Hotel & Motel Management: Issues cloud recovery's impact

New York--As talk of increased transactions and improving industry fundamentals wafted through the Waldorf-Astoria during the 26th annual New York University International Hospitality Industry Investment Conference, it was clear that an uneasy feeling of uncertainty was present.

Jonathan Tisch, conference chairman and chairman & c.e.o. of Loews Hotels, said the enormous challenges facing the industry include fuel costs, insurance costs, health-care costs and terrorism.

"There was a time when all we had to worry about was [average daily rate], [revenue per available room] and occupancy," Tisch said. "That's not the case anymore. ... We must find the intersection of safety and security, and commerce and travel."

Jacques Brand, managing director, global head-real estate, lodging & gambling for Deutsche Bank Securities, said pricing volatility, operational costs and the Internet remain big question marks for the industry.

Len Wolman, chairman and c.e.o. of Waterford Group, said health-care costs are the biggest challenge.

"We don't have a solution and we need to come up with one as a country," Wolman said.

Mike Shannon, chairman, president and c.e.o. of KSL Recreation Corp, said his company, which still manages the properties that CNL Hospitality Corp. purchased from it earlier this year, is experiencing some cost pressures and some issues with labor agreements.

"That's the threat to the perfect weather," Shannon said. "The rain can come at any time."

One topic resonated throughout nearly every panel and general session: terrorism.

Jay Rasulo, president of Walt Disney Parks and Resorts, said his biggest worry is how detrimental a terrorism act could be on the industry.

"So much of it is out of our control," Rasulo said. "It looms out there. I also fear the overreaction [to a terrorism act]."

John Arabia, principal with Green Street Advisors, said hotels and malls are the real-estate assets that are most at risk for terrorism events. However, he said, going beyond basic protection isn't feasible.

"You would go out of business trying to protect [everything]," Arabia said.

"If you were to factor in the risk of terrorism, you wouldn't be doing anything," Charles Henry, president of Hotel Capital Advisors, said.

"It's impossible to measure terrorism risk," said Thomas LaTour, chairman and c.e.o. of Kimpton Hotel & Restaurant Group. "You just have to keep going."

But hoteliers must remain aware of the potential threat, said Harry Curtis, managing director for J.P. Morgan Chase & Co.

"Make sure you do everything, including bomb-sniffing dogs in the lobby, to prevent it," he said.

Richard Solomons, chief financial officer for InterContinental Hotels Group, said the company's executives think about terrorism every day.

"We are in a slightly risky industry, and we have to take it into account in our transactions," Solomons said.

The potential for an act of terrorism has changed some corporate philosophies.

Jonathan Gray, senior managing director for The Blackstone Group, said his company's executives are more conscious of avoiding large concentrations of assets in one area because of the effect a terrorism event could have on specific regions or cities.

Shannon agreed.

"[Because of] the vulnerability of airlines to certain markets, we do think about concentration risks," he said. "That's a new reality."

jhigley@advanstar.com