Hotel Slide Is a ‘Reset’, Not a Cycle, Says Magnuson

PHOENIX — What the U.S. hotel industry is experiencing today isn’t simply the downside of a highly cyclical business, emphasizes Thomas Magnuson, but rather a massive fundamental shift. “It’s a reset,” declares the CEO and principal of Magnuson Hotels, ranked by Inc. Magazine as the world’s largest independent hotel group.

“There has been such a dramatic drop in occupancy — over 10 points year-to-date this year versus year-to-date last year. We’re seeing this intersecting or colliding with one of the largest supply increases in history,” adds Magnuson, whose Spokane, Wash.-based company represents nearly 1,000 hotels in the U.S. and Canada.

Magnuson’s assessment of the hotel industry’s plight came Thursday morning during a panel discussion, “A View From the Top,” at the 15th annual Lodging Conference. Major players including owners, operators, brokers and lenders have descended on the Arizona Biltmore Resort and Spa for the three-day program that wraps up Friday.

Key metrics compiled by Smith Travel Research corroborate Magnuson’s assessment of the sharp downturn in the hotel industry. Occupancy year-to-date through August stood at 56.6%, down 10.3% compared with the same period in 2008. The average daily rate fell 9% while revenue per available room (RevPAR) tumbled 18.3% on a year-over-year basis through August.

New hotel openings peaked in the first quarter of 2009 as supply grew 3.2% on a year-over-year basis, according to PKF Hospitality Research. Room demand, however, fell 8% during the same period.

With real estate fundamentals so weak, Magnuson advises hotel owners to stop wondering when demand is going to pick up, and focus instead on developing a low-cost operating cost structure. With an affiliate base representing about $4.5 billion in hotel assets, when Magnuson speaks the industry listens.

He cautions that because of the disequilibrium between supply and demand, room rates will continue to be negatively affected. “More older hotels are living longer, they have less debt, and they have access to worldwide reservation systems,” says Magnuson. “That’s going to put downward pressure on rates.”


Quotable: “I generally don’t like the word ‘permanent’ because nothing in life is permanent. Habits are changing faster. Consumers are behaving differently, quicker today. Years ago a generation was measured by 20 years. Now, there is a shift in people’s behavior in seven to 10 years. So, I don’t think anything is permanent, but I think this recession has caused value to really be the king.”

— Peter Strebel, chief revenue and development officer, Dolce Hotels & Resorts, Montvale, N.J., commenting on whether today’s shift in consumer attitude is a blip or here to stay

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