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Millennials Disrupt Hotel Industry

NEW ORLEANS – The U. S. hospitality sector continues to grow, but financing is becoming harder to obtain and Millennials are influencing the design of new properties, leaders of the industry told attendees at the 50th annual National Association of Real Estate Editors real estate journalism conference in New Orleans this week

Nick Massad

Nick Massad

In today’s difficult economic environment, hospitality entrepreneurs must be careful about entering new markets, cautioned Nick Massad, Jr., president and chief executive officer of Houston-based American Liberty Hospitality. “It takes about four years to develop a major full service hotel so a developer must take a major risk to create the jobs and satisfy the demand,” he continued.  “Sometimes your timing may be off because there is a long time between when you start a project – getting the permits, beginning construction, etc. – and when you finish it.  Market factors can change during that development period.”

Peter Nichols, National Director, National Hospitality Group at Marcus & Millichap, said he was “cautiously optimistic” about the future of the sector “The basic fundamentals remain strong, based on the overall economy, low interest rates and financing availability for the right markets,” he added.  “From a financing standpoint, there is a much more disciplined approach and it’s more deal and market specific. For a new development in certain saturated markets, it’s more difficult to get financing. In markets where demand high and there is not a lot of development, financing is more readily available.”

David B. Songy

David B. Songy

David Songy, CEO of Songy Highroads, a firm that opened two new Hyatt properties in the Galleria area within the past six months, said the hotel industry remains market specific. “Today, there are some markets that could use additional hotel supply and some markets that are overbuilt,” he continued. “The number of lenders making construction loans is smaller.  Lenders are being more selective and financing for new hotel projects in the future could become more difficult, with more equity and more guarantees needed from developers. Financing is more available for acquiring hotels. There is usually an abundant market of lenders when buying hotels.”

Added James Wiseman, chief development officer at Orlando-based Margaritaville Development: “If you want to build in a good market like Hollywood, Florida, and have a good product like Margaritaville and all the other pieces, money is available, even from private equity funds.”

Room letting website Airbnb has become a force to be reckoned with in the U.S. hospitality industry, the NAREE panelists said.

“Airbnb is strong in highly competitive markets,” says Nichols, “at location where many people couldn’t afford or didn’t have access to hotel rooms. Guests want to walk to restaurants or go to venues without paying high hotel rates. Secondary and tertiary hotel markets are not seeing much effect from Airbnb.”

Airbnb is creating more demand for travel in general, said Songy.  “Kids in college say ‘let’s go to San Francisco for the weekend,’ and instead of getting four hotel rooms, they are securing one place through Airbnb and splitting the cost four ways. Multiple studies have shown demand for travel increased because of Airbnb.”

Millennials are very mobile and want smaller rooms, but the hotel industry has been trending with larger rooms and bigger bathrooms.  “Millennials want a lower price, and a smaller room, but more common areas – a bar and coffee shop and places where they can hang out with others in a relax setting,” said Songy.

Hotel developers also are delivering hotel brands in new ways. American Liberty Hospitality developed a limited service 170-room Hampton Inn by Hilton and a 130-suite extended stay Homewood Suites by Hilton in one building in downtown Houston.  “Dual branding is a way to spread the cost of the site over two brands ” said Massad. “We paid $300 per square foot for a half block. There is a common check in area but two different room types. When the elevator opens, there is a sign saying ‘Hampton Inn rooms this way’ and ‘Homewood Suites that way.’ Everything is shared except for the breakfast areas, which are different.

June 11, 2016

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