Indonesian-inspired Pantai Inn opens in La Jolla
California’s first oceanfront boutique hotel modeled after Balinese retreats captures exotic charm and the culture of genuine hospitality
La Jolla, CA, November 21, 2011 – Reminiscent of the tranquil retreats of the Indonesian island, Pantai Inn (pronounced pawn-tai) will open Thanksgiving weekend 2011 with ten richly appointed suites designed with custom-made, wood-carved furnishings, stone carvings, and hand-selected décor from Bali. Pantai Inn offers one- and two-bedroom suites, plus Pandang, the property’s signature three-bedroom villa.
Press: The Best Is Set to Come at Famed Resort
From the San Diego Business Journal (Monday, Nov. 21, 2011)
“The luxury sector has been faster to rebound, but it was also the hardest hit during the recession,” said Robert Rauch, who heads the locally based hospitality consulting firm R.A. Rauch & Associates Inc. and operates two Hilton-branded hotels in San Diego. Rauch says while the region’s highest-profile properties get the bulk of attention from remodeling projects, there are potentially dozens of hotels in San Diego County undergoing renovations at any given time. Many are improvements geared to replacing furnishings based on regular wear and tear, while other operators might decide that more extensive updating is in order to remain competitive.
11.11.11 Hospitality Forecast
Let the Good Times Begin
At hotelguru.com, we look at indicators beyond the critical Smith Travel Research (STR) data. We have developed an algorithm that accounts for booking pace, STR trends, economic indicators and much more. Despite the uncertainty in the jobs market, the double-dip in housing, a lack of consumer confidence, oil prices and sluggish gross domestic product growth, we are bullish on lodging going forward.
In the United States, Smith Travel Research data from the third quarter reflects this positive outlook. When compared to Q3 2010, revenue per available room (RevPAR) in the United States improved from $63.40 to $68.44, representing a 7.9 percent increase. That came from a 4.0 percent increase in occupancy to 66.5 percent, and a 3.8 percent increase in ADR to $102.96.
I just read a blog by my esteemed colleague and friend Jim Butler, head of JMBM’s Global Hospitality Practice who attended the recent North American Development Conference and it was great! He quoted another esteemed colleague and friend, Robert Mandelbaum, head researcher at PKF Consulting and I no longer feel alone in pronouncing the end of this ugly three year period in our industry. So in the coming paragraphs, I’ll quote some industry pundits and provide my own analysis as well.
We have entered the second inning of this new ball game. [pullquote]The “Great Recession” followed by the “Great Hangover” has ended[/pullquote] and occupancy and rate growth have both moved steadily upward. The hotel industry continues to show signs of year-over-year growth relative to increased corporate demand, resulting in improved hotel occupancy and steady leisure demand which has firmed up rates. Average rate increases are expected to be 5 percent in primary markets in the United States according to multiple sources, despite the resistance from corporate users during the “request for proposal” process this year.
For the next 12 months, committed occupancy on the books is up 4.8 percent year-over-year, average daily rate is up 4 percent, and revenue per available room is tracking ahead by 6.5 percent, according to TravelClick’s October 2011 North American Hospitality Review. The group and business sectors are particularly strong, according to Tim Hart, Travelclick’s CEO.
“That pace number, especially in the group segment, was up considerably through the course of September coming into October, which really bodes well for the group base that’s getting added into 2012,” he said.
Indeed, group pace—or the increase in group bookings made during the past 30 days—was up 18.7 percent for room nights booked for the first quarter of 2012. Total pace, which includes group, business and transient bookings, was up 15.3 percent for the first quarter of 2012.
“Corporate travel experienced moderate growth in 2011 as companies continued to cautiously reinvest in their travel programs,” said Chris Vukelich, Vice President Supplier Relations, Egencia Americas. “Accordingly, suppliers will likely implement moderate price increases in 2012.”
ADRs are forecast to be up overall in North America, with the largest increases in San Francisco (up 15 percent), Boston (up 10 percent) and Minneapolis (up 9 percent). Upward pricing pressure can be attributed to the trend that new supply growth in the U.S. remains slow while demand has been making a recovery toward 2007 levels.
Hotel Values
What is the impact of these improved revenues? Values go up as net income increases. Most owners have done a good job of cutting expenses in this weak economic environment. This alone has increased hotel values in 2011. Going forward, I believe we can look at double-digit per annum growth in values over the next four years. That means that a hotel that is currently valued at $150,000 per room will be worth over $220,000 by 2015. Why? Because average rate, by and large drops to the bottom line and that is where much of the growth will come from.
Naturally, there are assumptions that must be made to lay out an “apples to apples” analysis of when to acquire or exit a hotel asset. Capitalization rates bottomed out this year when Real Estate Investment Trusts (REITs) went crazy spending money on a 5 cap basis. Today, if we assume stabilized “cap” rates of say 8 percent on trailing 12 net income over the next four years and stabilized interest rates of say 7 percent, I believe these value improvements will prove real.
What this means is that hotel owners should hold their assets if they can and buyers should aggressively purchase now. Naturally, there are always caveats like major oil crises, interest rate spikes, terrorism and natural disasters. But this industry has largely been predictive in its troughs and peaks. And we are clearly coming off the trough of the recession and hangover. I should mention one more caveat…not all markets are created equal. What might work in New York, San Francisco, Los Angeles and Chicago might not work in Detroit or Phoenix.
ADR growth
TravelClick expects steady improvement in ADR to fuel RevPAR growth in the high single digits for the rest of the fourth quarter, and possibly into the 10 percent range by the first quarter of 2012, Hart said.
To get there, however, he said hoteliers must act with confidence. We would certainly agree with Hart on that point. It is clear to us as we operate hotels in California and Colorado that hoteliers are frightened at the prospects of raising rates, fearing that guests will move to a competitor’s hotels.
“Despite your inclinations to not be confident based on everything that’s happening around you in the macro environment and the news environment, act on the numbers that these represent and go ahead and enter 2012 with confidence,” Hart said.
According to Pegasus, booking lead times continue to gradually lengthen. This bodes well for hoteliers as guests are willing to make plans further out, allowing us to forecast more accurately. While the increase was only from 15 days to 16 days out, it is in the right direction! Pegasus also believes that GDS channel results show a powerful recovery from the corporate front, with ADR growth at 5 percent this year. Their Summer 2011 Pegasus View states, “reservation volume has been recovering remarkably as corporations have been experiencing
increased earnings and reinstating travel to drive more profit to the bottom line. ADR has more
progress to make, but has gained considerable ground.”
Steve Rushmore, one of the original hotel forecasting gurus (I am honored to know the three best in the industry…Randy Smith and Peter Yesawich are the others) observes (and I’ll paraphrase) in his October 2011 blog, “hotel demand continues to grow, construction financing is scarce, hotel values are increasing, now is the time to buy and don’t sell until 2012-2013. I couldn’t agree more!
So that nobody thinks the trends are reversing today, U.S. revenue per available room growth (REVPAR) was up +8.6 percent for the week ended October 22, 2011 with the trailing 28 day REVPAR (a good indicator for October) up 6.1 percent. The bottom line is, “hang in there, baby and let the good times begin!”
Bob
Robert A. Rauch, CHA
Trends in the U.S. Lodging Industry
2011Q3 Update By Robert A. Rauch, CHA
“We continue to experience the “hangover” from the great recession of 2008. It looked like things were turning around in May but June and July have been soft enough to keep a watchful eye out for a possible yet unlikely “double-dip” recession” (more…)
Press: Hotels Make Selves at Home on Multiple Websites
from the San Diego Business Journal, September 19, 2011:
Robert Rauch, who heads the locally based consulting firm R.A. Rauch & Associates Inc. and operates two Hilton-branded hotels in San Diego, said local hoteliers now see just over half of all bookings made through online channels.
The bulk of reservations are still made through hotels’ own Web sites, he said. However, the travel-focused booking and review sites are pivotal to the initial consumer research process, especially when travelers are not familiar with the destination.
Depending on the individual arrangements they have negotiated, Rauch said hoteliers generally pay an amount ranging from 18 to 30 percent of booked rates to the major booking sites.
Beyond the boost they provide during recessionary periods, he said an ongoing presence on the booking sites can significantly heighten the profile of local tourism markets as well as individual properties.
“There are some people in the business who look at the online travel sites as the bad guy, but I’m not one of them,” Rauch said.
Press: San Diego deals lead U.S. sales
from the Hospitality World Network, August 1, 2011:
By segment, transaction activity in California is across the spectrum, said Robert Rauch, president of San Diego-based hospitality consultancy R.A Rauch & Associates.
“[Real estate investment trusts] have been picking off high-profile assets such as Hyatt and Hilton along San Diego’s waterfront, but also, they have been targeting ‘non-trophy assets’ such as Hilton Garden Inn, Homewood Suites, Marriott Residence Inn and Courtyard by Marriott,” he said. “I see this pattern continuing this year as REITs have so much cash. Once these REITs have set the bar regarding capitalization rates, opportunity funds will be able to purchase these assets with a more predictable return on investment.”
“The markets seeing the most value are San Francisco—up in both [revenue per available room] and booking pace by 20 percent—and the west side of Los Angeles—up 12 percent in both. San Diego, while up only 8 percent in RevPAR and booking pace, did not drop as far as San Francisco during the recession. Secondary and tertiary markets dropped quite a bit during the Great Recession and have had little investor interest,” he added.
Press: Record Setting Stretch Hotel Owners Sell High
from the San Diego Business Journal, September 5, 2011:
Robert Rauch, president of San Diego-based hospitality consulting firm R.A. Rauch & Associates Inc., said local hotel revenue, as well as occupancy and room rates, continue to improve, and the San Diego region generally has a strong year-round tourism climate, as well as barriers to entry for new properties.
Those factors will likely make hotels attractive to investors for the foreseeable future, although under current conditions, Rauch said he is generally not as bullish about the investment market as he was a few months ago. He said acquisition momentum will likely slow because available trophy properties have been snapped up.
The larger real estate investment trusts that wanted to go shopping have already done so, and others are finding that there aren’t the same number of lending sources as there were when the buying season was at its peak.
“The lenders are out there, but it just takes some work to find them,” Rauch said. “It’s going to be a market-by-market, asset-by-asset situation.”
Press: Downtown Holiday Inn sells for $17.4 million
from the San Diego Daily Transcript, August 11, 2011:
Robert Rauch, a hotel developer and consultant, said while he hasn’t seen the rooms lately, the 1970 design of the hotel and its location could be an issue for the new owner.
“It’s not what today’s travelers are looking for. The problem is its ability to get a share of the market. While its visibility is excellent, the location is worse than the W,” Rauch said.
Press: Lender-owned hotels up, while defaults declining
from the San Diego Daily Transcript, August 4, 2011:
Hotel consultant and developer Robert Rauch said despite the decline in defaults, there will be more foreclosures this year.
“Lenders know where the floor is and we’re seeing the end of extend and pretend. So I believe we’re going to see more foreclosures, not less,” Rauch said.
Rauch wasn’t totally pessimistic, however. He said the foreclosures should have pretty much run their course by the first quarter of next year.
“It’s an election year and I think the economy is going to be a lot stronger,” Rauch said.
Looking at the state as a whole, Atlas found that the number of lender-owned hotels almost doubled year-over-year, from an even 100 in the second quarter of 2010 to 148 in the first quarter of 2011 to 191 in the year’s second quarter.
Press: UTC Marriott sold for $70 million
from the San Diego Daily Transcript, July 25, 2011:
Robert Rauch, a hotel developer, owner and consultant, said the major University Towne Centre hotels were constructed in the 1985-1989 timeframe.
“Nothing has been built in over 20 years.
UTC is an outstanding market with high barriers to entry,” Rauch said.
“This is a high-quality, full-service hotel with very high-quality meeting space.
”
Rauch also said that even though the hotel is 24 years old, it was constructed to high standards, and he was surprised to learn that it needs $20 million in upgrades.
“I just don’t see any major problems with it,” Rauch said, adding that he believes another strength is a no-cut contract with Marriott.