As part of the Americas
Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked
Sonesta’s Keith Pierce eight timely questions as we prepare for the 22nd
annual event January 23-25, 2023, at the JW Marriott/Ritz-Carlton Los Angeles
L.A. LIVE. Following are his responses.
ALIS: How has
inflation and the threat of a recession affected the U.S. hotel franchising and
drives cost – and as owners and operators as our raw costs increase you either
have to pass those costs on to the consumer through an increased rate or adjust
your service levels to attempt to maintain margin. During recessionary periods
the consumer’s buying strength is negatively impacted, and when coupled with
high inflation, the performance of the industry as a whole will be negatively
forecasts show supply growth checking in at about 1% each year for the next two
or three years. How do you see it playing out based on Sonesta’s pipeline?
near-term new supply growth forecast is projected to be +5%, of which 80% of the
new growth will come from conversion opportunities and the remainder will be
new inventory introduced to the market.
ALIS: What’s the message to hotel
owners, investors, and developers from the lending community in general as 2023
seeing continued pressure on interest rates from the traditional debt
providers. Loan to Value ratios are beginning to normalize back to pre-pandemic
levels. We have experienced an improvement in underwriting portfolio deals as
well as extended stay investment opportunities.
have guest expectations evolved over the past year, and how do you expect them
to change going forward?
the pandemic, owners/operators/brands made material adjustments to operating
models, for example shifting from daily housekeeping and heavy F&B
initiatives. Post-pandemic these modifications have remained, and consumers
have accepted them as a new normal they wouldn’t have considered reasonable
previously. At Sonesta we’re exploring no-touch, light service, self-service
and evaluating guest touch points within each brand to explore new ways to meet
guest expatiations versus simply returning to what we’ve always done.
on your portfolio and what you’re seeing throughout the industry, what segments
are performing best, and what segments will lead expansion efforts? Why?
mid-level extended stay segment is absolutely the best performing for Sonesta –
specifically Sonesta Simply Suites brand. The pandemic highlighted and
heightened awareness of the resilience of this segment, and it continues to
perform well. It’s no surprise that Sonesta Simply Suites has been met with a
great deal of interest and enthusiasm in the franchise community.
has Sonesta helped owners process through the labor crunch? Is it something
that the industry will deal with going forward?
best anyone can do in a labor crunch like we’re experiencing in the industry
post-pandemic is to be thoughtful about brand standards as they are impacted by
human capital constraints. At Sonesta, we’re owners and operators too, so we
are living with those same challenges day in and day out. Our franchisees
appreciate that as it leads us to be flexible in ways others may not think to
ALIS: What’s the most
under-estimated challenge the hotel industry faces, and why?
The long-term impact of high
inflation in a recessionary period is really concerning and a continued challenge
to the industry. It typically leads to rate increases, which leads to consumer
pushback and a spiral that is hard for hotel owners to see beyond the
day-to-day. We need to take a page from history and look to stay the course
with delivering an experience that the customer wants, knowing this too is
cyclical and will pass, but consumers will remember.
ALIS: What’s the most
under-estimated opportunity for the hotel industry, and why?
I think our opportunity is
the same as the challenge – but with the right response, it leads to a
different outcome. Don’t fold up your tent and go home, cutting all
“unnecessary” expenses like marketing and outreach… instead be bold! Look for
opportunities in times of distress. Sonesta has made a name for itself as the 8th
largest hotel company created during the pandemic. From our unprecedented
management company growth to the creation of our franchise organization to the
continued momentum we’re seeing in our “year one” as a joined-up company –
Sonesta has really made the most out of a distressing time and come out on top.