Monthly Archives: December 2014

The “Perfect Storm” for Springwood Hospitality

It feels as if Springwood Hospitality is in the middle of a perfect storm – the good kind:

  • The U.S. hospitality industry is experiencing 4.5% demand growth with less than 2% supply growth.
  • Industry experts project U.S. RevPAR gains of 7.5% in 2015, with even better margin growth.
  • Asset pricing is knocking on the door of historic levels.
  • Millennial travelers (age 39 and younger) are poised to overtake Baby Boomers as the #1 market segment for moderate-to-upscale hotels within two years, and Hilton and Marriott are both leading the way with technology and features that Millennials find attractive (no surprise).
  • Hilton has launched a new brand (OK it’s three years old) conceived from the ground up to attract Millennials, and early results are outstanding.  It looks to me as if Home2 Suites by Hilton will be the fastest-growing hotel brand (of 50 hotels or more) in the U.S. in the 2015-2018 time frame.
  • Our high-barrier-to-entry local markets are growing, and our investors are poised to benefit from that growth.
  • Our investor following has never been larger or more loyal, because they like what they see.  This enables us to accelerate growth and benefit everyone we work with.
Charts from the 12/2014 issue of National Real Estate Investor tell the story of the perfect storm.

Charts from the 12/2014 issue of National Real Estate Investor tell the story of the perfect storm.

As we look at where we are, we are thankful for every investor who has trusted us to grow their hard-won cash.  We work every day to earn that trust.  We are thankful for the vendors with whom we partner, because they help us make it look easy to achieve the award-winning results that are part of our culture.

We are thankful for every associate who touches the lives of the weary travelers we love and comfort at our hotels.  We truly cherish the opportunity that we have to help make hundreds of lives just a little better every day because they chose to call a Springwood-managed hotel their home for a day, a week, or longer.

We wish you all the best and brightest this holiday season, whatever your tradition or faith may be.  For us, it is our pleasure to to wish you a very Merry Christmas, and a joyous and prosperous new year!

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Thriving Hotel Industry Prompts Analysts to Revise Forecasts Upward

Generic Trend Chart

(Adapted for the blog from an 11-10-14 article by Bruce Serlen in Hotel News Now)

NEW YORK — With industry fundamentals for 2014 ending the year on a high note, analysts and consultants are getting more comfortable releasing optimistic forecasts for 2015-in two cases even revising upward their already positive predictions made in the past few months.

Such upbeat news from executives at PwC, PKF Hospitality Research, STR and MMGY Global lent the opening sessions at this weekend’s Hospitality Leadership Forum in New York a festive air. The daylong Forum was part of the American Hotel & Lodging Association’s Annual Fall Conference, which in turn was held in conjunction with the International Hotel/Motel & Restaurant Show at the Javits Convention Center.

“Lodging demand really picked up in the third quarter of this year and continues to grow in the fourth quarter, a trend that seems highly likely to continue into 2015. And there’s still room for demand growth in 2015,” PwC managing director Warren Marr told the audience. “We see the industry having the strongest pricing power it has had since probably 2007.”

In a release being issued today, PwC is revising its 2015 revenue per available room growth forecast to 7.4 percent. Contributing to the rosy picture are strong occupancy rates, including frequent sell-out nights in the primary markets, and a long-awaited rebound in group demand.

STR likewise is raising its 2015 RevPAR growth projection to between 5 percent and 6 percent, based on a strong end-of-year performance in 2014. “Through September year-to-date, we’ve seen North American RevPAR growth of 8.1 percent, driven by the performance of the Top 25 MSAs, a number of which have seen RevPAR growth of more than 10 percent,” said Vail Brown, VP of global business development & marketing at STR.

Nor is North America the only region that is thriving. South America has seen a year-to-date jump in RevPAR growth through September of 15 percent, attributable, according to Brown, to the World Cup being held in Brazil as well as high inflation in Argentina. “All the regions of the world are showing positive RevPAR growth, which is a healthy indicator,” she said.
STR is scheduled to release its revised forecast on Friday.

All the speakers noted the importance of new supply growth being kept in check so far this cycle. Too much new construction creates a supply-demand imbalance.

“The last year where we saw an oversupply was 2009. Supply growth reached 3.3 percent. This year, we’re still 40 percent below that rate,” said Jamie Lane, PKF senior economist.  Lane attributed the lack of new supply to developers having trouble obtaining financing and the rising costs of construction. “The financing situation is better than it was during the downturn, but can still be a challenge, depending on the market and nature of the project,” he said.

Looking to 2015 and beyond, MMGY Global vice chairman Peter Yesawich noted the increasing influence of the millennial generation. “Not only are there more millennials than baby boomers in the U.S. today, but research indicates that millennials intend to take more trips requiring a hotel stay than any of the other demographic groups,” he said.

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Select Service is the New Gold Standard

Adapted by Dave Hogg from a December 2, 2014 article by Ed Watkins, Editor-at-Large, Hotel News Now

• For the most part, business travelers prefer the select-service experience over tired full-service hotels.
• Institutional investors have recently been clamoring for select-service product.Hampton-Inn-and-Suites-Longview-North-TX-Exterior

Once the hotel industry’s step-child, the select-service segment has blossomed into the preferred product type for many investors and developers. With all the talk and media hype about boutique and lifestyle brands and concepts infiltrating the hotel industry, a trend that’s been flying under the radar is the rise to dominance of the select-service segment of the industry.

Of course, select service (at one time called limited service but since changed for reasons no one really knows) has been the preferred product type for mom-and-pop-type entrepreneurs. Many owners, including most of those in the Indian-American community, got their start by buying, then developing select-service hotels.

The rest of the industry—and most importantly Wall Street and other institutional investors—looked upon this segment as a hotel industry step-child: It was a nice street-corner business, but the real money was in full-service, big-box convention hotels and luxury beach and mountain resorts.

Those attitudes have changed in the past decade, and certainly since the end of the last recession. Select-service hotels have always been cash machines, consistently generating profit margins in the 40% range. The problem for institutional investors was one of scale. The thinking was why bother with a 90-room select-service Fairfield Inn, even one throwing off gobs of cash, when you can invest in a 500-room downtown Marriott that creates profit through volume, not margin.

Part of the shift toward the segment is due to changing travel patterns. In recent years the iconic suburban, 250-room full-service hotel, complete with a depressing bar and restaurant, had fallen out of favor among business travelers. Instead, these road warriors have flocked to the select-service hotels popping up all around, and usually surrounding the old full-service dinosaurs.

These new-style properties have the same quality of guestrooms and amenities as full-service hotels, but they are easy to navigate and offer the amenities business travelers want most: free Wi-Fi, quick and often-free breakfast and a lobby to gather in the evenings to get a bite to eat and a beer.

A review of U.S. hotel development pipeline data from STR, the parent company of Hotel News Now, shows how developers are flocking to select service. As of the end of October, five select-service power brands—Holiday Inn Express, Hampton, Hyatt Place, Fairfield and Comfort—accounted for 900 hotels with more than 86,000 rooms under contract in the pipeline.

Clearly, this is the segment of choice for many developers.

Institutional investors also have found a taste for this product type. Several announcements in the past month reinforce that notion:
• American Realty Capital Hospitality Trust agreed to pay $1.8 billion for 116 mostly select-service hotels in 31 states.
• According to a report in the Pioneer Press, ZMC Hotels is putting its 28-hotel portfolio up for sale. All but two properties in the package are select service.
• The trend is global. Plateno Hotels Group signed an agreement with Hilton Worldwide Holdings to develop more than 400 Hampton by Hilton properties in China. The first is expected to open by the end of 2015.

The select-service segment has been firmly planted as the preferred product type for owners, investors and, most importantly, guests. The interesting thing to watch is how this business niche develops and innovates in the coming years.

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