Hospitality Loans: An Inside Look at the Market and Financing Sources

Last Updated: October 30, 2015 01:20pm ET

STR: US results for week ending 24 October

In year-over-year measurements, the industry’s occupancy increased 1.7% to 70.6%; ADR was up 4.6% to $124.76; and RevPAR increased 6.4% to $88.08.

HNN Newswire


October 29 2015

HENDERSONVILLE, Tennessee—The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 18-24 October 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy increased 1.7% to 70.6%. Average daily rate for the week was up 4.6% to US$124.76. Revenue per available room increased 6.4% to finish the week at US$88.08.

Among the Top 25 Markets, Atlanta, Georgia, reported the largest increases in ADR (+13.2% to US$113.55) and RevPAR (+20.2% to US$87.67). Occupancy in the market increased 6.2% to 77.2%.

Two additional markets saw RevPAR increases of more than 15.0%: Anaheim/Santa Ana, California (+17.9% to US$120.69), and San Diego, California (+16.7% to US$127.11). Overall, 13 of the Top 25 Markets reported a double-digit rise in RevPAR.

New Orleans, Louisiana (-9.6% to US$117.57), and Orlando, Florida (-7.2% to US$85.68), experienced the largest decreases in RevPAR for the week.

After Atlanta, two other markets posted a double-digit increase in ADR: Nashville, Tennessee (+11.4% to US$147.86), and San Diego (+10.5% to US$158.50).

Three markets recorded negative ADR performance for the week, with New Orleans (-3.8% to US$155.31) reporting the largest drop.

In terms of occupancy, the largest year-over-year increases were reported in Anaheim/Santa Ana (+8.4% to 82.2%); Minneapolis/St. Paul, Minnesota-Wisconsin (+8.3% to 75.9%); and Tampa/St. Petersburg, Florida (+8.2% to 73.7%).

Denver, Colorado (-7.6% to 77.3%), saw the largest occupancy decrease.

View the U.S. hotel review for the week ending 24 October.

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Airport hotel clears another hurdle

Airport hotel clears another hurdle

The Metropolitan Airports Commission on Monday granted environmental approvals for this proposed 12-story hotel at the Minneapolis-St. Paul International Airport. (Submitted rendering: RSP Architects)

By: Brian Johnson October 12, 2015 3:20 pm 0


Plans for a new hotel at the Minneapolis-St. Paul International Airport cleared another hurdle Monday as the Metropolitan Airports Commission approved a report that gives the project a mostly clean bill of environmental health.

The commission’s approval of the environmental assessment worksheet moves the proposed 12-story, 300-room hotel closer to a potential summer 2016 construction start.

If all goes as planned, the hotel will open in late 2017 on a vacant site just southeast of the existing airport post office at Terminal 1 (formerly the Lindbergh Terminal).

The worksheet brought good news for project backers, as it determined that a more comprehensive and lengthy environmental review, known as an environmental impact statement, is not required.

An EIS is deemed necessary for projects with the potential for significant environmental effects.

“Specifically, we find that the project does not have the potential for significant environmental effects,” Chad Leqve, the MAC’s director of environment, said at the commission’s board meeting.

Earlier this year, the MAC selected a team led by Minneapolis-based Graves Hospitality, Minneapolis-based RSP Architects and PCL Construction’s Burnsville office to develop, design and build the hotel.

According to MAC documents, the hotel will have conference and spa facilities and a pedestrian skyway connection to the upper level of Terminal 1.

Though the site is considered vacant, some demolition and concrete removal will be required before vertical construction can begin. The site once housed a Delta Airlines structure known as “Building B,” according to MAC officials.

“There might be some foundation remnants that need to be dealt with as we excavate the site for the hotel project,” Leqve said after the board meeting. “But there is nothing above ground.”

One of the next steps is approval from the Federal Aviation Administration, said Heather Leide, the MAC’s senior project manager.

Leide said the “hope” is to start construction in summer 2016 and complete the project by the end of 2017, which means the hotel would be open in time for the 2018 Super Bowl at the new Minnesota Vikings stadium.

Looking at everything from the effects on fish and wildlife to traffic and visual impacts, the EAW process included a public comment period that began in early August, followed by a public hearing in September.

The Metropolitan Council, the Minnesota Pollution Control Agency, the Minnesota Department of Health, the Lower Minnesota Watershed District, Hennepin County and the Minnesota Department of Transportation submitted written comments.

Most of the comments were routine.

The MPCA wrote, for example, that the project should “consider ways to conserve energy, reduce energy use, eliminate or reduce greenhouse gas emissions and promote the use of renewable energy.”

MnDOT noted that it has “several projects” planned for the airport area in the next five years, adding that routes for construction vehicles may be affected at times by MnDOT construction.

Graves Hospitality, the developer, couldn’t be reached for comment Monday.

The project has a lot of competition in the area.

According to Finance & Commerce’s Hotel Development and Sales Tracker, nearly 1,300 hotel rooms are proposed or under construction in nearby Bloomington. Many are clustered near the airport and the Mall of America. The list doesn’t include Mortenson Development’s 500-room Radisson Blu, which opened two years ago at the mall.

Benjamin Graves, CEO and president of Graves Hospitality, has spoken highly of the airport location.

“We’ll be as convenient as any other hotel on the [Interstate 494] strip,” Graves told Finance & Commerce in March. “We can play against that market, but also capture the demand that the airport will bring.”

The MAC anticipates negotiating a 40- to 60-year lease with the development team, according to a requestfor proposals for released late last year.

The MAC previously floated plans for a micro hotel at the airport. But the commission changed its focus to a full-service hotel after developers said they weren’t interested in the smaller project.

Industry drives on, looks in ‘rearview mirror’

Strong performance metrics tempered by a volatile global economy means hoteliers are warily enjoying the industry’s continued growth.
October 12 2015

The speakers at The Lodging Conference’s Day Two general session “A view from the top” fielded questions about REITs, select-service properties versus full-service properties, the economy and more. From left: Jason Beasley, Magnuson Hotels; Joel Eisemann, IHG; Jon Mehlman, ARC; and Chip Ohlsson, Wyndham Hotel Group. (Photo: Bryan Wroten)
  • While many other countries are facing economic troubles, the U.S. economy is predicted to continue its slow growth.
  • Even with an overall healthy industry, the conditions must be right for a project.
  • The high growth of RevPAR isn’t sustainable; however, slower growth is still a positive.
PHOENIX—The hospitality industry’s conflicting feelings were on clear display during the first opening sessions of The Lodging Conference. While the industry has a clear sense of optimism from an extended period of growth, many are starting to feel anxious about how much longer the good times can continue.
Bernard Baumohl, chief global economist for the Economic Outlook Group, provided a diagnosis of the global economy on Day One, and hotel executives shared their thoughts on the industry from the macro level down to the micro on the two-day “A view from the top” general session panels. The overall sentiment is things will still look good for the next couple of years in the American hotel industry, but after that, it’s anyone’s guess.
A position of growing strength
Baumohl told conference attendees in 2014 that the economy would continue to grow for a few more years. At the time, there was a chance the country could experience a long stretch of economic growth, but some issues have popped up since, such as what’s going on with China, an equity bubble bust and some less than stellar jobs reports. Even with all that, he said, the United States is going to improve.
“The U.S. economy is growing at about 2.5% average for the next three years,” he said.
There are no typical stress points apparent that would foreshadow a recession, he said. The country is in the middle of the cycle, and there are a couple more years of growth ahead driven by consumers.
Despite the disappointing September jobs report, Baumohl believes there are other indicators that show the job market is quite strong, including a record-high number of jobs postings and claims for unemployment benefits hitting a 15-year low. If the job market was as poor as the latest federal report indicated, he said, there wouldn’t be as many people buying cars and homes.
Baumohl expects the Federal Reserve System to make a move on interest rates this December. The dust will settle as the economy is in better shape than the September jobs report indicated, he said, and the Fed won’t want to start its first monetary tightening cycle in the middle of a presidential campaign.
From a global perspective, China’s growth has dropped to its slowest pace in a quarter of a century. The reformers in the country will probably prevail over the pro-growth hardliners, he said, but it will be a difficult period. The transition could lead to social unrest and create tension with the United States, he said. This period also will stunt growth in emerging countries.
“While the world is facing its greatest challenge since 2008, I think the U.S. is fully insulated from that to continue growing (gross domestic product) at 2.5%,” he said. “That means moving forward, the U.S. will be one of the few that is a bright spot in the global economy.”
Slower doesn’t mean worse
When asked why his company is placing big bets on hotels during Day Two’s session, Jon Mehlman, president and CEO of ARC Hospitality Trust, said there are macro phenomena in which jobs are improving, oil is low, housing is stable and banks are good. In the hospitality micro, demand is high and supply is low while occupancy and rents are higher than before.
“We are in a perfect storm of hospitality business these last few years,” he said. “It’s not sustainable. It’s OK to be at 3%, 4% or 5% (revenue-per-available-room growth). We’ve been a little moved by this impressive rate.”
The stock markets “can’t deal with Mr. Emotion,” said David Pepper, chief development officer for Choice Hotels International. There was an incredible run-up last year, he said, and when RevPAR began dropping from 9% growth to 7%, there was an overreaction.
In response to a question about models of opportunity for select- or full-service hotels, Pepper said New York City proves that upscale select service is taking over full service. It costs about $100,000 less in development with the same average daily rates as full service, he said. The secondary and tertiary markets are seeing valuations increasing as occupancy is doing well. There’s growth in those markets, and Pepper believes they still have a good three-year run left.
Moving carefully
An outsider of the industry might say hoteliers are their own worst enemies, said Liam Brown, president of U.S. & Canada select-service & extended-stay lodging and owner & franchise services for Marriott International, during the first day’s session. Part of the problem is whether the industry has the level of optimism in the United States to continue to grow and develop, he said, especially with anxiety over when the next recession will hit.
“We never see the obstacle coming because we’re driving looking through the rearview mirror,” he said.
On the macro level, Brown agrees with the general sentiment that the industry should do well over the next 24 months.
“After that, who knows?” he asked.
Everyone wants to grow as fast as they can in the smartest fashion possible, said Simon Turner, president of global development for Starwood Hotels & Resorts Worldwide, during Day One’s session. No one benefits from building a branded hotel and then the hotel gets into trouble, he said.
When moving forward on a project, he said, the brand looks at the market, the hotel and the owner as well as the sophistication and structure of it. A bad deal doesn’t just go away if it’s ignored, so the brand must follow through because its name is on the door, he said.


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Weak loonie hurting hoteliers along US border

Visiting the U.S. has become a more expensive proposition for Canadian travelers, and hoteliers are seeing some impact.

October 12 2015


“Canadians are staying more in Canada right now versus coming to the United States,” said Gerry Chase.

The loonie is trading at 75 cents to the U.S. dollar.

Canadian business is down as much as 40% in some markets.


REPORT FROM THE U.S.—With an unemployment rate hovering near 7% and its loonie trading at 75 cents on the U.S. dollar, Canada is not the source market it once was to many hoteliers south of the border.
Gerry Chase, president and COO of Shelton, Connecticut-based New Castle Hotels and Resorts, said his hotels in Portland, Maine, and Syracuse, New York, are both affected—but on different levels.
“Canadians are staying more in Canada right now versus coming to the United States,” he said. “It’s not the end of the world up there, but it is causing us in the U.S. to lose some of that business.”
Canadian business is down 24%, which represents approximately 2% of the total occupancy of New Castle’s Syracuse hotels. The hotels are up year over year.
The Portland, Maine, market has seen a 20% decrease in demand from Canadian travelers, Chase said. All Canadian business represents approximately 5% of New Castle’s total demand in the market, he said.
Related industries are seeing declines as well. The Nova Star ferry from Maine to Nova Scotia has seen a 40% drop in the number of Canadian passengers compared to last year, the Portland Press-Herald reported in September.
“They are totally dependent on U.S./Canada travel,” Chase said. “We’re not. We have business from other areas of the country and all over the world. We’ve had a nice (revenue-per-available-room) increase, and an increase in demand growth in the United States.”
Border battles
The closer you get to the border, troubling numbers are even more common. Greg Dugal, president of the Maine Innkeepers Association, said hotel demand in his purview is down as much as 40%.
“People are still coming, but staying in smaller rooms or staying for less time,” he said. “There’s a noticeable absence of their spending power, even when they do come.”
Dugal mentioned Old Orchard Beach specifically, where 80% of travelers who traditionally visit are Canadian. This year, that’s down in the 60% range, he added.
Lyle Hall, managing director of HLT Advisory, said those who live close to the border better understand—and are thus more wary of—the unattractive exchange rate. Data provided by Hall showing same-day and overnight travel of Canadians to the United States indicated a direct relationship between a devalued loonie and reduced day trips to the States, but limited impact on outbound overnight travel.
“Day versus overnight are very different,” Hall said. “Day travel by Canadians going into the United States is largely driven by shopping” for things such as clothing, longer-term items, food and gas. “I’m one of those people who would think nothing of hopping in the car and driving across—but not now that it’s almost a third more,” he said.
Ron Droegmyer, GM of Sheraton at the Falls in Niagara Falls, New York, said a large marketing budget has helped to offset a slowdown in business from Canada.
“So far, we haven’t been that affected,” he said. “Most of the hotels in my comp set are much smaller and don’t have the marketing arm that I’m allowed to have. … Where the Canadian traffic has slowed down, the U.S. traffic has picked up.”
Dugal said it’s important to keep in mind the cyclical nature of the business.
“These things happen, and it has been worse,” he said. “But let’s remember that in 2008, the Canadian markets saved our butts.”


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Lodging Conference notebook: Bulls still running

By Jeff Weinstein on 10/12/2015
The bulls were still running strong at the 21st annual Lodging Conference last week in Phoenix with economists, number crunchers and brand leaders predicting strong performance and fundamentals with further room to grow rates in 2016.

Even with supply growth ticking up, yet still below historical levels, panelists said growth should even bleed into 2017, barring any Black Swan events. That being said, challenges surrounding channel management, data security, rising costs both for labor and construction and the impact of Airbnb continued to loom large.

Capital and debt market volatility appears to have muted sales and negatively impacted values in the near term, but the continued influx of foreign capital to U.S. markets is filling the gap.

The other hiccup uttered at the conference was increased cost of construction (20% to 25% in some instances) has slowed development projects. Nonetheless, the brands remained bullish about their pipelines for legacy brands like Sheraton and new brands like Hilton’s canopy.

Opening session at the 21st Lodging Conference

HOTELS spoke to some of the players in attendance at the Lodging Conference, and here is a brief summary:

Canopy by Hilton. At the one-year mark, more than 20 hotels are at various stages of development with the first property in Reykjavík, Iceland, set to open Q1 2016. About 80% of the projects are new builds and all deals to date are franchises. “Late 2016 and early 2017 will be great time for owners breaking ground,” said Gary Steffen, vice president of brand management for Canopy.

Steffen added that the brand team has been busy validating its breakfast concept, evolving its small plate menu for the bar and explaining its locally influenced retail space at reception.

Curio. Hilton’s soft brand Curio has 15 hotels open today and 50 either open or under development, representing some 13,000 rooms, according to global brand head Dianna Vaughan. The brand stands at about 40% adaptive re-use or new-build and six hotels are opening during Q3 2015 – with London now coming to give the brand a big gateway boost.

WoodSpring Hotels. Formerly known as Value Place, the emerging WoodSprings Suites brand has 10 hotels under active construction, eight of which are franchises, with a total of 70 under development with costs ranging from US$40,000-$45,000 per key.

A new interior design packagewas revealed at the conference for the extended-stay concept, created in collaboration with Gensler, incorporating elements of nature with bright accent colors and clean white bedding.

The new brand launched in the spring hit a key milestone in July when first WoodSpring Suites opened in Oklahoma City.

Choice Hotels International. With US$250 million being invested into its upscale Cambria Hotels & Resorts brand, Senior Vice President of Global Development David Peppers was happy to report big moment with the 25th Cambria soon open in Times Square (the second in Manhattan), ground being broken near Los Angeles International Airport, at Brickell in Miami and in Nashville, and another deal coming to Philadelphia. In total 12 Cambria’s are under construction and 75 are expected to be open by 2018.

Peppers said the first conversion of what has been a new-build brand is coming at the former Mile North hotel in Chicago with office redevelopments coming to downtown Los Angeles and Chicago’s Loop. “With its success, Cambria is now getting recognized by institutional investors,” Peppers said, adding that it is performing like Hilton Garden Inn and Courtyard by Marriott with quick ramp-ups to a 100% index.

Elsewhere, Choice’s soft brand Ascend has hit the 150-hotel mark with 45 projects under development, including new-builds in Brooklyn and Flushing in New York City.

The Comfort brand is getting a complete refresh with hundreds of terminations (many converting to Quality) and some US$40 million being invested to aid the franchise community. Peppers said the positive momentum has the brand competing with Holiday Inn Express and Hampton on ADR due to mid-week business travel growth.

Red Lion Hotels Corp. Perhaps one of the company’s making the biggest news as of late is Red Lion Hotels Corp., whose share price has increased some 60% in the last 20 months and has reported nine consecutive quarters of double-digit RevPAR growth and increased market share, according to CEO Greg Mount.

“We are looking at things differently – more pragmatically,” Mount said. “Different options coupled with technology are providing meaningful growth.”

Because of what Mount said is greater rate elasticity, more developers compared to previous years, he said, are saying, “I want to know more.”

Mount also cites RLHC’s different retail approach to e-commerce, including “perpetual merchandising” (addressing different consumer behaviors on different channels), as making a difference in sales.

RLHC has 25 to 30 deals planned for 2015 (19 already done) and, again, Mount cites a different approach – flat fees – as making a difference in growing the pipeline, as well as fewer layers of management between franchisor and owner.

Carlson Rezidor Hotel Group. Carlson is gaining traction with its new Red brand, announcing four deals at the Lodging Conference – three franchised and one managed in its home town of Minneapolis. The franchise deals include two in Colombia and one in Brazil. The other locations currently under development include Brussels, Capetown, Glasgow and Shenyang Hunnan, China, which brings the brand total to eight properties.

COO for the Americas Javier Rosenberg said there are 12 LOI’s in North America soon to be announced, some of which Carlson will manage with an equity position.

Rosenberg added that Carlson’s upscale Blu brand will soon be adding a few properties in Los Angeles.

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Brand standards drive record CapEx spending

Hoteliers are on track to spend a record $6.4 billion on capital expenditures by year end, according to a new survey.

A construction crew works on the restoration of the Hotel Saranac in New York. Roedel Companies is renovating the property into a resort. (Photo: Chris Knight, Adirondack Daily Enterprise. Taken 22 September 2015)
  • Brands are accelerating changes in standards following the end of the recession.
  • While some changes, such as tech upgrades, seem standard, others can be more dramatic, such as expanding the fitness center by replacing a guestroom.
  • The sought-after millennial traveler segment is a key driver behind the updates.
REPORT FROM THE U.S.–A stronger U.S. economy and hotel industry means brands are again pushing updates to their standards, leading to an expected $6.4 billion in capital expenditures at the property level by the end of 2015.
In his latest survey, Bjorn Hanson, a clinical professor at New York University’s Tisch Center for Hospitality and Tourism, found CapEx spending has increased in dollar amount every year since 2010. The record $6.4 billion projected for 2015 is a 7% increase from 2014’s $6 billion. The 7% increase is “very, very large” compared to growth in industry profits, Hanson said in an interview.
“It’s exciting to see,” he said. “There’s so much change. When the recession started in 2008, there was a slowdown. (Brands) limited the brand standards. They allowed owners more time to implement changes. Now that they’re doing well, there’s been a tremendous acceleration in the change of brand standards.”
Wide range of expenditures
According to Hanson’s survey, hoteliers have taken up a number of capital expenditures this year, from technology updates to in-room amenities to adding larger flat-screen televisions.
“Some of them are dramatic changes to what’s been there before,” he said.
In the renovation of a guestroom’s bathroom, some hoteliers are replacing the combination shower/bathtub with a walk-in shower instead, Hanson offered as one example.
More brands are requiring “significantly” larger fitness centers, and that means taking out guestrooms sometimes.
While many of the changes are required by brands, guests’ comments or complaints at the property level is spurring some updates as well, Hanson said. If guests routinely complained about being kicked off the Internet, for instance, that’s a sign the network is in need of an upgrade. The same goes for creating mobile apps to check in or open guestrooms.
Brands also are requiring redesigned lobbies and other social spaces that appeal to younger guests, he said.
It’s been a busy couple of years, said David Roedel, managing member for Roedel Companies. His company has renovated the lobbies, public spaces, guestrooms and corridors at two Hilton Garden Inns for $1 million-plus each and the lobby, guestrooms and corridors of a Holiday Inn Express in Massachusetts for $1.5 million.
At the moment, his company is spending approximately $5 million on a Holiday Inn renovation in New York to redo the lobby, public spaces, guestrooms and ballrooms as well as adding a new restaurant concept and upgrading the exterior of the property. There’s also an $8 million top-to-bottom renovation of its 245-room Courtyard by Marriott in New Hampshire that also “brands” the conference center and adds a signature entrance.
First Hospitality Group has a number of hotels undergoing work, said Jay Rosenthal, director of development/regional director of operations. Seventeen properties are being updated or are scheduled to be updated in the near future, he said, with projects ranging from exterior work to bathrooms to public spaces.
“Whether it’s the tail end of this year or the first of next year, there’s a lot of that happening in our group,” Rosenthal said.
What’s driving the brands
Brands are requiring updates to appeal to younger and younger-minded travelers, Hanson said, noting some baby boomers are looking for the same things as millennials. On top of that, some brands are responding to the changes their competitors are making because they want to keep up.
Roedel said the CapEx projects his company has taken on come from a combination of brand standard mandates as well as his company’s own desires to stay relevant in the marketplace.
His company’s restoration of a historic hotel in the Adirondacks in New York is an example of the latter. Motivated by no mandates other than their own desire to breathe new life into the Hotel Saranac, executives at Roedel Companies have embarked on a $25-million renovation of the independent hotel.
“We want to maintain first-class conditions from the brand standpoint and ownership,” he said. “There are very few times we push back on the brands. Most times, they say you need to update things, they’re right. There’s typically a good reason they do it.”
Rosenthal had similar thoughts on the brands’ motivations, explaining many of the projects are part of the brands’ regular refreshment cycles.
“With the proliferation of soft branding and all the other brands, we’re all trying to keep up with the Joneses,” he said.
To attract in-demand millennials, hoteliers need to appeal to them. That means changing lobbies to be more communal, he said, and having a more casual, relaxed work environment à la Starbucks.
“The key probably is millennials driving the style of hotel,” Rosenthal said. “You have to keep technology advanced, restaurants need rethinking, and you’re making lobbies more like a living room environment. It’s about staying fresh and relevant in the marketplace.”

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