Hotels For Sale in NYC - OFF MARKET Hotel Properties For Sale in New York

Although specific sectors in the U.S. hotel industry might have no funding or sufficient demand to justify further development, New York City has a record-performing tourism market with room for more growth. Manhattan is experiencing a building boom but a certain city block – Herald Square - is moving beyond the norm to an even higher level of success. Developers are interested in this Midtown block because the construction logistics are right for demolition and redevelopment.

Best Western Plus New York City Herald Square

Best Western developers, LeTap (hotel investment, management, and development firm) recognized a superb setting in the Herald Square market. This prime location has an unparalleled view of the Empire State Building. Views to the East are unobstructed and the hotel is at least four to five stories above the structures to the south on 35th St. As well, Bryant Park and Times Square are close to the building.

“We wanted to be close to Herald Square, and this is one of the only spots in the area with low-rise buildings, which are easy to demolish and rebuild ground-up,” explains Jaz Patel, President of LeTap.

Patel did not reveal the plot's sale price. Yet despite the present competitive investment climate, Patel admitted to a quick on-the-spot deal with the owner. After purchasing the plot, LeTap* bought out the building's four retail tenants. LeTap made a significant investment in this hot hotel market – but in the largest concentration of guest rooms under construction on one block.

Other lodging establishments including The Strand NYC, Hampton Inn Empire State Building, the Morgans Hotel, and Setai Fifth Avenue, as well as a Comfort Inn on 35th St., can be viewed from the Best Western’s rooftop garden. Although Patel must ponder the possibilities of returns, there is little need for concern. Recently, the neighboring Hyatt Place sold for almost $77 million.

The 17-storey, 94-room Best Western, will feature five rooms on Floors 16 and 17. Other floors will have six guest rooms. The NYC standard guest accommodations offer 200 to 220 square feet per room at a midscale but competitive rate (about $225).

Patel notes, “Our target guests are going to be leisure; even in Long Island City, our guest base is probably 70 to 80 percent leisure.”

Although space is at a premium, the common area will have a bar and lounge with flat-screens TVs on the ground level and doors leading to an outdoor patio. The basement level will host breakfast, business, and fitness areas. The building features the dramatic contrast of glass in the front looking through to brick in the back.

“Best Western was the first, and really only, brand we considered. Given the cost of their membership fees, there’s really no better deal to develop in Manhattan from a franchise perspective.” ~ Jaz Patel

*As well as having a presence in Midtown, LeTap operates a Best Western property across the East River in Long Island City, Queens.

NYC Hotels Under Construction - Recent News

• Between 5^th and 6^thAvenues on West 36^th Street - four hotels under development
• Holiday Inn Express and Hyatt Place under construction on 36^th
• Executive Resorts and Hotels, a Canadian hotel management and franchise company, bought four 1,500 square feet (approx.) low-rise buildings at 38-44 West 36th Street.
• January 2012 - Sam Chang and the McSam Hotel Group went under contract to sell a pending 185-room hotel at 52 West 36th Street to Chesapeake Lodging Trust for $76.5 million. The deal is expected to close in the third quarter with the completion of the 25-story Hyatt Place (the brand’s first foray into Manhattan).

Although hotel development and increasing rates will stabilize at some point, this booming Manhattan market shows no sign of any slowdowns in the foreseeable future.

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Without a doubt, existing Manhattan hotels are magnificent properties. Yet current developers have put the push on to build NYC hotels rather than purchase real estate. Actually, the present demand from publicly traded investors for New York City hotels has made it more practical to develop an establishment rather than buy a building.

NYC Hotel Development

Due to funding difficulties, hotel developers steered clear of Manhattan and other NYC neighborhoods during the recession. Since the record increase in commercial property prices (highest since 2006), developers are returning to NYC boroughs. Except for Shanghai and Dubai, the Big Apple boasts the most guest rooms in the pipeline (25-2008, 27-2009, 34-2010, 22-2011, 23-2012, 9 in 2013, 68 in 2014 and beyond).

Bruce Ford, senior vice president of sales at Portsmouth, New Hampshire's Lodging Econometrics explains, "Right now, it can be cheaper to build than to buy in New York."

Select Service

In fact, 50 NYC hotels are slated to open between autumn 2011 and 2013. Pending developments include a diverse mix of lodging properties. According to Ford, a wide variety of "select-service type of hotels" is planned for New York City. At least half of the hotels slated to open between 2012 and 2013 will be in the economy, mid-scale, and upper-scale sector. Examples include a Holiday Inn on West 31st Street, Hampton Inn on Pearl Street in lower Manhattan, and a Days Inn in the Times Square area.

The year after next looks most favorable for many U.S. developers. Yet 2012 hotel construction should prove to be just as conducive to hotel development as any of the other promising years ahead for NYC lodging. Sixty-eight additional properties are expected to be completed by 2014 and shortly thereafter in the New York hospitality sector.

According to hotel consultants, Lodging Econometrics, such figures represent three times the number of hotel openings in Washington – the city with the second most construction activity in the US. New York takes the number one spot. Indeed, the NYC hotel market leads the cycle in the hospitality industry.

David Loeb, a hotel analyst at Milwaukee-based Robert W. Baird & Co, explains the appeal of NYC properties, “Manhattan is an under-supplied market because it’s a seven-day market. In one week in early October, New York hotels were 91.7 percent occupied. Very few other markets come close to that."

Manhattan Hotels

According to Real Capital Analytics Inc….

• January 1 – September 30, 2011 - average sale price per room - $505,157*

Between May and August 2011, 14 New York hotels sold for an asking price of more than $400,000 per room. The specific hotels include the Radisson Lexington Hotel, Four Points by Sheraton Midtown-Times Square, Affinia Gardens, and the Yotel. One highest price involved the sale by Morgans Hotel Group of the Royalton New York to Irving, Texas-based Felcor Lodging Trust Inc. (FCH) for $84.6 million ($500,447 per room.) According to a PricewaterhouseCoopers study, Affinia Manhattan's rooms sold for $560,685. Affinia Gardens with its residential-style suites could be purchased for $910,866 a room.

• January 1 – December 31, 2010 – average sale price per room – $344,799
• January 1 – December 31, 2009 – average sale price per room - $413,644
• 2006 peak – average sale price per room - $632,894
• Present – companies such as DiamondRock Hospitality Co. (DRH) & Hidrock Realty Inc.–developing hotels-$300-$450,000 a room

* Real Capital concludes that real estate investment trusts are driving the rise in prices for existing hotels. Purchases of lodging properties in Manhattan came in at $1.14 billion (38% of total traded in NYC) between January 1 and September 30, 2011.

Scharger's Story – NYC Hotel Construction

New hotel development in New York City requires the emptying and redevelopment of office buildings as well as demolishing present structures. Ian Schrager who pioneered of the boutique hotel concept has agreed to purchase a NYC development site. As well, Schrager's company is close to finalizing another Manhattan hotel deal. Although the developer has not released project details or proposed prices, Schrager has a plan to develop trendy but affordable lodging in major destinations. The $400,000-$500,000 per room prices make it easier to build a NYC hotel rather than buy an existing property.

Hotel Developers

DiamondRock Hospitality Co.

On January 18, Diamond Rock announced their plan to buy a hotel under development in the Times Square region by the combined efforts of Walton Street and Highgate Holdings. The sale price would be between $112.5 million and $135 million (almost $450,000 per room) – depending on the final guest room count. The planned hotel will open in 2013.

Starwood Capital Group LLC

Founded by Barry Sternlicht, Starwood Capital Group in partnership with Tribeca Associates LLC made a March announcement about their takeover of a development contract from Orient-Express Hotels Ltd. (OEH) for the New York Public Library’s Donnell branch on West 53rd Street. According to a March 16 article in Crain's New York Business, the purchasers expect to spend $400 million on the site (including condominiums, hotel rooms, and a library). The Greenwich, Connecticut-based Starwood did not comment on the cost of the project.

Extell Development Co.

In November 2010, Gary Barnett’s Extell Development Co. announced their intentions to build a 210-room, 135-condominium Park Hyatt Hotel on West 57th Street. This hotel should open in 2012. Extell has not revealed the cost of its development.

Marriott International Inc.

During August, the Maryland-based Marriott International, the largest publicly traded U.S. hotel company, joined with Granite Broadway Development for a 68-story Manhattan project at Broadway and 54th Street. The property will include two hotels (Courtyard and Residence Inn) planned to open in late 2013. The establishments are scheduled to open in late 2013. Marriott did not confirm the cost of the project.

Hidrock Realty Inc.

The New York Hidrock has two projects in the works. The company is redeveloping a former office building at 960 Sixth Ave. in Manhattan’s Fashion District. The final result will be a Courtyard for almost $300,000 a room. According to Hidrock president, Abraham Hidary, the $72 million purchase price includes a bank branch on the bottom floor. In addition, Hidrock has joined with Robert Finvarb Cos. to build SpringHill Suites on West 57th Street at a cost of $53.1 million ($320,000 a room).

NYC Hotel Occupancy Rates

New York City hotels had an 80% occupancy rate from January-August 2011. Besides Oahu, Hawaii, New York City had the second highest occupancy rates in the top 25 markets. Yet the array of new developments, as well as a slowdown in economic growth, could begin to affect occupancies and room rates. After all, the U.S. unemployment rate has been 9% or more in ten months of the past year. On September 27, Joel Ross, principal at Citadel Realty Advisors, investment banking and real estate financing firm, predicted that a decrease in bookings should show up next year. Corporate travel is expected to fall in 2012 as companies hold meetings at their own facilities rather than in hotels.

Slowing Economy

Bloomberg Industries data suggests that global financial firms will cut over 120,000 jobs this year. In addition, the Bank of America Corp. (BAC), the second largest U.S. lender by assets, is undertaking an overall review aimed at decreasing annual costs by $5 billion before the end of 2013. BAC expects to end 30,000 positions in the coming years.

Declining RevPAR

The new supply in the NYC hotel sector will mean a 1%-2% decrease during 2012 in revenue per available room (RevPAR - an industry measure of occupancy and rate). Jan Freitag, vice president at Smith Travel, is expecting a 5.5% rise in RevPAR by the end of 2011. Without a doubt, almost all planned Manhattan hotels will meet with success. New York City is an established and profitable market. The increased supply, however, will have a significant effect on RevPAR growth in 2012.

Building Manhattan Hotels Beats Buying as Development to Surge

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The current New York City hotel construction scene bears no resemblance to the state of the industry during the recession. Various investors (management firms, private equity companies, hedge funds) are gaining ground in the NYC hospitality sector during 2011. New York City hotel investment is no longer just for a few primary real estate investment trusts.

Hotels in the Big Apple are been built at an unsurpassed pace. Indeed, over 50% of the hotels planned for this year have already opened in New York City. Several openings were delayed but still managed to be ready in either spring, summer, or early autumn. Additional hotel construction will continue in late 2011 and into the New Year.

NYC Hotels – Open for Business – 2011

Early 2011

• Mondrian New York

The magnificent Mondrian New York opened on February 2011.

Spring 2011

• Four Points

The Four Points by Sheraton Long Island/Queensboro Bridge was expected to open on March 3. Although not a surprise for a Starwood hotel, the hotel opened later on April 28.

Summer 2011

• Aloft Brooklyn

Aloft Brooklyn's opening was delayed first from March 31 to April 31. The actual opening date was June 9.

• Dream Downtown

Dream Downtown was supposed to open on Memorial Day. The hotel's opening was June 13.

• Sanctuary Hotel

The ever-changing Portland Square Hotel – Sanctuary Hotel – reopened (for the most part) towards the end of June.

• Nolitan

Like Hotel Americano, the Nolitan opening came after many delays. The Nolitan at 30 Kenmare Street opened in July after being postponed nine times.

• Flatiron Hotel

Located at 1141 Broadway, Robert "Toshi" Chan's Flatiron Hotel opened towards the end of August. Chan and creditor Long Island Bank had been discussing this deal for a while before the opening.

• Hyatt 48 Lex

The Hyatt 48 Lex was really expected to open in April but the actual date turned out to be August 29.

Autumn 2011

• Hotel Americano

Situated at 518 West 27^th Street, the Hotel Americano designed by Enrique Norton opened in September – following several delays. Originally, a spring opening had been planned for this Chelsea property.

Late 2011 Openings and Possibilities

• Conrad New York at 102 North End and Vesey Streets
• Hyatt Union Square at 13th Street and Park Avenue
• The Out NYC ~ nightclubs in late 2011 but guest room delays
• TRYP by Wyndham
• Graves Charney ~ original opening planned for 2010
• Graves Williamsburg Hotel and Residences

Early 2012

• NoMad Hotel at 1170 Broadway
• The Hilton planned for John F. Kennedy International Airport has also been pushed back to February 2012.

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Numerous investors pursue boutique hotels – especially in major centers like New York City. Investors understand that the concept of buying into a NYC hotel is on the mind of shrewd entrepreneurs everywhere. Actually, hotel owners under major brands are also examining the 'concept of buying' as it applies to their guests.

Hotel Shop

The 'hotel shop' is becoming a place where establishments can express their uniqueness. Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University, says that hotels can express individuality through their shops. Hotel owners prefer unique merchandise.

During the previous decade, the hospitality industry had tried the same plan to promote their restaurants. Originally, the shops in hotel lobbies were designed to address practical needs. The outlets offered sundries, candy bars, and souvenirs. The hotel shop was an uninspiring fixture in lodging properties.

Concept of Buying

Yet today's hotel owners are rethinking the shopping services provided for their guests. Every hotel wants to distinguish themselves from the rest of the hospitality sector down the street or across town. Hotel owners are upgrading their shops and expanding their merchandise to include items found in gift shops, fashion outlets, emporiums, and even art galleries.

Hotel Brands

Hotel brands (including several properties operated by the Morgan Hotel Group) are rethinking the concept of the shop itself. Hotels hope to attract leisure and corporate guests as well as local residents to their stores. Indeed, large chains (such as Marriott and Westin in which the average stay is five days) have successful shops focusing on quality clothing and local products.

Hotel Markets

Individual hotels in a variety of markets are adopting their own initiatives. In fact, small boutique chains and high-end independent properties have already been embracing innovation. Although hotels still stock standard items (such as bathrobes and sheets), many brands have developed additional customized goods.

W Hotels

W Hotels in certain cities around the world offer cocktail dresses, earrings, and bracelets in their own hotel brand. W clothing collections were first introduced a couple of years ago at New York Fashion Week. W Hotels has stores in 18 of its 41 properties on the global scene. This chain is credited with originating the idea of the high-concept hotel shop.

In 2002, the W New York shop started the trend by offering high quality clothing, amazing accessories, and superb candles in the store instead of standard choices. Eva Ziegler, W Hotel’s global brand leader, says that the main goal of the collections is to provide the ultimate experience for guests. Profit is not the prime concern but Ziegler adds that the stores enjoy financial success.

Hospitality and Retail

Hotels are beginning to realize that the retail and hospitality industries can work together - although each sector has its own requirements. Properties can form partnerships with retailers or lease space to outlets. Local retailers welcome the chance to open a version of their main stores within a hotel shop. Since occupancy rates are expected to increase, hospitality insiders predict a bright future for upscale hotel shops.

High-end outlets add to a hotel's appeal. Chekitan Dev, an associate professor of strategic marketing and brand management at the School of Hotel Administration at Cornell University, has nothing but positive things to say about attractive and efficient hotel shops that meet guests' needs. Successful hotel shops mean that satisfied customers will spend more time and money within the property.

If hotel owners find a perfect balance and popular vendor, they will improve the general experience for guests and add to their own profits. Owners must choose which type of venture (shop, restaurant, or bar) makes more financial sense. Depending on the specific hotel and its location, owners can charge vendors anywhere between $50 and $1000 per square foot. Properties might also be able to share in the sales revenue.

Generally, sales in hotel stores are spontaneous purchases. The best selling items fall in the price range of $10-$50. Guests buy everything from toothbrushes and candy to customized clothing. Although major items are available in hotel stores (such as the $1,000,000 apartment at the Mondrian South Beach vending machine), guest prefer smaller products that fit into carry-on bags.

Morgans Hotel Group

A spokesperson for the Morgans Hotel Group says that their chain likes to vary the products at their stores in different cities. As well, like most hotels, the Morgans Group gears its inventory to reflect the location and its clientele.

New York's Standard Hotel

New York's Standard Hotel invites artists to create installations for sale in the establishment's shop. In addition, the hotel offered limited-edition prints and posters for purchase as well as playing cards based on the artists' work. Of course, the Standard Hotel does not forget the staples of hotel shops such as magazines, jewelery, and fragrances.

Mondrian Soho

The Mondrian Soho in New York has introduced an exciting project to create shopping outlets in minimal space. Hotel guests can use an in-room iPad and buy items (Rogan sweaters and shirts,…) from the mini-bar. Purchases are ready within ten minutes.

Hospitality Boutiques

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New York City attracts a multitude of tourists on an annual basis. The city, as well as the hospitality industry, does an effective job of marketing the metropolis and its guest rooms. With a perfect location, popular brands, and prominent owners working in its favor, the NYC hotel sector is a thriving concern.

In fact, everyone can take advantage of this exciting hospitality scene. Whatever their budget, no tourist needs to cross the Big Apple off their list. Travel packages and affordable hotel prices are available for this global center.

Tips for Terrific Travel and Hotel Deals

• Book early to find fabulous and affordable accommodations in New York City.
• Make reservations now for spring breaks.
• If you are still undecided, at least book early in the New Year (preferably January) for that April trip.
• Comfortable lodging properties can be found everywhere in New York City.
• Keep checking for the best hotel deals.
• If you need to change your plans, many NYC hotels will allow cancelations without penalty.
• Travelers can always rebook if they discover a fallen price.
• Several hotels offer discounts for non-refundable bookings.
• Priceline and Hotwire offer discounts but do not release the hotel name until after a non-refundable booking.
• BetterBidding.com has excellent advice for first-timers. This site shows recently accepted bids.
• Take advantage of travel packages.
• Almost all U.S. carriers offer cheaper flight prices for earlier bookings.
• Specific airlines might offer only one class of seat but very inexpensive rates for early bookings.
• Major airlines let passengers cancel and rebook tickets purchased online within 24 hours without penalty.
• Plan flights before or after peak days and pay cheaper rates.
• Fly on a holiday. Actually, Thanksgiving or Christmas morning or early New Year's Day are slow traffic times.
• Flying non-stop costs more than a trip with at least one touchdown.
• Allow plenty of time for connecting flights.
• Choose the cheapest flight for both ways – even if that means picking two different airlines.
• Do a through check of online prices. Different travel websites might have better deals.
• Hotel and rental car companies can offer deals for certain groups or employees.
• It is possible to get a NYC air/hotel package sale for 4 nights at 3-5 star Manhattan hotels for $675.*
• *Between now and the end of 2011 depending on specific hotels and departure locations
• Visitors to New York City can arrive via LaGuardia, JFK, or Newark Airports.
• Several popular airlines fly into airports serving the Big Apple.
• The NYC hospitality industry offers all kinds of incentives – from free breakfasts to 10% discounts to free room upgrades.
• New York City hotels offer value for money complete with superb surroundings and helpful staff.

NYC Hotels

Check out Hotel 99 - the newest budget boutique 'extended stay' hotel in New York's Upper West Side. This Broadway hotel offers comfortable accommodations at discount rates. Hotel 99 is situated near well-known NYC sites such as Central Park, Lincoln Center, and the Metropolitan Opera.

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Successful companies have to make the right decision. They must take the most profitable direction – whether that means buying, selling, or holding property. Recently, there is much discussion about if REITs are overpaying for real estate. According to reports from the latest NYU Hospitality Conference (June 5-June 7, 2011), private equity is pursuing different deals than REITs.

Private Equity

Historically, REITs focus on more stable properties. Of course, private equity can take risks and buy properties in need of repositioning.

Not just one – but two – Marriott brands are coming to a Manhattan tower – in a big way. In fact, the joint venture operating under a franchise agreement between Granite Broadway Development and Marriott International will be one of New York City's largest hotel ventures. Two new Manhattan developments – the 378-room Courtyard and 261-room Residence Inn Hotels – are expected to open towards the end of 2013.

New NYC Developments

The properties will be managed by Interstate Hotels and Resorts. Besides the two hotels, a 68-storey high-rise at Broadway and 54th Street will feature a restaurant and ground-floor shops. This massive project has been in the works for the last ten years.

Tallest NYC Lodging Property

John Fox, a senior vice president of PKF Consulting USA, has described the venture as "the largest new hotel project in New York since the 2002 opening of the 863-room Westin New York at Times Square." Of course, New York City is no stranger to huge hotel developments. In 2010, a 607-room Intercontinental hotel opened at 300 West 44th Street.

Granite Broadway Development and Marriott announced that the new building will be the tallest NYC property used strictly for lodging. PKF official, John Fox, backs up their claim. Fox explained that the new Marriott building at a height of about 753 feet is taller than the 682-feet Four Seasons Hotel on the north side of 57th Street between Madison and Park Avenues.

Courtyard and Residence Inn

Designed by Nobutaka Ashihara, the tower will have a main entrance on West 54th Street. The lobby for the Residence Inn will be on the building’s third floor. The Courtyard lobby will be located on the fourth floor. Courtyard guest rooms occupy floors 6-32. Residence Inn rooms take up floors 36-64.

Each hotel will have its own elevator banks. The project will include ground-floor retail space, a leased restaurant on the second floor, lounge and terrace with outdoor seating and Broadway views on the fifth floor, and a fitness center (available to guests of both hotels) on the 34th floor.

With its focus on corporate guests, The Courtyard will feature a contemporary design, flexible space, and a GoBoard - a 55-inch interactive touch screen providing guests with local information and news headlines. The Residence Inn, an extended-stay hotel, has guest suites with kitchens. Sitting above the Courtyard, Residence Inn will offer the development's best views of New York City and Central Park. No doubt, the entire project is well-positioned with its location and height.

Manhattan Hotels

Even though New York City is thriving with various hotel developments, the Marriott/Granite project is expected to flourish in Manhattan. Demand for NYC hotel rooms will continue to gain strength. By 2013, room rates are expected to regain their 2008 peak. Bjorn Hanson, the divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University, notes that the two Marriott hotels could reduce their annual operating expenses over 5% by sharing building facilities such as the fitness center as well as management and administrative staff and departments (housekeeping, marketing).

Marriott International

Marriott International owns 33 properties (including furnished apartments) under nine brands in Manhattan, Brooklyn, and Queens. The company manages about half of its hotels and the others are under franchise agreements. David Marriott (chief operations officer for the company’s eastern region - the Americas) says that New York is Marriott’s second-largest revenue generator in the United States. The New York Marriott Marquis is the company’s top revenue generator worldwide.

Granite Broadway Development

Granite Broadway Development, owned by the Gross family, have five Marriott hotels (one in Philadelphia, as well as Ghent, Belgium, and three in New York - the Courtyard New York JFK Airport, the Courtyard New York Manhattan/Times Square South, and the Residence Inn Manhattan/Times Square).

Two Marriott Brands Are to Share Space in Manhattan Tower

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NYC Hotels Exceeding Expectations

U.S. hotel owners are seeing an increase in corporate travel while the number of leisure guests is not breaking any records. Generally, room rates and occupancy levels are on the rise. Yet not every hotelier across the country is raking in massive profits.

High-Profile Hotels

Of course, various high-profile hotel companies (Marriot, Hyatt) are showing improvement. Other hotel owners, however, have faced bankruptcy or foreclosure in recent years. New York City hotels are seen as a smart investment in an established market.

Altman Z-Score

If entrepreneurs want to determine a company's risk for bankruptcy, they can use the Altman Z-Score (a formula developed by New York University professor Edward Altman in 1968). The Altman Z-Score measures varied aspects of a company's financial health - working capital, total assets, total liabilities, market capitalization, sales, retained earnings, and earnings before interest & taxes (EBIT). This measure can predict if the company will go bankrupt within two years. According to Investopedia, the Altman Z-Score has been 72% accurate in its predictions.

Usually, companies with a Z-Score above 3 are considered safe and have little risk of bankruptcy. Businesses with a score of 1.81 or lower are seen as distressed properties in danger of bankruptcy. The middle range is a gray area.

Of course, the Altman Z-Score is not the only indication of a company's financial state. The Z-Score does not come with any guarantee. Yet potential buyers have reason to be concerned about hotels below the safety zone or properties with a year-after-year declining score.

Starwood Hotels

Starwood Hotels, a dynamic presence in the NYC hospitality industry, as well as elsewhere, stayed at a reading of 1.84 in the trailing 12 months. This measure puts Starwood Hotels within the gray area and not at risk for bankruptcy. Starwood operates hotels under several brands such as the St. Regis, W, Westin, Le Meridien, Sheraton, and Four Points.

On July 28, Starwood will release its financial results for the second quarter of 2011. Several analysts expect Starwood to announce a profit of $89.6 million (46 cents per share) on revenue of $1.41 billion. This profit would compare with last year's earnings of $114 million (61 cents per diluted share) on revenue of $1.29 billion. During April, Starwood announced that quarterly revenue exceeded expectations and increased by 9.2% to $1.3 billion. Luxury travel was behind the rise in profits.

Despite turmoil in North Africa and the Middle East and the earthquake in Japan, worldwide RevPAR (revenue per available room) rose 10.4 per cent. Within North America, the increase amounted to 11.1 per cent. RevPAR, a key metric in the hotel sector, multiplies an establishment's room rate by its occupancy rate. Within recent years, RevPAR has been lower as travelers decided against high-priced hotel rooms – even in luxury properties.

Starwood offered a better full-year profit guidance ($1.60 to $1.70 per share). Analysts had predicted these profits. Starwood CEO says that the outlook for the rest of 2011 looks promising for the company.

Wyndham Worldwide (WYNR)

With a Z-Score of 1.15, Wyndham ranked just inside the risky area. Yet Wyndham shows improvement from last year. Wyndham operates several hotel brands including Wyndham (such as Wyndham Garden Times Square South Hotel), Ramada, Days Inn, Super 8, Howard Johnson and Microtel, as well as other properties. On July 27, Wyndham will release its 2011 second-quarter results.

Industry analysts expect a profit of $95.4 million (56 cents per share) on revenue of $1.05 billion. Last year, the company's earnings came in at $95 million (51 cents per share) on revenue of $963 million. Recently, Wyndham saw a 44% increase in net earnings due to increased revenue in all business categories.

As of March 31, 2011 (the end of this year's fiscal quarter), Wyndham earned $72 million (41 cents per share). Excluding charges, its profit was 44 cents per share. This figure topped expectations by 4 cents. Revenue increased 7% to $952 million – almost $18 million shy of analysts' predictions. Wyndham's lodging showed a RevPAR rise of 7.4%.

Bankruptcy Watch: 9 Risky Hotel Stocks

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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.

Recovery Mode

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.

Ashford

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.

Full-Service Hotels

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.

Value Proposition

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.

Location…Location…Location

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.

Young Travelers

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.

Hotel Fundamentals

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.

Corporate Guests

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.

Lodging Demand

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.

Peak Profits

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.

Panel: Cost cuts were fruitful; don’t let them spoil

Image courtesy of alisemsreg.com

Although the recent recession slowed down travelers, they have returned to U.S. hotels during the current recovery period. Continuing from the trends in the first months of 2010, occupancy gains outperform room rates. The June 2011 Hotel Horizons® report by PKF Hospitality Research (PKF-HR) predicts that demand for U.S. hotel rooms will rise at least 4.9% in the present year.

Average Daily Room Rate

This increase compares to a smaller gain of 2.4% in average daily room rate (ADR). PKF is impressed with the current state of the American hospitality industry. After all, a high rate of unemployment, as well as housing issues, continues to be a challenge for many consumers.

Recovering Market

Yet the U.S. lodging industry is looking strong in this recovering marketplace. The PKF forecast for the 2011 increase (4.9%) in occupied rooms and the STR (Smith Travel Research) 2010 reported rise (7.6%) in lodging demand indicate strong growth, In fact, such increases are far more than the STR long-term average annual demand growth rate (1.5%).

Of course, room rates have not kept pace with lodging demand. ADR growth spells profit for hotel owners and operators. Yet considering the continued demand, room rates might be in for a rise.

Competitive market conditions, however, might temper such increases. PKF predicts that only 12 of the largest U.S. hospitality markets will have above-average occupancy rates during the current year. By 2013, most U.S. markets will achieve more than their long-run average rate.

Accelerated Growth

When local markets achieve this long-term average, rate growth will pick up its pace. Indeed, PKF-HR forecasts that room rates will rise 5.5% during 2012 and an additional 5.8% in 2013.

During the initial stages of an economic recovery, hotels are faced with a huge rise in the variable costs associated with an increase in occupancy. As well, the lack of pressure on salaries and wages add up to more labor costs for U.S. hotels. For every dollar spent on operate an American hotel, 46.6% goes to labor expenses.

With this present recovery, labor-related costs are dropping on a dollar-per-occupied-room basis. As a result, the reality is labor cost containment and employee productivity. When hotel managers control labor growth, they can handle any hotel revenue growth issues. According to R. Mark Woodworth, president of PKF-HR, hotels can achieve gains on the "bottom-line."

PKF-HR Hotel Horizons®

The PKF-HR Hotel Horizons® econometric predictions are based on Moody’s Analytics (Moody’s). PKF has adjusted its forecasts to reflect Moody's cautious mood about 2011. PKF-HR, however, is forecasting an 11.7% rise in unit-level net operating income during 2011. An even larger increase (17.9%) is predicted in 2012. Room rates will spur on RevPAR.

Initially, the recovery in the hospitality industry was limited to upscale properties. During 2010, RevPAR grew the most in luxury hotels. Yet in 2011, the recovery should extend to all sectors of the U.S. hospitality industry. Upscale hotels, however, will still experience the highest RevPAR rise at 10% during this current year.

US Hotel Demand Powers Ahead