Monthly Archives: March 2011

Going Up? Hotel Material Prices Start to Rise…

Associated General Contractors recently published cost index data on various materials that make up a hotel building.  My brother Jim, the contractor, was kind enough to send this information along to me.  I’ve listed some excerpts from the AGC data below, but first, I think some editorial comments are in order.
Diesel fuel took one of the biggest jumps over the past 12 months – 40% – and it takes lots of deisel fuel to build a hotel!  Other items that rose significantly were those available globally. Note that the cost index for nonresidential buildings is flat – what developers PAY is not changing.  (Yet.)  The squeeze is on the contractors, subcontractors and likely on the material vendors as well.  This margin squeeze couples with the current lack of business to bring very hard times to the construction community.  It’s time for developers to scrutinize your contractors like never before.  Satisfy yourself that he’ll be around to finish your job.
Dave Hogg
“PPI for inputs to construction industries—a weighted average of the price of all materials used in every type of construction, plus items consumed by contractors, such as diesel fuel—rose 6.1% over 12 months. Commodity PPIs that contributed to the large monthly rise included diesel fuel, up 40% over 12 months; copper and brass mill shapes, +20%; steel mill products, +13%; aluminum mill shapes, +8.7%; and insulation materials, +6.0%. All of these items are made from globally traded raw materials (oil, ores, steel scrap) that have risen in price because of growth in developing countries, exchange rate movements or fears of supply disruptions.
“PPIs for materials produced locally and used only by U.S. construction have barely budged: brick and structural clay tile, -0.4% and -1.9%; gypsum products, -0.7% and -0.6%; concrete products, -0.3% and -0.5%; and asphalt paving mixtures and blocks, 0.9% and 2.2%.
“These gains intensified the cost squeeze on contractors, as PPIs for subcontractors and for new nonresidential buildings—which include estimated labor costs, overhead and profits—stayed nearly flat. The PPI for roofing contractors’ new and repair work on nonresidential buildings fell 0.8% over 12 months; plumbing contractors, +0.2%; concrete contractors, +0.4%; and electrical contractors, +1.8%.”

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Pearls from Jack DeBoer

The recent Hunter Hotel Investment Conference featured hotel icon Jack DeBoer as the keynote speaker.  You’d expect the visionary behind Residence Inn and Candlewood Suites to have accumulated some wisdom through years of cutting-edge experience changing an entire industry, and you’d be right.  I took notes as fast as my fingers would move.  I hope you enjoy the DeBoer pearls I share with you over the next few months:

PEARL #1:  “I was originally 50/50 partners with Holiday Inn in the Residence Inn venture.  From them I learned that it’s cheaper to give food away than it is to sell it.”

PEARL #2:  Regarding Residence Inn, “Why did I sell to Marriott?  They thought it was worth more than I did.”

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Maximizing House Profit using Flex/Flow Calculations Part 1: What is Flex/Flow?

It is surprising how many hotel managers, operators, and owners do not have an understanding or an appreciation for flex/flow calculations.  The flex and flow percentages are a measure of efficiency when managing revenue shortages or overages through the financial statement to the house profit line.  While I certainly remember what it was like to just be happy to exceed bottom line; I have seen the light when it comes to maximizing it using these calculations as a guide.  If you were over $15,000 in revenues and only $1000 on the house profit line, would you be happy?  If so, you should keep reading this series and you’ll see why you shouldn’t be satisfied so easily.  Technically speaking these flex/flow numbers and goals will vary from hotel to hotel based on their variable costs.  In this series, I will give you an understanding of flex/flow, how to determine goals for each, and how to calculate it based on your goals.

What is the difference between Flex and Flow?

Determining if the property is in a flex or flow situation is very easy.  Just look at the revenue variance for the given period and use that as your point.  If the property is over budget they are in a flow situation and therefore you are looking for how much you flowed through to the bottom line.  If the property finished less than budgeted revenues, they are in a flex situation and as a result you are looking to see how well they flexed or controlled their variable expenses.  I realize that some companies look at both situations as flow.  Personally, I like to make the distinction between each situation.  You will see in part 2 the goals are most likely different for each situation and it makes it a little easier to grasp when they are each separated. 

Why is Flex/Flow important?

We have to face the reality that some expenses are fixed and some are variable.  The majority of the rooms’ department expenses should be based on Per Occupied Room (POR).  This means that if you rent more rooms than budgeted you will have more POR cost and conversely if you rent less rooms you should have less cost.  An easy illustration of how this works is bath soap, assuming the property has it in every room.  If the property doesn’t rent the room tonight, the soap will still be there tomorrow.  As a result we can conclude there is no cost for soap in that room for the day because you don’t have to replace it.  If you had sold that room, you would have to replace it and costs would be associated with that.  Another example is room attendant wages, continental breakfast, and the list goes on and on.  This is the theory behind POR costs.  The more rooms you sell the more of those expenses you are going to have.  We all instinctively know this, yet some fail to measure it.  The flex/flow calculations give you a way to measure that efficiency.   

In Part 2, I will give you some ideas on how to establish a flex/flow goal.

Hospitably Yours,

Justin

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Green is Green

 

We run a for-profit business.  We search for technologies that will help us improve returns for our investors.  That’s how we first became involved in green technologies – they can be profitable.

This is why we have a white roof on our newest hotel in Hershey, PA.  It would not ordinarily be prudent to go with a white roof in our climate on the 42nd parallel, where the heat gains and cooling losses of a white roof come close to canceling each other out. In the Hershey market, though, it makes lots of sense.  We expect to run essentially full all summer, when cooling loads are highest.  In the winter, we typically take the third floor out of service so that it forms a “blanket” of insulating airspace for the operational lower floors.

That’s how we save the most energy possible in Hershey: reflectivity in the summer, an insulating blanket in the winter.  That is why we installed a white/reflective roof on our new Country Inn & Suites by Carlson®, Hershey, at the Park.  It’s profitable.

Carlson has just announced that it is going to a standard of reusable plates in all of their hotels.  We are ready.  The dish washing system in place.  We were just waiting for the green light to stop buying disposables.  We’re delighted that Carlson has decided to take this approach, because the guests appreciate it when they see businesses taking a responsible approach to the environment.  Our investors also appreciate that our breakfast costs will go down because we won’t be throwing our dishes away any more.  It’s a win for everyone.

In the four most recent apartment communities we developed, we have installed full-building, ground-source heat pump systems consisting of up to 80 wells each.  These provide for all of the heating and cooling needs for the entire apartment complex.  We found that this technology saves up to half-off of our entire energy bill.  We can then include utilities in the rent, the residents are delighted, and it’s a profitable move for our investors.  An apartment complex is fully occupied year-round, so ground source heat pumps are fabulous green technology for that application.

If developers match the green technology with the application, the exercise can be profitable and environmentally friendly at the same time.  That’s a win-win!

Dave Hogg

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Is your hotel too hip for you?

The hallway of the W Atlanta Downtown illustrates the writer's comments.

By Jayne Clark, USA TODAY (Edited down to “blog length” – with apologies – by Dave Hogg)

Some of the hallmarks of cutting-edge urban hotel design — lobbies that double as party lounges, low-slung seating that (for those of a certain age) make getting up gracefully a challenge, complicated in-room control panels that bewilder, oddly placed fixtures (think bathtub in the middle of the guestroom) and lighting so dim it’s hard to see what’s where — are signs that your hotel might be too hip for you.

Joan Eisenstodt, a Washington hospitality industry consultant, recalls having to fumble for a flashlight as she made her way to her room in the W hotel in San Diego. “Ws are fabulous and funny. But they’re clearly not designed for anyone over the age of 35,” says Eisenstodt, 63. “The halls are too dark. They’re not even safe.”

“There are people who skew older but are young at heart and want to hang out in a more youthful environment,” says Chip Conley, 50, executive chairman of Joie de Vivre Hotels. “If the type is too small on the menu, they’ll just put on their glasses and deal with it.” The 35 boutique hotels in the Joie de Vivre catalog were created by using magazines (Real Simple meets Dwell) or movies stars (Gwyneth Paltrow meets Harrison Ford) as guiding principles in their design. The idea is to appeal to guests’ lifestyles.

Boutique hoteliers like Conley may have pioneered this approach, but in recent years the major chains have followed with their own “lifestyle” brands that convey the message: You are where you stay. (Among the new-ish lines: Hyatt’s Andaz; InterContinental’s Indigo; Starwood’s W and Aloft; and Marriott’s Edition.)

But can a hotel be too hip? Yes, says Conley, if it isn’t mindful of its target audience. Hotel consultant Daniel Edward Craig says some hoteliers have gotten so immersed in cutting-edge design, they’ve neglected service. “If the service and staff are warm, they can overcome the initial intimidation you feel when you walk into a foreign environment. The problem is that some hotels have put so much money into design and hired the wrong staff,” he says.

Craig, the former general manager of Vancouver’s trendy Opus Hotel (which created buzz when it opened in 2002 with its glass wall that separates the men’s and women’s restrooms) believes a hotel can do one of two things: “It can make you feel a bit cooler for being there, or it can make you feel not cool enough.”

Greg Myers, 42, was firmly in the latter camp when he checked into the W Chicago last year. “I felt like a senior citizen at a senior prom,” says the York, Pa.(!), sales director. “It was dark. The music was loud. It was the worst experience.”

Adam Goldberg, 43, encountered a similar scenario upon arriving at New York’s Hudson (whose website touts it as the Ultimate Lifestyle Hotel for the 21st Century). “It was like checking into a nightclub,” says the Fairfax, Va., digital TV consultant. “Dance music, dim lights, dark surfaces.”

Other frequently travelers are confounded by the tech-tronics of cutting-edge hotels. Tracy Kulik, 55, spent a fitful night at the James Hotel (now the Hotel Theodore) in Scottsdale, Ariz., when she couldn’t figure out how to turn off the LED illumination on the headboard and bed base. And she found the shower in her room at Washington’s Donovan House hotel so peculiar (it protruded into the bedroom and glowed), she snapped a photo with her cellphone.

Even Steve Carvell, associate dean of the Cornell Hotel School, admits to occasionally being confounded by how things work in some lifestyle hotels. But just as you might trade in your sports car for a van when you have kids, you might have to change hotels as you get older. “The brand doesn’t have to shift. It’s a question of whether you (now) belong in that demographic,” says Carvell, 54. “That’s why (hotel chains) create a family of hotels. They’re looking at you as a lifetime customer.”

Eisenstodt, who spends about 180 days a year on the road, has a different take. “I think hotel designers are going a little crazy in trying to be hip. There are (Baby) Boomers who may want to stay in a cool hotel. But they want light they can read by and furniture they don’t have to struggle to get up from,” she says. “When you’re 60-something and not totally cool and you’re not made to feel welcome, you wonder, ‘Isn’t the hospitality industry supposed to make you feel welcome?’ ”

COMMENTARY:  My family will be staying at the leading-edge-style Curtis Hotel in Denver this summer.  I’ll report back to you how the middle-aged parents – vs. the two teenagers who will be with us – view the atmosphere. I agree with consultant Eisenstodt that hotels’ pursuit of an ever narrower target market can repel some of the fat part of their market. (Double entendre intentional)  Time will tell if these moves are wise.  I have my doubts about them except in the largest U.S. markets.

It’s also cool that Jayne Clark shares an interview with a traveler from our home base of York, PA.  Trust me, we don’t often see that!

Dave Hogg

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