Maria Wood is senior editor of Real Estate Forum
LA QUINTA, CA -Despite the recent dramatic one-day plunge in the stock market, the nation's economy remains in good shape. That was the consensus of a panel of experts who spoke here yesterday at a gathering sponsored by Hilton Hotels Corp. for the owners of its focused-service brands, Hilton Garden Inn, Homewood Suites and Hampton Inn. The meeting was also a prime opportunity for the heads of the hotel firm to roll out their plans for international growth.
In a discussion moderated by Fox News personality Neil Cavuto, former White House economic advisor Todd Buccholz said that, while there is always a chance of a recession, the economy is on firm ground. Although the housing and auto sectors are weak, the service industries, which make up 70% of the economy, are strong.
Mark Lomanno, president of Smith Travel Research, advised hotel operators to be patient and not react too strongly to a one-day event. He said that in previous recessions, hoteliers discounted rates too steeply in order to attract the business traveler. He felt that was the wrong tactic, since business travelers have to travel even in an economic downturn. And despite talk about an onslaught of new supply, Lomanno stated that supply growth is in line with the long-term average of 2%.
At the same time, the cost of new development may be coming down in some markets. In a media roundtable with a group of owners of Hilton-branded hotels, several panelists noted that construction costs in the markets where they own hotels have decreased in recent months.Thomas D. Arnot, a member of Beechwood Development LLC in DePere, WI, said that with the condominium boom cooling in Florida, he has seen a 6% drop in construction costs in the past 60 days.
Jeffrey J. Good, president of Good Hospitality Services in Valparaiso, IN, said that in Indiana there has been 15% decrease in construction costs due to a lull in residential development. "There's hope up the road," he said. The question, he asked, is "Will RevPAR growth stop where construction costs are now?"
Several of the panelists expressed amazement at the amount of money circulating in the lodging industry today. Arnot said that lenders should not lend more than 70% on a hotel deal. "I've seen 90% loans on hotels, which is stupid," he stated.
During the two-day conference, which was attended by about 1,400 people, Hilton executives emphasized how its merger with Hilton International gives it a platform for international growth. In particular, the full-service Doubletree brand along with the focused-service offerings of Hampton and Hilton Garden Inn will lead the way overseas.
The Beverly Hills, CA-firm estimates that it will add 1,000 hotels to its portfolio outside of North America over the next 10 years. It has already struck a deal with DLF Ltd. in India to develop between 50 and 75 Hilton, Hilton Garden Inn and Homewood Suites over the next seven years. In addition, Hilton has formed an alliance with Deutsche Asset Management and HQ Asia Pacific to develop and franchise 25 Hilton Garden Inn hotels in Beijing, Shanghai and Tianjin, China.
Adrian M. Kurre, SVP of brand management for Hilton Garden Inn, said there are currently three Hilton Garden Inns open in Germany and Italy, with another slated for the first quarter of 2008 outside of New Dehli. Phil Cordell, SVP for Hampton Brand Management, said he expects to open the first Hampton overseas within the next 12 to 15 months.
Both Cordell and Kurre stated that the Hamptons and Hilton Garden Inns built overseas will have a different prototype than those in North America. That is due to the higher land costs overseas and the desire to adapt the hotels to the local culture. Both Kurre and Cordell said that Hampton and Hilton Garden Inn hotels will fill a gap overseas where midscale hotels are rare.
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