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Featured in this HVS Journal |
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HVS London releases the latest edition of its annual review of European hotel value trends. The Hotel Valuation Index shows that on average hotel values across Europe fell 13%, the second year in succession the index has shown a drop in value.
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While HVS has been performing feasibility studies and valuations in India for about 13 years now, 2009/10 was the first year when we worked on more valuations than feasibilities. We believe that this change in our business mix at HVS is representative of a very significant shift within the
industry that has occurred in the past year and will become more prevalent in the future.
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If HVS maintained an “FAQ” list, “Where are cap rates today?” would be
at the top of the list, followed closely by “What is the right cap rate for
this hotel?” Not only is there no good answer to these questions, the
correct response is actually a series of other questions, starting with
“What net income are you capping?” and “How is that net income
expected to change in the future?” and continuing on from there.
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HVS London publishes its latest European Hotel Transaction Report, reflecting 2009 single asset and portfolio hotel transactions. European hotel investment activity fell by 50% to just over €3 billion: a drop of more than 85% on the volumes of 2007!
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An increasing proportion of HVS’s consulting and valuation work
concerns distressed hotels. This trend is a logical – if not inevitable –
result of the recession and concurrent downturn in travel that has
affected all sectors of the lodging industry. Virtually every market in the
U.S. has experienced decreased demand and falling average rates, some
more dramatically than others. However, some properties within a
market area or sector are proving to be more vulnerable to these macro
influences than others. This article reviews some of the stresses that can
intensify the degree of distress affecting an individual asset.
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In general, distressed real estate represents properties hurt by unusually
high vacancy levels that cause a sharp and swift decline in a property's
rental income. For hotels, the problems of low occupancy is usually
accompanied – and compounded – by lower average rates. In these
circumstances, the deterioration in gross revenues usually leads to
dramatically lower profit levels. When the reduced level of net income in
insufficient to cover debt service, a delinquent or defaulted loan is a
common result. As more loans approach delinquency, the number of
distressed hotels available for sale is expected to increase sharply over
the course of 2010.
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In this unprecedented economy where hotel occupancy and rates are
significantly down, hotel owner/operators are forced to closely review
EVERY aspect of their operation to squeeze out revenue/profitability
opportunities. If approached correctly, an area of great opportunity can
be that of outsourcing property restaurant operations to a professional
restaurant brand/operator.
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Adapt, Survive and Overcome - The Fundamental Effects of the Downturn on Hotel Practices and Strategy |
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The current recession is different in many aspects to previous ones, as it
is a crisis in consumption confidence amongst other things. Whilst the
worsening of trading performances over the past 12 months impacts the
main hotel markets, it is important to understand how hoteliers can
challenge the status quo by understanding the fundamental changes in
demand and better adapting their current hotel product to this shifting
environment.
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A deluge of expenses has met with a drought of income in the current economy.
A reduction in property taxes could prove the life line hoteliers need.
In the spring of 2007, signs were evident of an incoming storm that by
the beginning of 2008 had begun to fall heavily upon the world
economy. In the United States, rating agencies began tightening their
belts, signaling the forthcoming credit crunch. The situation turned
calamitous in the spring of 2008 with the collapse of Bear Stearns, and
the storm intensified to leave in its wake Lehman Brothers and other
cornerstones of the financial superstructure, flooding the market with
millions of toxic assets. Over the next several months the world was
engulfed in the perfect storm, a confluence of two disastrous economic
fronts: the collapse of the banking system and the deterioration of the
real estate market.
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Anyone who has flown to Latin America has probably seen groups of a
dozen or more people (mostly teenagers with a few grandparent-aged
chaperones) seated together at the departure gate wearing the same Tshirt,
many donning Birkenstocks (or more recently Crocs), on their way
to Guatemala or Peru to do service work, typically organized by a church
group. At the other end of the spectrum, we see clips of the “rich and
famous”, such as Sean Penn in Haiti or Brad Pitt in New Orleans, or even
“Dr. 90210” doing corrective cosmetic surgery in Mexico.
“Voluntourism”, combining volunteer service work with tourism, is a
growing segment of the travel market.
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How Are Hotels Embracing Social Media in 2010 - Examples of How to Begin Engaging |
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In this burgeoning digital world where we need to make “connections”
more than “impressions” – and more, if not most, of our guests are
communicating with friends, family and colleagues online – social media
channels are changing the way we do business and forever altering how
we attract and retain a loyal base. Now, with the evolution of platforms
such as LinkedIn, Facebook, Twitter, Flickr and YouTube, we have the
opportunity for unprecedented access to guests.
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To be a director of marketing (DOM) in a hotel today is far more
overwhelming than it was a decade ago, or even five years back. Given
the current unpredictability of the economy, and with communications
and technology expanding so fast that it’s difficult to keep up with the
ever-growing blogosphere and social media outlets that may be
critiquing your hotel, we have a great appreciation for the challenges
faced by DOMs today. And with some hotels relying on a director of
revenue management to guide and drive business, sometimes a savvy
marketing strategy gets lost in the mix.
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Introducing the Newest Member of Your Hotel Marketing Team: The Social Media Manager |
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Under supervision from the Director of
Marketing (whether this person is onsite or with an outside agency can
be debated), this new team member will enthusiastically engage in
dialogue for entrée to a whole new customer base of potential influencers. Whether connecting with prospective customers via
LinkedIn, reaching out to Fans on Facebook or Twitter with promotions,
making images available on FlickR and running contests, or helping
potential guests make their travel decisions with video on YouTube, they
will become an integral part of your team.
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Hotel CEO Turnover in 2009 - Hotel Company CEO Turnover at the 50 Largest Hotel Companies in the World |
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A study by HVS Executive Search of CEO
turnover at the 50 largest hotel companies in
the world reveals that a change in
the company’s Chief Executive declined by
over 50% in 2009 from 2008. Furthermore,
succession rate in 2009 is the lowest it has
been for the past five years.
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From Keith Kefgen, CEO, HVS Executive Search: "My personal prediction for 2010 is cautiously optimistic. There are signs that the debt markets are starting to unfreeze and in turn, hiring will increase over the coming year. I have also observed the number
of competitors in the space decrease significantly and that will bode well for us picking up market share
in 2010. Finally, we took the opportunity in 2009 to solidify our team and created a strategic plan that will guide us
over the next three to five years. For those that have survived 2009, we believe there is a tremendous upside in
owning opportunities and developing hotels, casinos and restaurants."
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In our eleventh study of board performance in the U.S. hotel industry,
Host Hotels & Resorts once again leads the way in how a public board
should function. Other past winners were in the top five including
Morgans and Starwood. Host is the first two time winner of the award,
winning our inaugural survey in 1999. This year, thirty-one companies
were in our survey, down from thirty-three last year.
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Russia's provinces still hold untapped potential for hotel development. For international operators and developers, the race for the regions is on... In recent years, Russia's economy has been booming and this has encouraged important sums of Foreign Direct Investment (FDI) into the country. A growing number of business travelers were recorded in Russia's major markets, followed by western-style hotel development and general infrastructure improvements to accomodate the growing numbers of travellers.
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With the cost of raw materials fluctuating and with global economic
conditions shifting the types and patterns of demand, developers are
becoming sceptical about when to build, what to build and whether to
commit to construction contracts. Therefore, in this article we have taken
into consideration the current demand characteristics of each market
and have derived the maximum supportable investment for the
development of a certain hotel asset in a certain market. We illustrate our
findings for 12 markets in the MENA region across four
hotel asset classes.
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The various islands of the Caribbean region offer warm sunshine, beautiful
beaches, and other natural attractions along with unique cultural experiences.
As a popular leisure destination, the islands have undergone development in
response to the increasing influx of tourists and now offer a diversified
portfolio of hotels. The range in class, size, and brand of the hotel inventory
varies from island to island, primarily due to the differences in the source and
type of visitation, a result of the islands’ distinct territorial and cultural
histories. As tourism in the region continues its long-term growth trend, the
development of hotels as a primary tourism infrastructure should continue to
evolve to accommodate the changes in the nature and pattern of demand.
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Economic Cycles Affect the Differentials between Top Caribbean Lodging Facilities |
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This article discusses the differences between two of the highest-yielding
segments of the lodging market in the Caribbean. Smith Travel Research
(STR) classifies branded hotels into the following tiers: Luxury, Upper
Upscale, Upscale, Midscale, or Economy, from highest to lowest quality.
This analysis has grouped Upscale and Upper Upscale properties
together (a sample of 11,778 rooms in 37 hotels, yielding an average size
of 318 rooms per hotel, as of the end of 2009) and compares their
performance over the last eleven years against the performance of
Luxury properties (a sample of 6,113 rooms in 25 hotels, yielding an
average size of 245 rooms per hotel as of the end of 2009). Defining facets
of the properties, occupancy, average daily rate (ADR), and revenue per
available room (RevPAR), are analyzed. To ensure the most consistency
in classification, only chain-affiliated properties were taken into
consideration. The list of the specific establishments included in the
analysis and their respective locations can be found in the appendix.
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