U.S. commercial real estate was expected to collapse and drag down the economy but analysts were in for a surprise. Commercial real estate is surging ahead on many levels. The surprising health of commercial property is evident across the country. Obviously, global centers like New York City thrive in a time of high and profitable business activity.
Real Capitals Analytics Inc. reported that investments in office space accounted for the highest rise – more than doubling from 2009 to $41.6 million. According to an index developed by the MIT Center for Real Estate, prices of commercial properties sold by institutional investors rose 19% during 2010 - the second-largest recorded increase. Buyers, lenders, and investors – all groups are pleased with the improvement in this market.
Buyers appreciate the low interest rates. The promise of cheaper financing and greater yields is attracting buyers.
Lenders welcome increased earnings. The rise gives them a cushion for absorbing losses. They are eager to sell distressed properties and loans. TOP Hotel Brokers of NYC assessed the popularity of NYC distressed properties in a December 2010 report.
"Distressed properties are still expected to account for a significant percentage of hotel sales in 2011. Certain investors are interested in this category of hotel. Various high-end hotel properties were sold during the past year. Several of those hotels were purchased in distressed circumstances." ~ TOP Hotel Brokers of NYC
The government's strategy seemed to work for buyers and lenders. Since interest rates are low, lenders have more flexibility. They can hold on to troubled assets for a while. With improving values, lenders and owners have a little room to work out challenging issues.
Investors are gaining confidence in the market. Their optimism is driving the prices of commercial mortgage-backed bonds. In fact, prices of these bonds are higher than they have been in the past two years. Investors' enthusiasm about NYC hotels was summed up in a recent TOP Hotel Brokers of NYC report.
"Yet current investors do not seem to be concerned about any increased prices. They just want to be part of the vibrant NYC real estate scene. The Manhattan hotel industry is a very attractive market." ~ "Buying Hotel Growth in NYC - Investors Strategy for Growth in Manhattan Hotel Real Estate"
Of course, it would be irresponsible to suggest that commercial real estate is booming - without exception. The overall trend looks terrific, market and credit requirements have leveled out, and the pricing market is undergoing stabilization in key areas. Certain metrics are showing improvement but there is still an element of unevenness and a percentage of distress.
Lenders who specialize in commercial real estate can still feel a slight pinch. Specific banks will struggle and there will be more losses and additional delinquencies. Yet any loss in commercial real estate will not be the downfall of U.S. financial institutions.
"We do not see commercial real estate losses as a threat to systemically important financial institutions,” says Patrick M. Parkinson, Federal Reserve director of banking supervision and regulation.
Investors share an optimistic view about the future of the U.S. hotel sector. Yet no one can deny that challenges are part and partial of an economic recovery period. The July 11 ALIS Summer Update's 'View from the Boardroom' event shed light on the present state of the U.S. hotel industry.
Quorum Hotels & Resorts
Tony Farris, CEO of Quorum Hotels & Resorts, explained about industry expenses. Monty Bennett, CEO of Dallas-based Ashford Hospitality Trust, said that brands helped reduce costs during the recession. Yet Bennett recognizes a different scenario in the midst of the current rebound.
At present, brands favor increased costs. A post-recession economy differs considerably from a pre-recession period. Although the US is in recovery mode, the rebuilding process is a difficult one.
Yet Ashford's affiliate managers keep costs under control to a greater degree than brand partner officials. Ashford is a real-estate investment trust with direct investment in 127 hotels (26,500 guestrooms). This Hospitality Trust, however, is prohibited by law from operating the hotels. Bennett says that keeping costs down is Ashford's top priority.
Quorum Hotels and Resorts, a Dallas-based management and asset-management company, specializes in full-service hotels. CEO Farris listed 'human resources' as their biggest cost-containment challenge. Farris notes that the decades of entitlement with free meals and automatic pay increases are a thing of the past. In his opinion, today's industry should focus on strategic rates and future sales as well as contained costs.
Choice Hotels International
Yet another industry leader, Steve Joyce, president and CEO of Choice Hotels International, disagrees with Farris and believes that cost containment in cloud-based technology is a different matter.
Joyce explains his idea, "Then computing costs come down because you can change everything when a cloud-based system is in place."
Joyce added that the cost of electronic distribution channels should experience a decline. Marketing expenses, however, will not drop for such channels.
Yet all executives agreed that the value proposition is more important than ever within the hospitality industry. Price and location determine business growth for hotels. Value will be expected at every level of the industry.
Loyalty programs will play a part but they will not be the only determining factor in a hotel's success. Location will always outshine such programs. Location, location, location,… is one of the prime reasons behind customers' loyalty to certain hotels. Although loyalty programs have a place in the hotel industry, these initiatives are expensive for owners and come with difficult-to-contain costs.
Joyce outlines a few issues experienced by the current industry.
“From a rate side, we’ve got a market-mix problem. We’ve got way too many rooms occupied by people being driven through demand channels that are not driving rate for us. We’ve got to get corporate America comfortable paying (higher rates),” explains Steve Joyce, CEO of Choice Hotels International.
According to Joyce, an ever-increasing number of travelers are booking rooms with handheld devices. Younger travelers drive this trend. The younger set makes travel reservations at a moment's notice rather than booking in advance. Entrepreneurs recognize the need for market to this influential group. Generally, mature travelers prefer to plan trips ahead of time.
Although Olivier Poirot, CEO of Accor North America, points out customers' unpredictability. Defining the customer experience is a must for success. Accor’s Motel 6 brand will concentrate on price value.
Even in upscale hotels, value is a huge factor in fundamentals. Industry leaders see group business as the biggest booking challenge. Yet many elements have to be considered in the hospitality sector.
Transient corporate business holds tremendous potential. While it could take years to promote group rate, transient travel can make a difference in the present. Actually, transient business has been on the upswing in the last couple of years.
Record-high occupancy rates are a result of increased corporate trips. Even with the current high unemployment rates, lodging demand has reached new numbers. Companies might not be hiring new workers but employers are sending their employees on business trips.
Hotel owners want to see peak profits like in 2007. The hotel industry has the potential to achieve that goal. Yet to reach these levels, average daily rate (ADR) must move and costs should be contained at every level. Of course, choosing the correct target market is the key to reaching peak performance. Although 2014 and 2015 look promising for the U.S. hotel industry, technology cannot come between hotels and their customers.
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Trump SoHoTM, the 46-storey luxury hotel opened in April 2010, offers its guests a little more than other NYC hotels. Of course, this upscale hotel has an impressive outdoor pool with blue mosaic Italian tile and a spectacular waterfall. Yet its attractive pool is not the hotel's most distinctive feature.
Anyway, the view from the pool at the James New York is a more amazing vista. As well, other New York City hotels have outdoor pools either at present or in the works. Gansevoort Park Avenue is another splendid example of a hotel with an outdoor pool offering a view of the Empire State Building.
Trump SoHo™ has more two-bedroom penthouse suites than any other hotel in New York City. Recently,
|Image courtesy of condominiumcentral.net|
Trump SoHo™ announced 11 first-class oversized penthouses offering expansive views. Ten out the eleven elaborate penthouses offer gorgeous two-bedroom suites. Of course, each sensational suite will have its individual characteristics but the overall theme would reflect luxurious living.
The new top-of-the-line penthouses are bound to attract attention. The suites are supposed to stand out from others in Manhattan offering unique style in a city renowned for its luxury market. At present, New York City tourism is in a better position than the industry has seen since 2009. No doubt, tourists will check out the Trump SoHo™ and the other luxury NYC hotels in 2011.
In fact, all types of NYC hotels will be popular with tourists in the coming year. Although the Trump SoHo™ and the other opulent hotels offer impressive accommodations, not all tourists can handle the high rates. Yet the NYC hotel market has a hotel room to suit every budget and individual taste. Whether you plan a casual and informal stay with young children, an extravagant romantic weekend with your sweetheart, or a vital business meeting, there is a hotel waiting for you in New York City.
If you want to spend your time in New York City at the Trump SoHo™, you will have the pleasure of staying in the first luxury hotel in Downtown Manhattan. The sophisticated hotel has 391 elegant guestrooms with just 12 rooms on each floor. Trump SoHo™ offers superb views of the Manhattan skyline and the Hudson River. Two penthouses on the 43rd floor give guests a choice of view.
The southwest-facing suite provides a Hudson River sunset. The north-facing suite has a view of the Empire State Building. Guests can enjoy several indulgences such as first-class dining at Quattro Gastronomia Italiana, two levels of luxury spa services with The Spa at Trump®, and unsurpassed personal service with the Trump Attaché. Another unique feature of the Trump SoHo™ is that the hotel has the only authentic luxury Turkish hammams (Turkish baths). Two-bedroom penthouse suites begin at $2,800 per night.
In 2011, Manhattan hotel investments rebounded quickly and a similar trend is expected to happen in 2012. Although it must be noted that NYC hotel investment is more than the latest trend. The Big Apple has always been a consistent market for the hospitality industry. CBRE's Winter 2012 Snapshot on the NYC hotel market pointed to a dynamic and well-performing sector.
According to Bradley Burwell, senior associate, CBRE Hotels, fundamental lodging performance will maintain its strength. Even though over 4,100 guest rooms were added to Manhattan during 2011, occupancy rates remained the same at 84 percent. New York City can continue to absorb the new supply of extra units.
CBRE reports that limited-service as well as focused-service hotels flagged by popular brands have performed well in recent months. Limited-service hotels make up 20% of the inventory - compared to 17% of inventory in 2006. During the past few years, performance for limited-service hotels has outperformed full-service hotels with current occupancy showing an increase for full-service hotels. The Average Daily Rate (ADR) gap has fallen 5% (from 23% to 18%) between 2007 and 2011.
Additional CBRE findings include:
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