As the CEO of the world's biggest lodging REIT (three times larger than the next biggest one), Ed Walter has a pretty good idea of how the hotel industry is doing. He will share those insights at the fifth annual Bisnow Lodging Investment Series, but we chatted with him this week to hear his thoughts on the current hotel market.
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Host Hotels & Resorts has a more than $13B market cap and has grown in the first two quarters of 2016. But, Ed says that growth has been slower than many had hoped.
"It’s an OK year," Ed tells Bisnow. "We’re still growing, which is always a positive, but we’re not growing at the same robust rate."
Across the industry, Ed says, corporate and international travel has slowed from previous years, likely due to less corporate investment. He also points to the strength of the US dollar and weak global economies creating less international travel.
"I would say across the board in the industry we have all been somewhat disappointed with how this year has played out," Ed says. "In general, the industry is generating less revenue growth than what it had hoped. Twelve months ago looking at 2016 people were more optimistic than they are today."
Ed has a positive outlook on the economy as a whole, in its seventh year of recovery since the downturn. He sees strong economic indicators and doesn't expect a recession in the next year, but admits it is a constant concern of his given how tied the hotel industry is to the economy's health.
"If we were to go into a recession and GDP growth were to go negative we would most certainly see a reduction in lodging demand," Ed says. "If demand is going down where supply is increasing that would be very problematic."
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In April, Host's two biggest hotel operators, Marriott and Starwood, agreed to merge into a single company. Ed, snapped above at a 2013 Bisnow event in New York, said if Starwood can begin to operate under Marriott's cost efficiency, it could save the REIT money, but he added the transition poses risks.
"The risk we have is that the complexity of integration for companies can lead to issues, distractions and things like that where the management at Marriott may lose a little bit of sight on improving operations at its properties because they're trying to integrate," he says.
Host owns hundreds of hotels across the country and around the globe, giving Ed a unique glimpse into the comparative strength of regional markets. He says the strongest hotel markets today are San Diego, Los Angeles, Atlanta and DC, where Host is based.
"Generally you’re seeing better convention activity this year, which is certainly helping DC," Ed says. "I also think you've seen improved travel out of the government, which we hadn’t seen for last several years, that’s contributing to the strength in DC."
Earlier this month, Host bought the ground lease for the Key Bridge Marriott in Rosslyn (above), the longest continually operating Marriott in the world, giving the REIT the ability to redevelop the site.
"We have an exceptional location with exceptional views, the question is what is the best way to maximize the use of that site," Ed says. "We're in the midst of trying to sort out what we think make sense, talking to prospective partners, having discussions with the county. It would be very interesting to ultimately design and build out some sort of new development."
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