Looking Back at MLIS
The hotel industry has been on a wild ride the last two years. Just look at the Midwest Lodging Investors Summit as a barometer of the ups and downs. The event debuted in July of 2008, just before the credit crunch began and the financial markets collapsed.
There were hints of trouble at that first MLIS, but no one seemed to believe such a deep downturn was on the horizon. Last year, with the industry in a complete freefall, attendees came to Chicago looking for hope and opportunity. The mood was subdued, but the talk focused on the coming rebound and ways to take advantage.
This past July at the third installment of MLIS, with the first real glimmers of hope for the industry, the mood was again optimistic, but more cautious than in years past. Although operating results and projections have signaled promise and perhaps a faster-than-expected recovery, attendees seemed more grounded in their expectations after the sucker punch of the last two years.
Air of Optimism and Lessons Learned
Many speakers at the event chose to look on the bright side. While they admitted challenges and uncertainties are ahead, most presenters believed the industry had weathered the worst of the downturn and better times were ahead.
Whether that’s fact-based analysis or mere wishful thinking will only become clear in the coming months. The real good news is the intelligent approach many owners, operators and brands have taken to the stressful times. As both Roger Bloss of Vantage Hospitality and David Kong of Best Western told a general session audience, a downturn is the time to focus on sales and marketing, not wanton cost cutting.
“During the recession our response was to go out and sell, sell, sell,” said Bloss, while Kong said Best Western dramatically increased its advertising and marketing budgets to grab market share from its competitors. “Mere cost cutting is no pathway to prosperity.”
Some of the owners and operators speaking on panels had more of a nuts-and-bolts approach to fighting back in the face of tough times. Bill Morrissey of Morrissey Hospitality presented a laundry list of initiatives he uses at his properties to build relationships with his guests and, as he emphasized, generate incremental revenues. His sound philosophy: Do nothing unless it produces revenues.
When Paramount Lodging Advisors reviewed the financial performance of 140 Chicago-area hotels in the first quarter, the real estate services firm discovered a surprising trend. At more than half the hotels it reviewed, owners hadn’t contested their property taxes over the past three years despite a sharp drop in appraised values industry wide.
Such passiveness among owners amid a deep hotel slump came as a shock to Sanjeev Misra, senior managing director of Paramount Lodging Advisors. “Simple things have to be done,” Misra said emphatically at a panel discussion on the art of asset management.
His checklist included renegotiating vendor contracts as needed and reviewing the hotel payroll to make sure pay and performance are in sync. “We look at asset management as creating value for the owner. We improve the cash flow, we improve the physical product or the capital structure—anything to make the hotel worth more,” emphasized Misra.
The Midwest has been hit especially hard by the loss of manufacturing jobs, but even that provided hope for some. “If manufacturing—the auto industry—comes back and employment returns, there is a great opportunity here,” said Shane Platt, Choice’s vice president of franchise development. David Wilner, vice president of development for La Quinta, took it a step further: “This could be a good time for developers picking out the right spots with land costs so low,” he said. “Buy the franchise now, wait for financing to return and break ground in 12 months, and with the limited supply growth, open nine months later and now may be the right time...”
Many attendees moaned about frozen capital markets, but Ravi Patel of Hawkeye Hospitality said his firm is still building hotels: six are under construction and nine opened in the past 18 months. His firm uses a mix of USDA guarantees, SBA funding and local tourism guarantees, along with local banking relationships, to find the capital to build.
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