PHOENIX — The temperature of the hotel industry is running hot here at the JW Marriott Phoenix Desert Ridge and it had nothing to do with the suffocating heat outside. The annual Lodging Conference confab is one of the last chances of the year for the collective hotel industry to offer up its takes on what’s now and what’s to come.
The View from the Top panel discussion, one of the early panels of day two of the conference, elicited brand opinions, which all looked for a brighter future after a ho-hum 2024, one that Joe Berger, president and CEO of BRE Hotels & Resorts, described as, “Ugh!” citing soft RevPAR and heavy inflation.
But not all shared his sentiment. Geoff Ballotti, president and CEO of Wyndham Hotels & Resorts, which franchises brands mainly in the economy and lower-midscale segments, referred to 2024 as the year where the smart money bet big on select-service and extended-stay accommodations, which are where the bulk of Wyndham’s franchises assets lie, including its Echo Suites brand, a big economy bet on the long-stay space.
Within the pure economy space sits G6 Hospitality and its legacy Motel 6 brand, which, along with Studio 6, were agreed to be sold to Indian upstart Oyo Hotels in September in an all-cash transaction valued at $525 million. Less than a month later, Julie Arrowsmith, president and CEO of Motel 6 and Studio 6, didn’t have too much more to say about the deal, other than “we are in learning mode.” Meanwhile, she said after some occupancy challenges for the segment, the economy space is forging ahead and anticipates growth.
Steady and ready for 2025 rhymed John Murray, president and CEO of Sonesta. And on the deal front is where people should be prepared, in particular as debt becomes cheaper as interest rates inch further down; simultaneously, the wall of debt that is coming due will have many owners loathe to refinance.
“Interest rates coming down will help us get better deals,” said Arash Azarbarzin, principal and CEO of Highgate, which owns and operates hotels. He added that it’s a prime time to acquire assets with muted supply growth and construction stars. Shortly after COVID, Highgate bought a large pack of La Quinta properties and in 2022 acquired Viceroy Hotels & Resorts, which has a portfolio of 11 hotels. “2025 will be a great year for investment,” he said.
Most investors oftentimes allude to the dry powder sitting on the sideline, readied to be deployed. What unlocks it, Berger said, was a path to a lower Fed Funds rate and bid/ask spreads narrowing further. “It could make for a big 2025,” he said.
Sonesta launched Sonesta Franchising, its expanded global hotel franchising organization, in 2021 and now has more than 1,100 hotel worldwide across 14 brands. Working with franchisees has been critical to its growth, but Murray was adamant that working with the company meant not having to deal with the sometimes onerous brand standards lodging companies exact. “We are trying to make brand standards and PIPs that don’t drive franchisees out of business,” he said.
Azarbarzin, too, said Highgate approach with Viceroy is similar and that it allows for much more flexible brand standards, which is easier with only 11 hotels.
Though domestic travel across the U.S. has stormed back both on the leisure, corporate and group side, accessing more international travelers, especially from Asia, is still in a torpor. Wyndham’s Ballotti bemoaned the still long wait times for visas that hampers inbound U.S. travel. He underscored India, where visa wait times can be as long as 250 days.
There continues to be softness out of Asia, especially China, while Japanese travel to the U.S. has also stalled, in particular to Hawaii, which historically has welcomed a surfeit of Japanese travelers. “It’s definitely not back to full force,” Berger said.
“Demand levels down on west coast inbound travel from Asia hasn’t returned. 80% back since 2019 it’s much less from China.
All on stage advocated support for the AHLA and its CEO Kevin Carey, who moderated the panel. They cited local and national issues and educating civic leaders on the benefits of the industry and the economic power it brings. Consider a November vote in Glendale, Ariz., that could determine a vastly higher wages bump for hotel workers. Getting and retaining labor talent is an utmost priority of owners, but many could see their profit margins shrink even more if the minimum wage for hotel workers goes up.
“The industry is under siege,” Berger said. “We have to stay engaged and work with organizations like the AHLA. We are a huge part of GDP and employment and I feel we don’t use our voice enough at every level. We have to own this. We are getting it from everywhere.”
Added Murray, “Very few civic leaders have ever run a business.”