Last week, I wrote about the billions of dollars in equity sitting on the sidelines waiting for the right opportunities to invest in distressed hotel real estate. Since then, more information has come to light in support of that notion.
First, I heard from Lou Plasencia, chairman & CEO of The Plasencia Group. Commenting on my posting, he said, “Increasingly, a number of other, more entrepreneurial investors are not necessarily waiting for leverage to reappear.They are instead continuing to raise private equity from smaller, individual investors promising six- to eight-percent preferred returns. They may not have the buying power that a leveraged $3-billion private equity fund might have, e.g., Carlyle, Walton Street, but it is precisely because they don’t have to worry about debt that they are going out and aggressively buying assets way ahead of the rest of the pack.”
And a day after I heard from Lou, I learned that HEI Hotels & Resorts is about to launch its third equity fund that once leveraged will be able to acquire or develop between $1.5 billion and $2 billion in lodging real estate over the next two years. Given tumbling prices and looming desperation by many owners, the fund should be able to pick up quite a few properties and portfolios.
While these developments may constitute a trickle, that trickle can quickly become a torrent. If so, hotel real estate may be taking baby steps toward a turnaround.

I attended many sessions and chatted with or interviewed scores of lodging executives during the recent Americas Lodging Investment Summit in San Diego. Here are few nuggets of industry intelligence I gleaned during the week:
1. Once recovery comes to the hotel industry, “the rebound will be larger and more robust than in past cycles,” said Art Adler, managing director and CEO of Jones Lang LaSalle Hotels. He cited three reasons: operators have shown they can manage effectively under stress; distribution channels are more efficient and less reliant on third-party sources; and the recession and lending freeze will choke off most new supply.
2. Saying he’s pessimistic about the prospects for any large development projects in the next three to four years, Marty Collins, CEO of Gatehouse Capital, quipped, “To be a developer today requires more faith than [TV evangelist] Joel Osteen has.”
3. If you’re an owner who’s had trouble meeting your mortgage payments, Rich Warnick of Warnick + Co. offered some encouragement: “In this cycle, lenders have few options but to work with their borrowers. Taking back properties would only further devalue them.”
4. Calling the economic environment “not the worst I’ve seen but not good,” Continental Airlines Chairman and CEO Larry Kellner said he’d be “happy if recovery comes in 2010.” He believes airline capacity, which shrunk considerably last year, could contract further if the cost of fuel rises and the economy stays soft. That’s not good news for the hotel industry, especially those properties in airlift-dependent resort locations.
5. Each of these large hotel investment conferences usually generates a unique catch phrase, e.g., Stay Alive ‘til ’95, to capture the mood of the industry, None surfaced at this year’s ALIS, although conference chairman Jim Burba offered a few possibilities, none of which really encapsulate where the industry is today:
• Still Not Fine in ‘09
• Doing Fine by the End of ‘10
• Finally in Heaven by ‘11
• On Track Again by 2010
6. A note to whoever wrote the script to the faux game show, CEOs Face Off, in which sets of past, present and future hotel company presidents squared-off in a Jeopardy-style format. While it would be a more relevant answer at a hotel conference, A&W Root Beer wasn’t founded by the Marriott family nor named for Alice and Willard Marriott. In fact, Roy Allen and Frank Wright launched the branded in 1922 in Lodi, CA.

Like most of corporate America, Walt Disney Co. had a terrible quarter. Yesterday, it reported its first-quarter revenues dropped eight percent and earnings fell 32 percent over the same period last year. While revenues and earnings sunk for all of its business segments, the parks and resorts division fared the best, as revenues dropped just four percent during the quarter. And the future looks bright: The company says hotel bookings for the second and third quarters are up over last year.
The reason for the relative success of Disney resorts is the company’s very-attractive seven-for-four promotion it launched last year and recently extended through the middle of August. The scheme offers resort guests three free nights when they book four. Not only does the promotion provide a substantial savings for guests, it presents a strong price/value proposition because consumers feel they’re getting a lot of bang for their buck.
As company officials warned stock analysts following the earnings release, the promotion fills the house (properties in both Anaheim and Orlando had 85-percent occupancies during the quarter) but ADRs suffer. Of course, Disney’s rationale is to get families to the resort, where they’ll spend lots of money on park admissions, food, drinks, souvenirs and more.
Disney’s strategy provides a good lesson to all hoteliers looking to survive current recessionary pressures. You need to provide promotions that pack a lot of pizzazz but which don’t appear to be straight discounts (20 percent off today!) and hopefully create an environment in which your guests will spend money while on property. It’s easier said than done, but it’s a good model to emulate when you can.

With plenty of pessimistic talk about the economy and the industry’s ills last week in San Diego at ALIS, I thought it would be a nice change of pace to offer a couple optimistic views I heard. Two CEOs from companies based overseas went out of their way to express some hope because of this country’s new leadership.
Accor CEO Gilles Pélisson, whose company is based in France, pointed to the new administration as a sign of hope throughout the world during the Global Outlook Panel, and Jumeirah Group Executive Chairman Gerald Lawless expressed similar thoughts about President Obama in a one-on-one interview. “Americans are feeling more proud of themselves,” said Lawless, who’s company is based in Dubai. “(His election) has been received extremely positive (in the Middle East). He wants to have a dialogue about peace. There’s a great feeling of optimism. It’s a new beginning for America.”
Whether that translates to increases in occupancy and RevPAR, or at least some positive strides in the global economy, remains to be seen. But at least there are a couple CEOs from major players in the industry finding glimmers of hope and renewed confidence in this country.

One of the main reasons many attendees at last week’s Americas Lodging Investment Summit were relatively upbeat is the knowledge that somewhere lurking on the sidelines of the industry are billions of dollars primed to make hotel deals once conditions improve. A scan of the list of ALIS attendees shows few from private equity firms, a segment that seems to be waiting until later this year or 2010 to become active.
The question, of course, is what will trigger this supposed outpouring of funds to acquire properties, portfolios of hotels and even brands and operating companies. First and foremost, it will take a signal from the banking community that it is jumping back into the commercial lending pool. That, in turn, should signal broader improvements in the national economy. Today, everyone–and that includes Wall Street bankers and Main Street waitresses alike–are scared about their jobs and their futures and are taking wait-and-see attitudes on nearly every financial decision, whether it’s buying a new car or a five-hotel portfolio.
Unfortunately, there’s not a lot any of us can do to help the situation aside from maintaining (and spreading) as much optimism as possible and assuring ourselves and our colleagues that recovery will come–certainly not this month and perhaps not this year–and a sense of normalcy will return. I sure hope I’m right on this one.

President Obama didn’t do the tourism industry any favors with today’s appointment of New Hampshire Sen. Judd Gregg as Secretary of Commerce. Sure, the pick signals that Obama is serious about practicing bi-partisanship in his administration, and as a Republican Gregg should carry some pro-business DNA. But despite what the U.S. Travel Administration said in its fawning endorsement of the appointment, the likelihood of him being a champion of the hospitality industry and its causes is very slim.
Gregg is a career politician who’s been in one office or another since 1979. Between law school graduation and his first successful election (just four years), he was a partner in his father’s law firm. He’s never run his own business, and while some say a state governor is really a CEO (Gregg served as New Hampshire’s governor for four years), that thesis didn’t hold up too well in the case of former President and former Texas governor George W. Bush.
Nothing in his resume or his Congressional record suggests to me that Gregg will be a strong promoter of any of tourism’s key issues, namely a federal program to promote international tourism to the U.S. One significant way Obama could pump dollars and additional jobs into the U.S. economy would be a robust strategy to encourage tourism. It would be stimulus dollars well spent, but I don’t see that happening while Gregg is in office.
As an aside, the only fun fact I found in Gregg’s mostly bland bio: in 2005, he won more than $850,000 on a $20 Powerball ticket he bought at a DC convenience store.
Another aside, and perhaps a topic for another blog entry: It’s no wonder the U.S. Travel Association (formerly the Travel Industry Association) carries no real clout in our business, particularly at the Main Street level. Its President Roger Dow’s toothless statement today in support of the appointment showed why that organization is run by a cadre of ineffective political hacks.

In today’s installment of not-so-good news, I saw a story on the Adam’s Mark Hotel in Buffalo soon to be sold for $7.5 million, almost half of what it went for a year ago. The drop in price is a glaring example of how far the market has fallen. Visions Hotels Inc., reportedly, is expected to close on the purchase this month, a year after Chartres Lodging Group LLC (note the story I linked to spells it Chartes, which is incorrect, by all accounts I can find) bought the 486-room hotel from HBE Corp. The new owners plan to renovate and reflag the hotel as a Crowne Plaza. The deal is being financed privately through a loan with M&T Bank.
I guess the good news is someone, somewhere was able to secure some money from a bank. Whether the price will ultimately be viewed as a steal or a ripoff will be determined by when, and where, rock bottom ends up being. But I’d have to think a property of that size with pretty strong occupancy numbers, according to the story, will be worth a lot more than that in a couple years when the cycle turns.
If the sale goes through, it will leave the Indianapolis location as the last of the Adam’s Mark Hotels.