continue to move beyond the gateway
markets and top-tier assets.
High-quality, full-service lodging
properties present relatively high cash
flow volatility and are more sensitive to
labor policy changes and unexpected
factors such as extreme weather and
natural disasters than other product
types, according to Mitch Paskover, pres-
ident of Continental Partners. As such,
“lenders remain conservative in their
underwriting and are carefully scrutiniz-
Already lenders are lowering leverage
to 70% to 75% on full-service hotels, and
65% to 70% for limited-service hotels, he
notes. “If the current trends continue, we
anticipate that lenders will mitigate risks
through lowering leverage further.”
Meanwhile, borrowers are now busy
trying locking in interest rates before
they rise in order to refinance and pay
off existing loans. In some cases,
Paskover adds, “they’re looking for
opportunities to secure large loans that
provide additional resources to stabilize
any volatility from associated risks.” This
includes implementing new amenities
and value-add renovations to ensure
steady occupancy rates and position
their assets to compete with disruptors.
Airbnb, in particular, continues to be
one of those disruptors. Some owners
“are worried it will decrease demand for
traditional hotels,” he explains. The
good news, Paskover points out, is
“there’s no sign that it will create a nega-
tive impact for full-service, high-quality
hotels, which offer amenities that most
Airbnb locations simply cannot match.
That said, with so much opportunity for
growth remaining for Airbnb, it could
pose a threat to the limited-service, bud-
There are other models on the hori-
zon that could further disrupt the lodg-
ing industry. Washington, DC-based
startup WhyHotel has launched a pop-up
HOW CAN HOTELS COPE WHEN TOURISM RECEDES?
Ventus Group is currently at work on a mixed-use development featuring a
298-key hotel in Los Angeles that is close to several tourist destinations. The
project, which includes retail, multifamily, student housing and creative
office space, also happens to be next to the University of Southern California
campus. Thus, if tourism slows, according to John David Booty, EVP at
Ventus Group, another demand driver will help sustain the project—namely,
the visiting families of students, alumni and prospective students.
Given the recent trends in tourism flows, Ventus Group and other hotels
such as MCR with its acquisition of two Marriott hotels in Utah, are doing
well to take into account alternative demand drivers.
Travel and tourism is an $8-trillion market, approximately 10% of the
world’s GDP, and it’s expected to increase by 44% in the next decade,
according to comments made by Jonathan Tisch. The chairman and CEO of
Loews Hotels & Co. spoke at the 40th Annual NYU International Hospitality
Industry Investment Conference, held recently in New York City.
But he warned, “Even though the global travel market is growing, the US
share of the market fell nearly 13% over the past few years. That means we
missed out on 7. 4 million international visitors, $32 billion in lost spending
at American destinations and businesses and 100,000 additional jobs.”
Tisch pointed to Visit US Coalition data that by contrast indicated other
countries including China, Germany, Australia, the UK and Canada are experi-
encing a rise in tourism. He said many leaders in the hotel and tourism busi-
ness believe America currently is giving off an unwelcoming message. As one
example, he cited President Donald Trump’s policy of “extreme vetting.”
“If people don’t feel welcome, they won’t visit the US,” he warned. “They
won’t shop in our stores, eat in our restaurants, stay at our hotels and vaca-
tion at our destinations.”
He offered some solutions for hoteliers that could help reverse this tide.
First, the industry needs well-planned, proactive marketing. With intense
global competition for travelers, Tisch said he continues to support Brand
USA, a public-private marketing organization focused on increasing interna-
tional visitors to come to the US that was created by the 2009 Travel and
Promotion Act. Funded by the international travelers and not taxpayers, last
year it bought one million visitors and generated $8.5 billion for the US
economy, according to Tisch. But he added the Trump administration has
proposed its elimination, prompting Tisch to emphasize that the industry
must diligently protect its interests.
Second, stay on top of security concerns but with smart policies that are
effective and efficient. Tisch stated that under new policies, extreme vetting
would apply to 14 million visa applicants. As an alternative, he supports an
international travel security program which would require countries to share
intelligence on suspected terrorists and criminals, upgrade security standards to a uniform level, and adopt e-passports which make forgery more
difficult. In addition, advancements in technology, such as facial recognition
software and 3-D baggage scanners, would make traveling safer.
Third, upgrade infrastructure, including airports, roads and bridges. Tisch
noted smart road technology that assists in managing traffic is being rolled
out in several states. He referenced President Trump’s call for massive
spending to upgrade the country’s infrastructure and agreed that this would
be necessary to support growing travel and tourism.
Finally, Tisch pointed to overcrowding beyond airports and roads and at
the travel destinations themselves. As examples, he pointed to Venice, where
the local population has dwindled to half its size as tourism grows in popularity. He also described how in the US, national parks are beginning to feel
the brunt of too many visitors.
Tisch suggested that industry professionals market less congested, off-the-beaten path destinations. They can identify areas which need more
infrastructure to accommodate the influx of tourists. Tisch also recommended that industry professionals work with communities to preserve historic and cultural areas.
“As an industry, we are uniquely positioned to help solve these challenges
while growing the US share of the international travel market,” Tisch
stressed. “The future is ours to win. But we must compete. We must invest.
And we must innovate.”—Natalie Dolce and Betsy Kim