The hotel industry is suffering from a serious case of schizophrenia, at least from the talk at this week's Midwest Lodging Investors Summit in Chicago. Speakers at the second annual conference, sponsored by Lodging Hospitality, agreed that rate cutting is bad, but they all admit they do it. Financing for acquisitions and new development is available, some said, but few knew where to find it. When will the current hotel industry downturn subside? No one had a definitive answer.
The opening general sessions featured a lively debate over rate discounting, among other topics. The realists agree that it's a current fact of life. The dreamers believe operators can still hold the line on rates, no matter what the competition does.
“Rate cutting won't increase traffic to your hotel, and the press needs to pound home the message that you need to hold rates by delivering value and increasing service,” said Nancy Johnson, EVP and chief development officer of Carlson Hotels, who added that “just across-the-board rate cutting by a a factor of X is wrong.”
Walter Isenberg, president & CEO of Sage Hospitality, disagreed, calling Johnson's remarks “totally unrealistic. It's the nature of the business,” he said. “In this part of the cycle, power shifts from the hotels to the customers.”
The other big question is availability of financing. While many speakers and attendees claim none or much is available, Joe Epstein of First American Realty Associates said, “There is more money available to finance hotels today than there was in 1986 or 1996. Of course, borrowers have a choice: Do it their [the lenders] way or there are no loans. That means borrowers need to post personal guarantees, put real cash into the deal and don't expect leverages of more than 50 to 70 percent.”