The Set-Up

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A record 1,200 people attended the Lodging Conference in Phoenix last month...and, for good reason. There's lots of good news, and it's an exciting time for our industry. Jim Butler's post on his Hotel Law Blog gives you all the details and STR slides...well done. Here are my key takeaways about the future...

  • Growth in demand will continue to outpace the growth in supply by 1.9% compared to .8% for 2006 (a difference of 1.1%), and by 1.7% to 1.6% for 2007 (a difference of only .1%)
  • Occupancy will continue to grow in 2006 and 2007 but at reduced levels of 1.1% and .1%, respectively
  • RevPAR growth will continue at near record levels in 2006 and 2007 of 7.9% and 6.7%

No matter how you dissect it, this is good news...we continue to move along a path of "recovery" from the doldrums of 2001/2002. Unfortunately, as Jim also points out, there are mitigating factors in play for the foreseeable future...high cost of construction, steep price of land and a more restrictive financing climate. And, this is where the set-up usually begins...a robust performance climate, under supply in many markets and high cost barriers to entry. The result...not necessarily an overbuilding situation. But, I think, even worse...a flood of average product. Here's a likely scenario, especially for those new to our game...

  1. People (developers) have money
  2. The numbers strongly suggest that a hotel is a good idea
  3. But, building one is expensive
  4. So let's cut some corners and save money where we can (this usually means build something efficient, something that's been tested). Let's play it safe and build something that's been proven to work.
  5. Let's build something that can make as much money as possible in the shortest period of time.

The result is influx of unremarkable properties, built to take advantage of the short-term cycle...which might do very well while the weather remains this nice. But, what happens when things change (and, they always do)? How will the average property stack-up against those that were willing to take some risk, to be different, to spend a little more up front to give people what they want?

If you're getting into the business for the long-term, how can you afford not to build something extraordinary...something that will last?