How tech can help hotels grow by cutting costs

LOS ANGELES — When discussing how hotel companies and brands can become more efficient through technology, Mit Shah said two things have to happen simultaneously: the tech has to improve the customer experience while also cutting operating costs.

“We have been terrible as an industry in taking technology and making it work for all of us — customers and owners and the like,” said Shah, CEO of Atlanta-based Noble Investment Group. “[The brand] companies are going to continue to invest in technology and innovation from a brand standpoint that is going to deliver better experiences for customers and reliability and do it while taking costs out of the operating model. Those two things have to happen at the same time.”

Shah said the brand companies that accomplish those two things are going to be the clear winners.

“The brands that will win, and hopefully it’s brands, not brand, are the ones that are going to be able to really accomplish that,” he said. “It’s going to take actual leadership from outside of our industry and people that think and act differently and come from different places in order to do that.”

Shah said the clock is ticking in terms of making these changes happen.

“I believe that we’re early, but we don’t have the time that we need to do this,” he said. “Because the overhang is really if that expense growth continues in our business.”

Shah said he’s optimistic about RevPAR growth but only if expense growth can be tapered.

“All the prognostications around RevPAR are just conservative because everybody got beat up a little on forecasts last year,” he said. “I’m taking the over on RevPAR projections for this year, but expense growth is [a problem] and we have to figure that part out.”

Shah was part of the “Board Outlook: Vision and Leadership” panel that kicked off the third day of the Americas Lodging Investment Summit (ALIS) by Northstar event in Los Angeles. The panel included Shah, Greg Friedman, managing principal and CEO for Atlanta-based Peachtree Group; and John Murray, president and CEO for Newton, Massachusetts-based Sonesta. Daniel Peek, president, Americas for the Hotels & Hospitality Group at JLL, moderated the panel.

‘Special situations’

Friedman said providing credit continues to be a big growth vehicle for Peachtree, whether the company is doing direct lending, financing hotel projects or financing other commercial real estate assets.

“I don’t think that’s going away; there is a need for private credit within commercial real estate and within hotels. That’s been an area that we can focus on,” he said.

Friedman said his company has also seen growth on the equity side for hotel acquisitions over the past couple of years and expects that to continue.

“The last couple of years have been pretty good for what we’ve been able to do on the acquisition side, and I think we’re going to find growth this year,” he said. “But, more importantly, we’re going to see a lot more special situations where, for us as a firm, we have the ability to go in and help recapitalize transactions through preferred equity, doing JV equity or finding other creative ways to come into the capital stack.”

Regulatory cutbacks

Murray said potential regulatory cutbacks from the new presidential administration could be helpful, but he says the biggest difficulty often comes from local governments in the cities where Sonesta is trying to develop.

“They really make it hard to do business in certain cities,” he said. “You just get crazy regulations.”

Murray mentioned a mixed-use office development with a luxury hotel that the company is currently trying to develop in a city on the East Coast. He said the mayor wants them to include an affordable housing component.

“The mayor said, ‘Where’s the affordable housing?’ We said there’s no affordable housing in a non-housing project. So, they said it’s not going to get approved. So, we have to go back to the drawing board,” he said. “It depends. It’s market by market, but there are a lot of markets where travel and tourism is very important to their economic base and it seems like at the same time that they’re recognizing how important it is, they’re also undermining the ability to have that be the economic base. So, the new administration will probably cause some of that regulation to be dialed back and that will be good.”