California Hotels: A Market In Discomfort

The hospitality sector is market many overlook as an overall indicator economy wise. By way of illustration, the rise in hotel foreclosures in California last year mirrored the state's overall situation. According to this report from the LA Times, hoteliers across the state went out of business at a rate that was 66% greater than the year before. Think how many jobs this cost, how many homes and livelihoods were tied to those hotels. The situation is growing more and more uncomfortable.

Face it, when a 330 plus room Hilton goes defunct in Sacramento, such is not a sign of impending sector growth. Of course we seldom hear of Hilton failures, those get washed away in a sea of press releases designed to elevate the brand. But still, the Hilton's and Marriott's of the world do lose, a lot too. The big losers in this economy are obviously the independents out there. Just as "Mom & Pop" storekeepers went broke at the hands of the Wal-mart's of the world, so too independent hospitality vendors fall prey not only to the so called Great Recession, but to competition from the giants of the hotel business. Hotels like the elegant White Swan Inn in San Francisco cannot often compete even if they engage via Facebook. And not all hotel properties are as lucky as the Holiday Inn Express in Bakersfield (main image), recently sold by in a market becoming saturated with deals.

The LA Times report points to one California liquidator of hospitality properties, Atlas Hospitality Group. This company specializes in marketing hotels for sale, a niche that requires special skills and understanding of the market layers within it. Their reporting on the Cali hotel situation is often used as the basis for such market evaluations, in the press, and by investors as well. This is particularly true for Alan Reay's mutterings. Follow Reay, and follow the trend in hospitality in the US, to a degree this is possible.

If you think the Hilton closing above is an isolated one, the Radisson Hotel San Jose Airport, and the current listings on Atlas should dampen that spirit. Interestingly, new developments in the online hotel business seem headed for sort of collision with these hotel business losses. According to a recent press release, the California Lodging Industry Association and Independent Lodging Industry Association signed up for a new online travel distribution player, Global Hotel Exchange. That free to hoteliers OTA is but one of a group of new distribution channels launching to engage hotels with a better revenue model. Roomkey is another supposed "game changer" - all-be-it one many believe targets getting more business just for a select few. Six of the biggest hotels in the world launched this portal early on in January.

For what to expect from all this movement in the hospitality sector, real estate or investment wise, this report from HotelNewsNow reveals just how dynamic (and competitive) the lodging space is becoming. In that report, VP and COO of CLIA  and Executive Director of the ILIA, Bobbie Singh-Allen, addresses this very issue. She is quoted by HNN:

“From a practical perspective, if you’re Room Key and you’re one of the six (brands), I don’t see how you can advocate independents that aren’t part of the initial founding members. I remain skeptical that independents have any place with Room Key.”

Back in December Bloomberg reported on other important hotel financials. The more than $17.5 billion in hotel loans in the US coming due, fuel for still more potentially horrendous hospitality news. Just as one key footnote, according to that report loans totaling some $978 million were backed up by the Kyo-Ya hotel portfolio. This group owns luxury properties in Hawaii as well as in California, the loans there having been placed with special servicing since the borrow was unable to repay.

In more recent news for this group, a new $700 million project of theirs is stalled because of environmental concerns, further complicating that groups solvency potentially. Holiday Inn's to Ramada, just looking at the California hotels for sale is enough to give any interested party pause. Good news for independents or the majors is just in short supply period on the West Coast. (and everywhere else as the photos indicate)

If nothing else, hoteliers there (even worldwide) can expect the competition for guest to become fierce in the coming months. With Roomkey and the big hotels expanding their channels, the big OTAs like Expedia and Obritz extending their efforts, Global Hotel Exchange set to launch, and independents like parent Magnuson Hotels & the interesting Global Hotel Alliance entering the fray, 2012 promises to get very interesting.

As online bookings make up ground on other distribution channels, no hotel owner or investor can long afford to ignore any of these movements. It goes without saying, watching the big players is a point of survival for all independents and especially the sole proprietors. Boutique, Luxury, B & B, making sure your property is represented on all channels is crucial. We will update you as this story develops.