It poured rain in Manhattan during this week’s NYU investment conference and it only served to put a slight damper on all the industry parties and rooftop celebrations of the prevailing good times in the U.S. hotel market, because inside the ballroom Monday and Tuesday at the Marriott Marquis the sun was shining with forecasts of mostly sunny skies for the foreseeable future with still steady demand and moderate supply growth driving the favorable weather pattern.
For some of the cynics asked to prognosticate, the foreseeable future was no longer than today as they were among the few to admit that a Black Swan event or economic decline (think China) could happen at any time. But barring the unexpected most said the stable cycle will last a few more years, at least. After all, what else are you going to say on stage in front of 2,000 of your closest friends?
Of course, there were a few execs who cautioned about being too bullish, but no one went as far as to use the words “irrational exuberance.” However, a favorite phrase of mine from the conference came from Interstate Hotels President and CEO Jim Abrahamson, who called the potential merger of Expedia and Orbitz “the coming together of the Klingons and Romulans. And Captain Kirk should be concerned.”
Yes, the bogeyman in the room was the OTAs and their profit-eroding, ever-present, ever-fierce battleship. In response, fists were clenched and calls to action came left, right and center, but what will really be done in response to this attack? What can be done? Does someone have an answer? No one at NYU did, and Expedia was even invited to sit on stage during the next CEO panel. Being ladies and gentlemen, no one threw tomatoes.
Aside from that, a lot of debate surrounded the future of Starwood, which came to the conference armed with another plan to rejuvenate Sheraton. Again, no one seemed to have a clear idea as to what the future holds for one of the industry’s giants that would be difficult to absorb. Most money, however, seemed to lean toward some sort of transaction to come. Here’s a fun long shot to consider: Who remembers Wanda’s Chairman Wang in Shanghai suggesting about a year ago or so that he’d like to buy an American hotel management company? I made the suggestion to a few M&A experts at a cocktail party and got lukewarm responses. One did tell me, however, that Wanda could be getting close to a big development deal in New York. It already has L.A. and Chicago.
Perhaps the best panel during the conference came when Blackstone’s Jonathan Gray and Starwood Capital’s Barry Sternlicht took the stage for a captivating and entertaining session. They were both bullish with just a few caveats.
Gray said the U.S. hotel industry is not near the end of its up cycle, adding RevPAR gains could moderate and fundamentals remain favorable for improved valuations, while adding that it is early days for foreign investment in the United States.
Sternlicht referred to the economy being in a “Goldilocks” stage — not too hot or soft. He again railed against unwarranted EB-5 developments and said valuations were getting extreme. If anyone should know after selling the Baccarat for more than US$2 million a key …
Sternlicht added that pending interest-rate increases will likely cause cap rates to fall and markets to “burp.”
The only burps I heard at the NYU conference came from champagne drinkers later in the evening.
More NYU recap tomorrow.