Hotel Thaw
The rest of us may be freezing, but not hotels—either here or nationally.
Hotel PR guru Chris Daly, snapped this morning in his Herndon office, agrees “the Force is strong in the industry” nationally. He says revenue and occupancy have again achieved pre-recession levels and that the consensus among hotel operators is that, barring a black swan event, they will keep rising through 2016 and maybe even ‘18. He’s expecting more hotels to be sold as they near peak values. Luxury properties have been reaping benefits the quickest, he says, and next-level brands are benefiting from the spillover. He will be putting on warmer clothes on Jan. 1 when he sees the Blackhawks play outdoors at Nats Park.
Here’s normally DC-based Dave Pollin in Sun Valley, ID, this morning dropping off his daughters, 12-year-old Lily and 9-year-old Stella, at ski school. They were no doubt delighted to overhear Dad (who with partners Rob and Chris Buccini owns 21 hotels in 10 states) telling us that the state of the DC hospitality industry in 2012 and ‘13 was “horrible” due to sequestration and scared contractors. Then Q1 of this year was hit badly by weather. But since then, there’s been a strong recovery, he says, led by the CBD, where group demand is driving “upper upscale” hotels like Westin and Hilton to outperform other segments.
Luxury is spotty, Dave says, with some properties like Four Seasons and Park Hyatt thriving, and others just “OK” given per diem rate limitations. Dave says you won’t see much new luxury development, because the cost is the same as in NYC yet the room rates are only half. But the coming Conrad at City Center seems well-poised, he says, because it’s in a special ecosystem there and near the Convention Center that could boost demand.
Dave sees tremendous response to lifestyle hotels, like the new Hilton Canopy and Marriott AC brands. They're inspired by Millennial tastes, featuring avant-garde music, lobby social scenes, and food (think European-style yogurt with honey vs. a chafing dish full of scrambled eggs). Jumping into that arena, Dave's doing a Canopy at Federal Realty's Pike & Rose (above), and one in Portland, OR, where average revenue per night is growing by double digits for the third year in a row. Two weeks ago Dave bought the Doubletree by Hilton at DFW Airport, and in June acquired the Hilton in Knoxville. He likes secondary cities because you can get the same cash flow yet pay much less—he’s aiming to buy four more hotels in 2015 in markets like Cincinnati and Minneapolis, where stabilized hotels are at more attractive prices. Why? Because Gateway markets are flooded with REIT money bidding up prices.
CBRE Hotels’ Andy Wimsatt, giving his Masters' golf sweater a workout in his DC office this morning, leads their institutional practice nationally. He says fundamentals are extremely strong almost everywhere and that 2015 looks good for continued “RevPAR” growth countrywide. (We think that stands for “revenue per available room.”) Because DC is a stable market, he says, it did better than others in 2010 and 2011 but was then somewhat less frothy in subsequent years, and other markets like NY, Miami and S.F., that had plummeted, recovered much faster and attracted investors chasing yield. (Andy will soon be chasing Frisbees with his college-age kids on the beach in Cancun. Last year he sold a sizable four-property deal there to a DC investor, and his family appears to have volunteered to check up on it.)
But DC hotels are now on the upswing, and he reminds us that the Fairmont just sold for $180M (from Ivanhoe Cambridge to MetLife for $434k a key) and the Park Hyatt for $100M (from Hyatt to Westmont for $462k a key) last June. Supply growth remains a concern in most major markets, he says, since in the past three years it was negligible. But he predicts a rebound in 2015 and over the next 36 months as the convention calendar is approaching peak room nights last seen in 2005 and 2008. As long as capital remains at historic low cost, he sees development picking up.
