Theluxurybusinessisthesegmentthat’slead- ingusoutofthisrecession.They’reperforming extremelywellandthey’reoutperformingmost othersegmentsinthehotelbusiness.”
DAVID PEPPER, Choice Hotels International, Inc.
BORTZ: Every type of equity buyer will
have an advantage at some point in the
cycle. We, the REITS, were priced out at
the end of the last cycle. The advantage
we have now is that we can obtain multiple sources of capital due to our access
to public markets. They’re open right now
for equity. The private debt and equity
markets are tougher. As a result, the cost
of capital is lower for the REITs and we’re
not high-levered buyers. In fact, we’re all-cash buyers, but we do lever out assets
tarnish put on it with the AIG effect?
RICHARD HOLTZMAN: I would suggest
it has. People are just being much more
careful about what they do while they’re
there and how they promote it. They’re
being much more efficient in their time
spent there, but the value of gathering
has never lost its benefit. The AIG effect
has largely dissipated.
PEPPER: The luxury business is the segment that’s leading us out of this recession. They’re performing extremely well
and they’re outperforming most other
segments in the hotel business.
sive—onto the brand channels, which
are typically the owners’ most profitable.
CLARK: Is it worth it for some of the
brands to break themselves off from the
OTAs? Or would they lose too much
PEPPER: They can be a good partner
and a good source of revenue for you,
but you have to learn to manage this
channel properly. I think the whole industry has done a much better job. When
they first came out, we didn’t really understand them.
MARINO: When it comes to distribution,
we’re in a new world. For example, when
Virgin America launched our Chicago
route recently, we did a promotion on
Groupon. It was the fastest selling deal in
Groupon’s short, but significant, history.
Consumers are smart and they’re migrating toward information and transparency.
We want to go where they are, so we
have to constantly reinvent how we reach
CLARK: Are you looking to hold them to
a particular exit cap or for a certain
amount of time?
BORTZ: For us, it would fall into two categories of properties. On our maps of 15
or 17 cities, maybe five or six are cities
where there’s an economic barrier to
entry, meaning that we can buy at such a
large discount to replacement cost that
we have an extended period of protection against new supply. If we buy in
those markets, we would probably cycle
out in the next three to five years. The 10
to 12 major cities that we invest in—
including Washington, DC; Boston; Los
Angeles; and New York City—are probably markets we won’t sell in unless we get
an offer we can’t refuse, because those
have such strong long-term fundamentals due to low supply growth. They’re
tough to get back into if you get out.
CLARK: On the opposite end, there has
been a growing trend of boutique-style,
independent and non-branded hotels.
What is your take on this?
HOLTZMAN: They have a strong future.
A lot of people like things that are unique.
But people like it to be right and meet
their expectations. There’s a tremendous
value in brands. It meets that expecta-
CLARK: Is there product that needs to
be taken down?
HOLTZMAN: We are under-demolished
industry. There is a ton that should go
FISHER: I would agree overall, but there
does seem to be the ability, when a hotel
loses its flag, to move down the food
PEPPER: You move down the food chain,
The10to12majorcitiesthatweinvestinare probablymarketswewon’tsellinunlessweget anofferwecan’ trefuse.They’retoughtoget backintoifyougetout.”
JONATHAN BORTZ, Pebblebrook Hotel Trust
CLARK: Do you see any money going
into construction over the next couple
PEPPER: You’re not seeing it in the secondary markets. If anything, you’re seeing it in the urban markets, because
now the public money has come in.
They’re driving up the valuation of these
assets where it actually makes sense
and you can build a hotel that will actually underwrite.
CLARK: Has luxury lost some of the
tion. Having said that, there’s a lot of
room for both chocolate and vanilla ice
cream because people like them both.
PEPPER: It’s also the cost savings by
tapping into this soft-branding where we
negotiate with the online travel agencies
on behalf of 6,000 hotels, where other-
wise you might be negotiating on behalf
of one. You might be able to get lower
fees, move a lot of their OTA business—
their third party, which is very expen-
but you can still make a profit. Someone
can pick it up for very little. They don’t
have a lot in the hotel and they can make
it at 40% occupancy at $65 per room.
CLARK: What policies or government
factors are on your radar?
MARINO: We’re for anything that drives
down unemployment and at thesame
time grow the economy. We’re going into
an election year. The policies and the tax