By Anne Lloyd-Jones, Brian Bisema, and Preston Puleo
Hotel experts and stakeholders convened in Boston to present positive trends in U.S. hotel lending, development, performance, and values. For Boston-area hoteliers, the potential impacts of a 2024 Olympics bid took center stage.
The fourth-annual Hotel Equity & Lender Perspectives (HELP) Conference was held at the Seaport Boston Hotel, situated on the waterfront overlooking Boston Harbor. Fittingly, the conference theme was “Making Waves,” and panel discussions hinged on forces of stimulation and disruption in the U.S. hotel industry. With approximately 400 attendees, the HELP conference qualifies as a more intimate industry event, an asset to local hotel stakeholders in that many discussions were trained on issues affecting Boston. This includes how the city’s bid for the 2024 Olympics could affect hotel supply and performance in the greater area’s lodging market.
Boston 2024
Boston's 2024 Olympic bid represents a sea change for the regional hospitality market. John Fish, who delivered the conference’s opening remarks, is chairman and CEO of Suffolk Construction Company, one of the nation’s largest construction firms. Mr. Fish also heads the effort to bring the Olympics and Paralympics to Boston. If approved by the International Olympic Committee (IOC), he argues, the 2024 Olympics would catalyze major improvements in the city’s infrastructure, as well as commercial, industrial, and residential development projects throughout Massachusetts. This includes hotels, which would benefit from demand generated years in advance from construction crews, developers, Olympics representatives, and related visitors. It would also bring a surge of demand during the games in 2024, as well as future national and international tourism demand following the three-week summer event.
Olympic committee members presented data illustrating the historical impact of the Olympics on host cities in the U.S. and internationally. Economic and lodging metrics in Atlanta, Sydney, Athens, and London improved substantially as a result of hosting the games, leading to permanent job growth and the redevelopment of neighborhoods. The year following its hosting of the 2012 Olympic Summer Games, London eclipsed Paris as the most visited city in the world, drawing one million more tourists who outspent visitors to Paris by $1 billion. Moreover, London hotels realized average rate increases of approximately 40% during the games. Boston and surrounding cities are well poised to mirror these trends, and area hoteliers anxiously anticipate the IOC’s announcement in the summer of 2017.
Brand Loyalty and Disruptors
Keynote speaker Lee Pillsbury, Chairman and CEO of Thayer Lodging Group, opened the conference with a controversial, revelatory remark: hotel brands are losing value and relevance amidst today's evolving industry and technological advancements. Online travel agents (OTAs) are at the forefront of the threat to branded hotels, whose reservations systems are among their greatest advantages when it comes to booking at higher rates; OTAs typically offer rooms at the lowest available rates. OTAs also provide an enticing variety of lodging options to the consumer, many of which are unbranded or representative of rival forms of lodging such as private residences.
Also weighing on the health of brands and the hotel industry as a whole is the widening presence of Airbnb. One panelist shared research showing that when the number of Airbnb rooms increases in a given market, average rates for hotels in that market decline.
Representatives with Marriott, Hilton, Starwood, and Hyatt maintained the stance that brands serve an essential function in the industry, because, among other reasons, they continue to bolster cash flow and return on investment capital for hotel owners. Anne Lloyd-Jones of HVS New York noted that while hotel brands can affect value, the dynamics of a market's supply and demand—and how well a specific hotel is positioned to capture various segments of demand—remain fundamental to hotel performance and value, branded or independent.
Supply, Demand, and Values
The dynamic between supply and demand growth in recent years has led to some of the strongest market fundamentals in decades. These encouraging performance figures, along with increasingly available money from lenders, have caused acceleration in new hotel construction. Nevertheless, occupancy and average rate continue to strengthen, resulting in RevPAR levels at or exceeding historic highs.
The conference consensus suggests that RevPAR levels will register multiple years of mid-single-digit RevPAR growth as hoteliers seek to maintain occupancy while pursuing higher average rates. This expectation, combined with the high level of investor interest, should keep hotel values on the rise for a vast majority of the top 25 U.S. markets throughout the near term.
Conclusion
Mr. Pillsbury remarked in his address that it would be very hard for hoteliers to make a mistake in the current climate. Backing up this sentiment, the HELP conference’s speakers and panelists generally agreed on an optimistic outlook for the U.S. hotel industry over the next several years, particularly for 2015.
Boston’s bid for the 2024 Olympic Games was central to many of the discussions among hotel owners, experts, lenders, and developers at the conference given the potential impacts on the Greater Boston market should the city be chosen as host. Mr. Fish argued strongly for how the games would create substantial economic benefits for Boston and the state of Massachusetts. The benefits from tourism that an Olympic legacy would bring in the future were on the minds of attendees as well, and hoteliers will surely keep watch on the subject as the situation develops.
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Note: The data presented in this article are for informational purposes only and are not meant as a basis for making investment decisions. For more information, contact the authors.
