel restaurants and bars have gained importance as hoteliers fight to stand out from the crowd, Hamilton said. That helps with group sales, wedding functions and just keeping the hotel busy at nights.

“When you set foot in the lobby of the hotel at Avalon, you're in a bar. And it's loud and it's exciting and it's fun," Toro said. "The food and beverage revenues in the first six months are neck and neck with the room's revenue. It's shocking to us how well it's doing.” 

HVMG Senior Vice President Mary Beth Cutshall and Pyramid Hotel Group Senior Vice President John Hamilton

The Disruptors

The sharing economy has targeted the hotel industry thanks to the popularity of Airbnb and other such websites. But that impact is not evenly spread through the industry. Those websites seem to be affecting the most expensive hotel markets like New York and Chicago and appealing more toward leisure travelers than a business-travel audience, Waldman said.

“If you're going to New York for an event and your hotel room is $1K a night, you're probably going to look at Airbnb,” he said. “I think for the corporate traveler, at least up until now, we haven't seen as much of an impact.”

Rahinsky said Airbnb and other competitors are forcing his company to ensure that their hotels are “high-touch, customer-centric” operations “that will ultimately win the day against that disruptor.”

Hamilton and others said they are eyeing Atlanta's glut of new hotels that are expected to hit the market in the next 24 months.

“Atlanta in general has a reputation with the capital markets of being susceptible to oversupply,” Hamilton said. “We're looking [at] building down by the stadium. There, you have to wonder: Can you find a brand that's not already spoken for? And then second of all, what happens when the big convention center hotel gets built and 10 other hotels get built?”

Hamilton referred to plans by the Georgia World Congress Center Authority to develop a $350M luxury convention center hotel on its downtown property.

“I think if there's any market I'm keeping my eye on is Downtown and Midtown right now,” Cutshall said. “There's a lot going on. And maybe it will all work out. But it is pretty robust, so I would like to see how that gets absorbed.”