Wanted: Bold player to kick-start transactions

Hotel News Online, 3/23/2010, www.hotelnewsonline.com

ATLANTA—High-equity players in today’s transaction market are like nervous schoolchildren at their first co-ed dance: They might have the moves, but until a bold player takes that first step onto the floor, everyone’s going to continue waiting on the sidelines.

“Once one of those funds jumps into the arena … I think everybody’s going to say, ‘I’m missing the boat here,’ then other folks will start jumping in,” said Jeffrey Kolessar, senior VP of business development for Philadelphia-based GF Management.

Kolessar was one of four panelists during a breakout session at the 22nd annual Hunter Hotel Investment Conference who sought to answer the question of when that first leap will kick start the once-robust transaction market.

But despite their best efforts, a specific timeframe eluded the executives sitting on the panel.

“I’ve got absolutely no idea,” said David Roedel, partner with the Wilton, New Hampshire-based Roedel Companies. “I would hope we have a better indication in the next three months. If we don’t have a good summer, there will be more motivated sellers out there.”

Part of that uncertainty is based on fear. “Nobody wants to be the schmuck that overpays,” said Jim Chu, senior VP of franchise and owner relations for Hyatt Hotels Corporation.

Unrealistic expectations are also playing a role, Roedel said. “(Transactions will pick up) when sellers accept they’ve lost of a lot of money and they’re not going to get it back,” he said. But at least one thing is certain: The majority of deals are going to be funded by very deep pockets in the early going. “The majority of the deals … are going to be all-cash buyers, whether they’re from funds or something else,” Kolessar said.

Positioning for recovery

While recovery in the transactions market dominated the conversation, the topic bled into other disciplines. For management companies, the primary concern while waiting for the rebound to come is cash flow, Roedel said. “Our hotels that we own are down. … How long is that going to last? Will people be willing or able to stay in the deal?”

Cash flow is proving particularly challenging because there’s no fat left in budgets to insulate properties from further downward turns in the market, the panelists agreed. You can only cut so much without it having a negative impact on service—something that should be avoided at all costs. “We cut no expenses that will have any effect on service level,” Roedel said. “We just won’t do it.” On the contrary, management companies should do everything in their power to keep their arms wrapped around their guests.

“The pie’s not growing. You want to make sure you hold onto your market share,” Kolessar said.

At one of GF Management’s properties in Orlando, for example, the hotel suddenly lost half of its room revenue on an annualized basis. Upon closer look, Kolessar and his team realized the lost revenue could be traced back to a single corporate client, so they drove out to that company’s principal’s house to discuss why the client had left and what could be done to resolve the issue.

Kolessar’s personalized approach is paying off. “That business is slowly coming back,” he said. But it doesn’t always take a face-to-face visit to keep your guests coming back. Chu advised attendees to invest in loyalty programs. “Point programs are more viable today than they have probable ever been,” he said.

“Let’s not forget we’re in the hospitality business. … We’re all about the customer,” Roedel said. “Align yourselves with companies that truly understand the hospitality business.”

And if all else fails, there can never be enough emphasis put on a hotelier’s own people. “Take care of your people. … They end up taking care of your customers,” Chu said. “As things start to turn, you need both of them. Take care of that, and economics will take care of itself.”