ATLANTA—Sometimes Washington gets it right. Consider the November 2021 passing of the $1.6-trillion infrastructure bill, one of President Joe Biden’s signature accomplishments in office, which will funnel billions to state and local governments to upgrade things like outdated roads, bridges and transit systems. As the White House wrote in the bill, it will drive the creation of “good-paying” jobs and will help add an average of 1.5 million jobs per year for the next 10 years.
Jobs and infrastructure are a recipe for something else: hotel demand. The work of the nation needs a place to stay, to sleep and to eat and America’s hotels are the answer to that, those that especially cater to work crews, such as the thousands of select-service hotels that dot the landscape and still offer amenities like free daily breakfast.
Hotel CEOs, here at the Hunter Hotel Investment Conference at the Marriott Marquis, cited the bill as a win for the hospitality industry, something that continues to percolate and could be an anodyne to any slowdown in the economy.
“We are seeing a lot of business from the infrastructure bill,” said Julie Arrowsmith, president and interim CEO of G6 Hospitality, parent company of the Motel 6 and Studio 6 brands. She added that the company is seeing “nice” RevPAR growth this year beyond even the forecasts.
Geoff Ballotti heads Wyndham Hotels & Resorts, which has hotel brands across the segments, but focuses mainly on select-service and budget-friendly hotels, through brands such as Days Inn, La Quinta, Microtel and Hawthorn. It’s not a stretch, then, to see how the infrastructure bill would be a shot in the arm for the Parsippany, NJ-based franchisor.
“The infrastructure bill is impacting corporate travel,” he said. “It’s an opportunity to fuel select service.”
It stands that small- and medium-sized enterprises, or SMEs, are the types of outfits most engaged to correct the nation’s crumbling or due-for-an-upgrade infrastructure. It’s the type of road warrior business the hotel industry has missed since the pandemic.
“It fills midweek business,” said Larry Cuculic, CEO of Best Western Hotels & Resorts, where business transient is a large part of the member organization’s focus. “Secondary and tertiary locations are where infrastructure money will be spent,” he said.
John Murray, president and CEO of Sonesta, summed it up best: “Infrastructure creates jobs in the middle, fixing roads, bridges… and there are hotels along the way.”
It’s not all gravy, however, something Murray spoke to. Though infrastructure projects have injected more life into the travel sector, it’s not been a savior altogether. Group business is still not completely back to prepandemic levels and normalized corporate transient is, well, still not back to normal. “It’s hard if business parks aren’t open,” Murray said, alluding to the new normal of employees not back into the office five days a week.
ON THE ROAD
As infrastructure continues to boost business transient travel, the leisure traveler has been steadfast, filling hotel rooms at lofty rates—pandemic and inflation be damned. “It hasn’t broken the will of the traveler,” said Elie Maalouf, CEO, Americas, IHG Hotels & Resorts.
IHG, as Maalouf pointed out, covers an array of travel segments, including luxury, with brands such as InterContinental, Six Senses and Regent. At that top end, Maalouf said, customers are not shy to spend and spend often. “At the upper end,” he said, “there is no resistance. People travel with passion and there is no rate ceiling.”
Borrowing from F. Scott Fitzgerald, Maalouf said, “The rich are different.”
Lower down the chain scale, inflation has harmed the traveler, who is having to pay more for basics things. Though eggs might still be pricey, utilities, such as gas and electric, are coming down, Maalouf said. “That’s in the rearview mirror,” he said.
Inflation is a tailwind for hotels, which can reprice their rooms on a daily basis.
MONEY TALK
The pandemic might have less impact today but it left its mark. Hotel owners are still not in the catbird seat and the recent banking crisis has only exacerbated its remnants.
Many hotels at the beginning of the pandemic shut down completely and instead of using capital reserves for future improvements, it was used toward debt service and interest carry, as Ballotti pointed out.
Hotel owners still aren’t whole and much of the deferred maintenance now needs attention, especially as brands give owners less rope. “Hotels are now riding high ADRs, but maintenance needs to be done after slight neglect. Owners might want to sell the assets instead.” Conversely, he said that “well-capitalized developers who can afford a PIP on repositionings or on ground up projects,” are the potential winners in this market.
For buyers or developers, a strong brand partner, with strong distribution is still a lender’s preference. Though the rise in interest rates has made it more difficult to build, building now is something IHG’s Maalouf said is an easy win. “If you can build today, you’ve built an asset that will appreciate,” he said.