As the headwinds of revenge travel continue to drive hospitality's rebound, both lenders and borrowers are looking for ways to mitigate risk while continuing to push the industry forward. Speaking at the fourth annual LendingCon Conference in Orlando this week, participants on the "Driving Hospitality Forward: CEO and Congressional Insights on the Future of Hospitality" panel emphasized the fundamental strength of the hospitality industry, the importance of technology and creating opportunity from challenges.
Hotel Fundamentals are Strong
"Leisure is still up 40 percent over 2019," noted Marriott International's Liam Brown, group president, U.S. and Canada, "albeit modestly over last year, but it continues to be strong. And that means that people still value experiences over things. Travel is part and parcel of who we are as a culture in North America."
Brian Waldman, CIO of Peachtree Group, said the fundamentals of hotels are strong. “I think where we have stress today is on the balance sheet side, and anyone that's out there who has a loan maturing or a floating rate debt, you're seeing it and that's creating pressure, but when you look at the overall fundamentals of the hotels—labor is getting more expensive insurance is getting more expensive—but overall, it's definitely not bad.”
Tech as an Industry Driver
Contributing to the headwinds of the hospitality industry is technology, which has long been an industry disruptor—and AI has definitely entered the chat. Darren Soto, U.S. House Representative (FL-09), said that the transformational tech tool is being given a fair amount of latitude before the federal government issues any restrictions on its use.
“We're seeing that right now, many businesses are just starting to figure out how to utilize [AI] in major ways,” he said. Soto added that he sees many companies utilizing AI to help with their marketing, to help with finding personnel, and to find efficiencies in the market. “I know Congress will give AI technology a long way—like we have for the Internet—to innovate before we see any major regulations. Most of the effort right now is getting enough funding to continue to use research and to help companies that are really driving AI.”
Using technology to enable employees to do their jobs better and create better guest experiences is certainly a perk of technology, but Brown stressed that the hotel business “is still a people's business.”
Brown acknowledged that some of the basics can be handled from a technology perspective to allow more space for the human interaction, which “maximizes the experience, maximizes that binding of those loyal guests to [us].” And, without providing any more detail, Brown hinted at a “major, major project underway” at Marriott, “major tech infrastructure over the next 24 months that will see major transformation at the property level, major transformation around revenue management and major transformation around customer engagement centers.”
Allowing for the fact that hospitality is not an industry that is known to be on the cutting-edge of tech, Brown said that narrative must change, “otherwise we just won't be able to compete.” The ability to make seamless interactions with guests “is definitely the aspiration” for the whole range of the travel journey for the guest.
As a management company, Peachtree is seeing the value tech brings to the table as the company grows its management portfolio. Waldman noted there are ways that technology can help drive revenue, better forecasts and help market the company’s assets.
“We're spending a lot of time and money enhancing our accounting systems, our revenue management systems, the way we budget [and] forecast, looking at below-revenue on the expense side, ways to streamline our hotels… With interest rates [and] increasing costs, we need to create value today. I think [the focus] is more on the asset management side. You have to spend more time and buy something that's broken, fix it, stabilize it and sell it. Technology is extremely useful in identifying the issues and helping to fix them. We operate close to 100 hotels—next month we will be up over 100 hotels that we operate—and within those, my asset managers are able to use technology to really dig into each of the assets and identify hotspots in the hotels so we can move the needle, create value and position those hotels to eventually sell them.”
Red Roof President Zack Gharib said creating memorable guest experiences is what hospitality is all about. “This is what we're here for. If you look at the guest experience, there's so much you can do [using] analytics, understanding the guest… How can we best make it easy for our front desk people, agents and employees to make [the experience] seamless?”
Seeing Challenges as Opportunities
Of course, the current climate is not without its challenges, and the panel discussed pain points in the industry from their various perspectives.
“Insurance, hands down, has been up significantly,” Waldman said. “We're seeing it within our own portfolio. A lot of my time is spent on the transaction side of our credit and our equity investment strategies. We're seeing the insurance bill deals, [since] we have a larger pool [of properties under management]. So, if we're doing something in Florida, or we're doing something in California, we're probably getting better pricing on it than if you just have a portfolio in Florida. We’re able to diversify that risk… It's really going to hurt today, and I don't see that changing anytime soon. I think that's just kind of the new reality of our businesses. I think it's going to have a major financial impact on a lot of hotels.”
Gharib noted that managing well the things that can be controlled minimizes the risk at the hotel level, which can potentially offset rising insurance prices. “The safety and security layer inspections being done, making sure that you're getting them done on time,” is important, he stressed. “We will look at the things that we need to control internally and externally,” including shopping insurance providers.
“We know the weather has been getting more extreme in the last couple of decades because of climate change in our home state,” Soto shared. “In Central Florida, we would get hit by a hurricane once every 10 to 20 years. Now it’s a period of three to five years. So, a lot of this is a pricing game. On the federal level, we only deal with a small portion of insurance to flood insurance models. I'm a big supporter of reauthorizing the Flood Insurance Program. We also need to improve the replacement value rates, [which] have not kept up with cost of construction; that's something we have to raise… The state has put together several reforms that have stabilized at least the insurers in the market, and prices have stabilized out, but at a higher basis. That's a challenge going forward.
“Slowly but surely over the next 20 years [we are] going to be transitioning our economy to less fossil fuels, and the hotel industry has been a big part of it, from putting EV charging stations in hotels, being more energy efficient, even more water efficient. You'll see this transition over many years and then there are all these business opportunities. Look at this challenge as an opportunity to develop all the clean energy technologies from transportation and manufacturing, to agriculture, to energy development. We all have responsibility, both corporate and otherwise, to leave a better world than the one we inherited. This is also good business.”