In Challenging Hotel Sector, Some See Opportunities for Growth

With the U.S. economy battered by the credit crisis and jobs continuing to evaporate, a somber mood permeates the Americas Lodging Investment Summit in San Diego. But while the recession will continue to suppress both leisure and business travel, some hotel companies see this down period as an excellent time to do business while their competitors sit on the sidelines. Concord Hospitality Enterprises is continuing to develop hotels, and recently secured a $13.4 million loan to build a 124-room Courtyard by Marriott in Pittsburgh, a market that is outperforming many cities in the U.S., in terms of occupancy. “Surprisingly, Pittsburgh is one of those,” said Mark Laport, president & CEO of Concord. Concord has 11 hotels under construction, and Laport believes that this is an excellent time to develop. Interest rates are at rock-bottom levels, land prices have come down, and construction material prices have also moderated. In addition, architects are less busy than they were during the boom years, so design plans can be finished quickly. Also, contractors are now looking for work, and competing with each other on price, a good situation for a developer. It also means that Concord will have portfolio of new hotels in attractive markets, thus a competitive edge, when the lodging market begins to strengthen. Of course, obtaining financing can be tough, and LaPort said that having a long-standing relationship with a community bank can go a long way to securing a loan. For its Pittsburgh hotel, Concord secured its loan from S&T Bank, which has financed seven of Concord’s nine properties in Pittsburgh. Meanwhile, Davidson Hotel Co., a large independent hotel management company which manages 35 hotels, plans to increase its third party hotel management contracts in 2009 in a significant way. The company hopes to add up to 10 new management contracts this year. So far this year, it has signed a contract to operate the Wynfrey Hotel in Birmingham, Ala., and expects to announce a second contract to manage a nationally franchised mid-Atlantic hotel within the next 30 days. Many owners who bought hotels in 2007, for instance, were hoping to sell them for a fat profit two years later. That scenario sounds less likely today, said John Belden, Davidson’s president & CEO. “The music has stopped, and they have to get the most revenue they can out of their hotel,” Davidson said. He said Davidson recently acquired a hotel that was over-staffed, and did not put aggressive revenue management procedures in place. Sometimes, turning around a property involves reflagging a hotel, or adding a flag to an independent hotel, he said. Both Belden and Laport see many hotels suffering distress in the near term, and that will generate both acquisition and management opportunities. “Acquisition opportunities may be the best I’ve seen in my lifetime,” Laport said. “There are really going to be a lot of distressed assets out there.”