Luxury hotels are leading the way, bouncing back faster than the rest of the US hotel industry as the economy recovers. But, at least according to hoteliers at a Los Angeles hotel industry conference, that rebound is not such the positive news they had hoped for.
“The only reason luxury hotels are looking so good is because of how low they sank,” says Marty Collins of the Gatehouse Capital Corp. hotel development firm when attending the Jeffer Mangels Butler & Mitchell LLP’s Meet the Money conference. “There are still only a handful of luxury hotels that are really worth anything.”
As far as regaining occupancy rates and revenues goes, luxury hotels are way ahead of the rest of the hotel industry, posting an occupancy gain of 8% and revenue per room increases of over 13% since 2009, says the Smith Travel Research firm. Overall, the hotel industry has seen much smaller increases through the same period, of just 4% and 6.5% respectively.
The problem is that a large number of luxury hotels were financed before the market crashed in 2006, based on going values and profit projections at that time. Many luxury hotels are still miles away from approaching those numbers again, which means plenty of owners out there have to cover shortfalls in their debt-service from their own savings.
“Numerous luxury hotels are leaking money from their owner’s pockets,” says Sunstone Hotel Investor’s Robert Alter. His company owns 33 luxury hotels and so he probably knows better than most.
However, it’s not all doom and gloom. One bright spot is that there is little prospect of any competition from new hotels being constructed. Right now in the US, there are just 6,018 luxury hotel rooms being developed – which amounts to just an increase in the US luxury hotel rooms’ supply of just 4.3% – way below projected growth.
At least their customers aren’t going anywhere else. According to Greg Mount of the Richfield Hospitality Inc hotel management firm, “Customers haven’t changed a bit. They still want the same kind of five-star service and experience they are used to, no matter where they go to.”