For anyone looking to take the temperature of the hotel industry, the Lodging Conference in Phoenix is usually a good place to start. And while the outside temperature during the event was well into the triple digits—despite being held a couple of weeks later than usual—the climate inside for dealmaking remained far cooler.
The uncertainty in the air was palpable, particularly with the backdrop of the first presidential debate taking place between Republican candidate Mitt Romney and President Barack Obama. While the election was continually referenced throughout the conference, the reality is it will mean little either way. To expect a radical change in economic conditions and, subsequently, lodging demand immediately following the election is unrealistic.
Some of the uncertainty may be eliminated but that doesn’t mean there won’t be plenty behind it. Questions about the fiscal cliff that economists seem to think we’re heading for, or what’s going to happen in Iran, will still be on everyone’s mind, to say nothing of a disturbing lack of consumer confidence.
Nevertheless, it’s time for investors, and the industry at large, to do away with the wait-and-see approach. When it comes to assets, there seems to be no shortage of buyers lined up right now, and we know there’s plenty of money on the sidelines. But that money needs to get into the game.
Transaction volume in the U.S. in 2012 will likely end up down significantly from last year, and I’ve heard a number of theories on why more deals aren’t taking place. Some say it’s reluctance on the part of the sellers. Others say the assets are being overpriced, a result of too much competition among brokers who are pricing them higher than they should in an effort to secure the bid from the seller.
But even more than single-asset deals, the industry needs larger portfolio deals to really get things moving. Of course, the sort of financial commitment required for such deals is significant and it requires a strong level of confidence that performance is heading in the right direction. However, the aforementioned economic and political challenges notwithstanding, the reality is the industry is healthier than it’s been in quite some time.
We know the fundamentals are solid, with demand continuing to rise and supply remaining flat for the forseeable future. In addition, a good many of the public lodging companies have seen solid earnings for consecutive quarters. Group business seems to be picking up as well, as bookings for next year already are forecast to be up in the mid-to-high single digits. There are plenty of reasons for optimism, at least until we hear otherwise.
For those investors who are still reluctant to jump back into hospitality, there is perhaps no better endorsement for the relative value of the industry than Blackstone, which just completed the acquisition of Motel 6, acquiring its third major hotel brand company (see story, p. 1). And its track record has been pretty solid.
We know lots of conversations took place at the Lodging Conference, they always do. But how many will result in deals or significant partnerships and how many just represent idle chit-chat that will pick up where it left off in Los Angeles in January at the ALIS Conference?