Business Is Down, But 2002 Looks Better

NEW YORK— The tone at this year’s NYU Hospitality Industry Investment Conference was set by a few new adages: summer business will be slow, but next year by all accounts will be great, thanks to a slowdown in hotel supply. Armed with those truths, and hosting a subtly expressed glee over being able to get a hotel room in New York much more easily and cheaply than at last year’s conference, executives networked through the two-and-a-half-day event, bonding with peers and then breaking away for private meetings when the time came for actual deal-making. Overall, the general consensus appeared to be that, yes, the general financial climate is certainly not as great as it’s been for the past few years, and while modification of some projects may be wise, there is certainly no need to dramatically halt transaction and development activity. • Kicking off the conference, executive panelists Tim Clarke, CEO, Bass Plc; Chip Conley, chairman/CEO, Joie de Vivre Hospitality; Georges Le Mener, president/CEO, Accor Lodging North America; and Thomas Pritzker, president/CEO, Hyatt Corp., supported that consensus. The CEOs generally agreed this would be a tough summer travel season for the U.S., but concurred that their companies would continue to grow cautiously, making small to mid-sized acquisitions this year, if those opportunities arose. Otherwise, they said, their efforts would be focused on improving their existing portfolios, ironing out technology issues and improving employee retention. Le Mener noted that Accor will “not be making an acquisition that would dilute earnings per share. We have no plans to make a large acquisition.” Pritzker explained that Hyatt— which has 22 hotels under construction worldwide— is looking at several opportunities in the U.S., “and internationally we have been approached by developers.” Clarke, meanwhile, said that Bass hopes to now “take the money from its beer sales and drive its hotel business forward.” With the industry wondering how Bass plans to spend that $4.5 billion— talk is rampant about negotiations to buy Wyndham International— Clarke attested that Bass’s “prime focus is the global distribution of its existing brands.” Throughout the rest of the confab, experts shared their view on the state of the industry. Steve Rushmore, president/founder of HVS International, noted that “hotel values will be a little soft in 2001, but look for improvement in 2002,” adding that “over the next five years it will be good to be in the hotel industry.” Moreover, “Cap rates will continue to decline as the Fed cuts interest rates. Now’s a great time to finance,” he noted, further adding that “with supply slowing and values holding, the risk associated with owning or lending on a hotel is at the lowest level in more than a decade.” • Wall Street analysts at the conference looked into their “Crystal Ball” to share their take on the current hotel industry climate. Joyce Minor, Lehman Brothers, said she sees “not that much risk [in hotel investment]at this time,” nor does she see any untoward earnings fall-off. Salomon Smith Barney’s Michael Rietbrock countered that now is “a tough time to invest [in hotel stocks],” what with “business being lousy, and getting worse.” Contesting this view, Jason Ader, Bear, Stearns, maintained that, “The market expects a second-half recovery, and is also looking to lower interest levels to improve cap rates.” Morgan Stanley Dean Witter’s Michael Happel, meanwhile, maintained that “investors are looking through the valley. If you wait until RevPAR improves,” he explained, “you may end up missing the rally.” Goldman, Sachs’ Steven Kent claimed that many companies— and potential investors— don’t really know or understand how bad things can really get, in terms of RevPAR deceleration. He noted that when it comes to the allure of hotel stocks, “much depends on how lodging looks when measured against other investment options.” It appears the supply situation hold