How Hotels Can Gain An Edge This Year

SAN DIEGO—Being aware of trends in the capital markets, asset management, technology and customer service will serve hoteliers well this year, RAR Hospitality’s president Bob Rauch tells His firm recently held a lodging forecast event here titled “Harnessing the Tailwinds: Capitalizing on the Successes of the Year Ahead.” We spoke exclusively with Rauch and Atlas Hospitality’s group president Alan Reay, who participated in the event, about some of the key takeaways that could help hoteliers gain an edge in a highly competitive industry. How can hotel investors and operators harness the tailwinds and capitalize on the successes of the year ahead?

Rauch: The first thing we talked about at the conference is that this is still a very, very strong year. While there may be headwinds in the future, right now everything is going smoothly. Whether it’s an impending terrorist attack, minimum-wage hikes affecting us in the future orObamacare impacting our costs, these things have not hit us hard because RevPAR is moving at a faster clip than our increases in costs. We say take advantage of that. Don’t just take whatever business comes in—increase your rates. This party won’t go on forever. We have had tailwinds for the last 80 months, and no matter what happens in 2017, the party will come to an end. You don’t want to throw away profits, so think of where you can cut labor costs. Minimum wage is going up, and so are insurance and energy costs, so you’ve got to figure out a way to reduce those. If you shop aggressively, you can cut costs. I’m doing this now in anticipation of next year because it’s smart. there’s no reason to pay the going rate, so to speak. Also, if you haven’t renovated your hotel, now’s your last chance. You won’t have an excess of capital if we have a recession. Invest wisely in things that will make a difference for you.

Reay: Over the last two to three years, we have seen tremendous appreciation in RevPAR and net income at California hotels; however, a number of owners have not kept pace with the increases and are now trailing the market. For successful hotel operators, there is a lot of opportunity and upside in purchasing these under-performing assets.

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