(September 3, 2015, East Lansing, Michigan) Two students from The School attended the Southern Lodging Summit in Memphis, TN August 18-19. They were accompanied by Dr. Ray Schmidgall, The School’s Hilton Hotels Professor of Hospitality Business Financial Management. The students, Cameron Armstrong (BA ’16) and Yunwei Zhang (BA ’16), are members of The School’s Real Estate Investment Club and are pursuing The School’s minor in Real Estate Investment Management. This summer, Cameron completed an internship with Wells Fargo’s Hospitality Finance Group in Washington, DC and Yunwei completed one with Hilton Worldwide headquarters in McLean, VA.
For 13 years, the summit has been hosted by Pinkowski and Company, whose founder and president, Chuck Pinkowski is a member of The School’s Real Estate Investment Management Advisory Council. The company was established in 1987 as a full-service hospitality consulting firm providing development services, asset management and consulting services to companies, individuals and other entities involved in the hospitality industry.
The summit is a day and a half event that includes top hotel owners, operators, asset managers, brokers and related fields. This year’s event featured keynote speaker Stephen Bartolin, Jr. chairman of The BROADMOOR in Colorado Springs, CO and its related businesses which include The Ranch at Emerald Valley, Cloud Camp, Seven Falls, and The Broadmoor Fishing Camp.
Sessions at the Summit included information on technology, industry trends, CapEx 2014: A Study of Capital Expenditures in the Hotel Industry, and designing for the future guest.
“Cameron and Yunwei were outstanding representatives for our School,” says Dr. Schmidgall.
Indeed, Cameron provided summaries of all the sessions he attended, thoroughly analyzing some of the key conclusions, including the following:
Technology: New methods of checking in (roaming kiosks, mobile check-in, etc.) are being debuted across properties with a positive reception. Additional innovations such as keyless entry, wearable wristband room keys, and reducing the size of a front desk were discussed and, in general, well received by guests. Creating tech-friendly rooms has been on everyone’s mind, as well. Talks of televisions that will be compatible with customers’ existing subscriptions (Netflix, Hulu, etc.) herald the next likely innovation on deck. Like anything, glitches have arisen and are being worked through, but the independence of millennials or “modern travelers” is being recognized. Young people rarely want a forced interaction with an actual human being, but they’d like someone there if the Wi-Fi cuts out.
Capital Expenditures: Standard reserves for capital expenditures (4%) have been proven to be not enough. Once a hotel passes its eighth year of existence after construction, the average annual spend on repairs and maintenance exceeds 4% and continues to rise as the property ages. A proposed solution was the negotiation of segmented raises in reserves being incorporated into management contracts. For example, after 10 years the reserve rises to 5%, 15 years to 6%, and so on. However, this will compromise ROI on proposed investment and could make investors wary. It’s known that the reserve is traditionally too low, but it’s something hoteliers come to expect going over budget.
Industry Trends:
- Wi-Fi: At the end of the day, Wi-Fi needs to be free. The only space in which one can charge for Wi-Fi is the luxury lodging segment, solely because of the price inelasticity of its customer base. The issue of increasing customer demand for connectivity was brought up with a few key issues. First of all, logon needs to be seamless and easy. More than one page of advertisements within the logon portal will lead to a negative customer reaction. Second, Wi-Fi needs to be fast; customers do not want to see a video buffer or wait for a page to load. Lastly, why should Wi-Fi be free in the first place? Rates will increase due in small part to the fact that bandwidth isn’t cheap. As hotels need to spend more and more on improving connectivity, rates will rise; such is business. To quote my mother, “If I’m paying $200+ each night for a room, there had better be free internet access; I get that with a $5 cup of coffee at Starbucks.”
- Rising wages: Areas on the west coast have begun to feel the effect of wage increases. What was categorized by a speaker as “unnecessarily aggressive wage hikes” referenced legislation targeting the hospitality industry in specific. Also, a topic addressed was the nonexempt employee payment practices in California. Speakers admitted that salaried employees may have been taken advantage of in the past by not clocking an hourly wage, but that it is something people will have to compensate for going forward. This new law will undoubtedly increase labor cost and force owners to take a hit at the bottom line.
- Brands: Speakers addressed creating brands that will bridge generations and appeal to travelers around the world. While it is important to make sure one is not attempting to be everything for everyone, modern, minimalist and culturally infused brands are making sure that the newest offerings have people’s heads turning. I asked someone at a reception whether we will reach a point of saturation with brands. He replied with a “No,” pointing out that a brand only cost a few million dollars to develop, but if it succeeds the yield is limitless.
- AirBnB: The newest, most disruptive kid on the block. With a market capitalization higher than Hilton and Marriott put together, AirBnB has many hoteliers on edge. However, two sides form this story. One side contends that AirBnB is an illegal practice that strips revenue away from hotels and puts travelers at risk. The other side argues that AirBnB targets very budget-conscious youngsters who only need a couch and families preferring a private home. While they may have booked a hotel instead, they may not have traveled at all if it were not for the AirBnb. This argument takes the view that an AirBnB guest will evolve into a hotel guest; they just don’t need a hotel at the moment. The big issue was this: travelers want authentic experiences when they travel, and what feels more authentic than staying in a local’s home or apartment? However, optimism triumphed as a speaker highlighted the intangible aspect of hospitality: people love the warmth and welcome that a hotel and its staff provide. Brands are incorporating local architecture, food, drink, etc. to bring that individualized spark to their properties. Long gone are the days where people want cooker cutter hotels. People want to know what city they’re in before even leaving the hotel.
