PHOENIX — Let’s face it, when five CEOs jump on stage to answer
questions in front of 2,750 of their closest friends and rivals, there are few
revelations. In fact, the breakout sessions at the 28th annual
Lodging Conference in Phoenix this week are where you would find more practical
takeaways, and at the end of the day the gathering is more about networking
than anything else. The industry investment conferences are more about
dealmaking in the hallways, sharing intel at cocktail parties, and maybe
finding a new job opportunity.
At Day 2 of the Lodging Conference, the most thoughtful and
upbeat comments I heard came in a session about turning challenges into
opportunities and profits. Toward the end of the conversation, Stonebridge
Companies CEO Navin Dimond noted how hotels are finally becoming a more favored
asset class of the investment community, which should drive down cap rates and
therefore increase values. This is great news for well-capitalized owners; but maybe not so great for brokers who face bid-ask spreads that are not getting
better fast enough in order to lead to more transactions.
Before the CEO panel, economist Bernard Baumohl delivered
his annual Lodging Conference macro-economic address and forecast, and his
outlook was not all that pessimistic. Bottom line, he expects 4Q23 and 1Q24 to
be challenging, but barring a Black Swan event, which he said has a 1 in 3
chance, the second half of 2024 should show signs of a recovery and potentially
a slight drop in interest rates. A rate decrease, he said, could loosen up
borrowing opportunities.
Conversely, he also said oil prices should be watched closely and much higher
prices could act as a trigger to more Fed rate increases.
You cannot have a full-employment recession.
Bernard Baumohl
Baumohl noted that $1.5 trillion in CRE debt will mature by
the end of 2025 with potential negative ramifications for the economy if
solutions are not plentiful. He said the number of delinquencies are picking up across
real estate sectors with the exception of industrial. But, he added, that this situation will in no way become the next sub-prime mortgage event with private capital likely swooping in to acquire preferred assets.
The other noteworthy data point: credit card debt in the U.S. has
topped an unsustainable $1 trillion for first time. Will it start impacting
spending on things like hotel stays? Yes, it could and is already showing such
signs, Baumohl said. But he remains encouraged by the strength of the job
market and believes consumer spending will not shut down completely as they
continue to have purchasing power. “You cannot have a full-employment
recession,” he said.
Kalibri Labs was on stage backing up the economist’s last
point, suggesting there is evidence of a slowdown in demand and rate growth.
But Kalibri also noted some bigger cities slow to the post-COVID recovery party are
showing more signs of life and better demand. Bottom line: Kalibri is taking a
more conservative outlook and expressing more caution about RevPAR growth going
forward and into 2024.
When the CEOs took the stage in the morning session, they answered entertaining
multiple-choice questions from moderator Chip Rogers, president and CEO of the
AHLA. Rogers asked the panelists to explain their answers to the questions that
ranged from labor issues and development opportunities, to who they think will
win the 2024 U.S. presidential election (we’ll mostly leave that one alone, but the
audience gave current President Biden a slight edge over former President
Trump).
Here are some of the highlights of the CEO game show:
- Labor issues, while improving, are still
challenging and one of the biggest issues facing operators. The best identified
solution appears to be flexible scheduling.
- It was not at all surprising during the CEO
panel and others on Tuesday that escalating property insurance rates are
flabbergasting.
- When asked which U.S. market was most preferred
for development, Texas came out on top versus Florida, California and New York.
- The panel, not surprisingly while sitting in
front of a packed house, was pretty bullish about 2024 performance with RevPAR
expectations beating 2019 and 2023 results.
- Finally, the panel suggested emerging “bleisure”
travel is here to stay, which goes in hand with more flexible and hybrid work
scheduling.