ALIS In Wonderland
I recently returned from the ALIS (Americas Lodging Investment Summit) conference in Los Angeles. It felt a little like falling down the rabbit hole. It felt strange (but energizing) to be around so many people again.
While I expected to see despairing looks after more than a year of jaw-dropping RevPAR’s, ongoing forbearance discussions (and pleading) with lenders, the high-quality slate of presenters was generally upbeat and optimistic.
One of the more memorable quotes from Alice in Wonderland was the Queen who quipped: “Why sometimes I believe as many as six impossible things before breakfast.” I could not compete with the Queen and get to six, but below is my list of surprising takeaways from the conference:
- Hotel values are increasing- There is a structural change afoot with hotel capitalization rates. The supposition is that cap rates will compress due to current vast spreads between hotels and other real estate asset classes (industrial and multifamily in particular). If cap rates drop, hotel values, by extension, would increase. Money supply is the driving force that is producing this dynamic.
- Robots are here to stay- There are many examples of hotels and brands using and/or testing robots as part of the labor force. This observation was mentioned in multiple breakout and plenary sessions during the conference. With labor supply under pressure and wages increasing, robots would appear to be the solution for redundant and boring tasks. However, robots have a way to go in providing high-quality interactive guest service. This has been demonstrated and proven by half of the robot staff getting the boot at the Henn Na Hotel in Japan - which was a fully robot staffed hotel.
- Top U.S. hotel markets are not – I have received a pretty steady stream of calls from distressed hotel funds and PE types looking to buy hotels in deeply impacted markets. Assuming you believe in the recovery story, the hardest-hit areas would be the logical play, but most conversations focused on secondary and even tertiary markets for acquisition targets. Tampa, for example, has received more attention and focus than San Francisco or New York.
- Inflation is transitory- I realize this is cut and paste from Fed speak, but I’m not buying this one. We all learned in Economics 101 that wages are sticky, and any wage inflation will not revert to previous levels. Inflation relating to supply chain disruption will indeed settle over time, but the wage increase will not, which is a substantial part of the typical hotel cost structure.
Alice’s dream state adventures were a vehicle to work her way through the uncertainties of adolescence. Similarly, many of us in the hotel industry are working our way through uncertain terrain in what, at times, feels like a bad dream. ALIS delivered a collective message that there is hope and even improvement on the other side of the global pandemic.