Archive for the ‘Hotel Industry’ Category

Rays Of Sunshine In The Storm

Monday, December 1st, 2008

The real estate industry as widely reported is in the middle of a major slump with commercial values now following residential on a downward path. However, I see rays of sunshine amidst the storm and believe there are sharp differences in areas of the country and property types. My conclusions at this point are:

  • Commercial real estate nation wide is falling and will continue to fall in value
  • Adjustments will be less severe than the residential sector, and recovery could begin earlier, driven by positive cash flows generated by most properties
  • The decline in the Washington area will be milder due to the stability and even potential growth of the federal government and services to government
  • The hotel sector will take the hardest short term hit due to more sudden drop in revenues and massive debt maturities in 2009 and 2010

As an economic forecaster, I have a great deal to be modest about. However, my observations are based on my 18 years as a board member including seven year as Co-Chairman of CB Richard Ellis, the world’s largest commercial real estate services company; eight years as President and CEO of Marriott Hotels and Resorts; and 17 years as founder and Cochairman of Thayer Lodging Group, a buyer, owner and operator of hotels.

Let me comment briefly on the Washington area and then hotels. On November 10, The Washington Post devoted its entire business section to commercial real estate, and you won’t do better than that for a comprehensive view of our area. In one interesting side to the story, Dana Hedgpeth reported that the bail out itself increased demand for office space and suggested that “between 2 million and 4 million square feet of office space could be gobbled up over the next three years as new regulatory agencies take shape and as lobby shapes, accounting firms, consultants, and asset managers position themselves to take advantage of government intervention efforts.” Even more revealing to me was an article by Tom Heath who talked to a number of Washington real estate investors who agreed the Washington area was less vulnerable.

So much for the sunshine – now back to the storm. In the same Washington Post article, I was quoted on the hotel industry: “Major hotel chains have reduced their projections for revenue per room and are predicting a decline in profits. If these projections are correct, there will likely be tighter financing standards that could lead to distressed selling.” The most salient measure of hotel performance is the revenue per available room (Revpar), and it was jolted by a 5.9% drop in September, as reported by Smith Travel Research. Starwood Hotels predicted a 10% Revpar decline across its portfolio for the fourth quarter of 2008, and a decline of 5% for 2009. Another industry consultant, PKF, predicts a 4.4% Revpar decline in 2009. These are dramatic and exceed the drop after September 11, 2001. On top of that there are an estimated $5.9 billion of debt maturities in CMBS structures alone in 2009, according to Tropp Management Services (TMS). Declining cash flows, higher financing standards, limited debt availability, and massive debt maturities do not mix well. Thus, while financially, strong owners will be able to inject more equity (which they should do), many owners do not have that ability. So, there will be distress sales and a sharply negative impact on values. Hotel REITs and management companies are already reflecting this distress with sharply lower stock prices.

So much for the storm, now back to a little sunshine. Past downturns have always been followed by sustained growth in hotels Revpar and profits. This occurred after the 1991-92 recession and after September 11, 2001. There is usually a year of drop, a year of stabilization, and then a number of years of growth. Indeed both PKF and TMS are predicting 2010, will show a modest Revpar increase. I personally believe 2010 will be flat, but due to lack of financing for new development/supply addition, the recovery will be robust starting in 2011.

Have you ever tried to movies?

Let me close with a personal experience that demonstrates how rays of sunshine can peak through and eventually prevail.

In 1999, my firm, Thayer Lodging Group acquired Washington’s largest hotel, the 1338 room Wardman Park Marriott. We completed a major refurbishing including redoing all guest rooms, adding and renovating meeting space, and much more. We now had the finest convention hotel in the area, and business began to take off, with 95 percent of it conventions or large corporate group meetings. Then came September 11, 2001, closing Reagan National airport and severely inhibiting travel to Washington. Every single major group cancelled. In November we were running 4 percent occupancy and losing a lot of money. But there was hope – a major convention planned in early to mid December had not cancelled, and it would bring much needed revenues. Then came the anthrax scare. The convention client happened to be the U.S. Postal Service, and it too cancelled.

We couldn’t cover operating costs let alone debt service. However, we jointly agreed with the hotel’s manager and minority owner, Marriott Corporation to put up additional funds to keep the business alive and out of foreclosure. Through 2002 and 2003 we gradually built the business back up, aided by outstanding performance by Marriott, and Thayer’s managing director, Carroll Warfield. The hotel had a record profit year in 2004, and we sold it in July 2005, resulting in a return of 2.4 times our investment. The message – in the middle of a storm, all is not lost. Persevere with determination and belief because eventually the storm will abate and the sun will shine again.

My Marriott Connection

Thursday, May 22nd, 2008

The Washington Post recently cited me in a story about people leaving Marriott to become executives elsewhere. Here’s what they said about me:

Fred Malek was president of the hotels division and now has his own hotel investment company.

I appreciate the mention, and it’s true — but it leaves out part of the picture. I haven’t totally left Marriott. The fact is, through my current work as Chairman of Thayer Lodging, I’m still in partnership with Marriott as we own five of their hotels. In fact some of our best investments and recent sales have been with Marriott, including the sales of the Orlando Grande Lakes resort with a Ritz Carlton and JW Marriott, as well as Washington’s largest hotel, the Marriott Wardman Park. Marriott’s a great company and I’m thrilled to remain a part of the family. In fact, as the Post pointed out in its profile of me, my philosophy on work is based on something Bill Marriott once said: “Success is never final.”

Going Green By Purifying Hotel Air

Monday, April 28th, 2008

Recently the Washington Post published an interesting article on Marriott’s efforts at going green with energy efficient approaches in the hotels managed by Marriott. In my view, this is effective and an important model for business in general. And, as a past President of Marriott Hotels, I know they will carry out this initiative in an effective and comprehensive manner.

The firm I now chair, Thayer Lodging Group, is also committed to energy efficiency and is taking this a step further and combining with health living. Our initiative is to purify the air in our guest rooms and meeting rooms with an air purification system that is designed:

  • By deep cleaning the coils inside P-tacs and air handling units on a more regular and efficient manner, less pressure is created against the coils which causes the units to run at peak efficiency. This, in itself causes the until to use less electricity. Studies have shown that a clean coil uses 18 to 25% less electricity then the “normal” use coils. The purifiers use up about 3% of that savings so the net is 15-22% savings.
  • Also, deep cleaning coils on a more regular basis will increase the life of the units as well. We are also gathering data that will confirm that the Pure Rooms have 90% less complaints from costumers concerning non-working HVAC units. The cost savings of recovering from that guest complaint is huge.
  • The process uses a micro-fiber encasement to protect humans from breathing in anything that’s inside the pillow or mattresses. The encasements are also moisture resistant so that the human body’s natural fluids, such as the pint of water that the body sweats out every night, will not find its way into the bedding. As well, the encasements keep all human skin cells and dander from the bedding. These contaminants are what causes the pillows to lose their fluff and the mattresses to flatten. We are gathering data now, but the manufacturers of the pillows and mattresses all agree that the life of these items will increase. If a pillow doubles its life when encased and an encased mattress lasts three years longer, imagine the number of these items that don’t go to the landfill.
  • Indoor air quality is also listed as a positive for the L.E.E.D. certification, which Pure will accomplish.

We are working on other “green” associated benefits but these are what we are emphasizing right now.

Hotel Industry Opportunities Abound

Tuesday, January 15th, 2008

Interesting article in today’s Washington Post business section about Robert Johnson raising $1.2 billion for his third private-equity fund that invests in the hotel industry.

The Post ran my thoughts on what’s happening these days in the hotel industry:

Fred Malek, co-chairman of Thayer Lodging, a private-equity fund that buys and manages hotels, said now is a good time for hotel deals.

“This should be an excellent time to acquire hotels because values are coming down somewhat, some owners do not have the financial capability to upgrade their hotels to meet consumer demands and brand standards, and thus, they will be forced to consider sale,” he said.

I was also thrilled to see my wife quoted in today’s Style section – the story about Debbie Dingell’s efforts to make Michigan a prominent political player in choosing our president.  Here’s what the article said:

“She’s very involved in Michigan,” says her Republican friend Marlene Malek, with whom Dingell holds an annual bipartisan, women-only lunch during the December holiday season. “She’s always there. She’s always doing something political and not political. She has a whole other life out there.”

By the way, if you’re curious about that lunch Marlene holds with Debbie Dingell, here’s a nice write-up that appeared in the Politico’s “Shenanigans” column last month:

Wonder women

All spotted sitting at the same table during lobbyist extraordinaire Debbie Dingell and D.C. socialite/philanthropist Marlene Malek’s all ladies lunch today at the Four Seasons, hosting 300 of D.C.’s high powered ladies: Romney spokeswoman Barbara Comstock, Fred Thompson advisor Mary Matalin, wife of Sam Donaldson, Jan Smith, Tammy Haddad of Haddad Media, former head of the RIAA Hilary Rosen, MSNBC host Norah O’Donnell, lawyer and wife of Howard Fineman Amy Nathan and “Meet the Press” executive producer Betsy Fischer. Topics of conversation? Not so much politics as…Hannah Montana tickets. Also in the room of wonder women? Lynda Carter.

2008: Forecasting The Hotel Industry And Private Equity Opportunities

Wednesday, January 2nd, 2008

The Washington Post business section has two stories I’m quoted in.

One is about the business side of hotels — a year-in-review and look ahead. Here’s an excerpt.

Now revenue per available room at Marriott and Host will probably grow 5 to 7 percent, according to the companies and analysts, as a weakening economy cools spending and growth. Marriott officials stress such gains would still beat inflation. …

“You will have an abatement of the really large increases, but you are still going to have increases, so that’s good,” said Fred Malek, the co-chairman of Thayer Lodging, which owns several Marriott hotels, including one in Annapolis.

The other article is about private equity and the credit crunch:

“The days of easy money — buying something with a lot of leverage and flipping it in 18 months — are over,” said Frederick Malek, founder of Thayer Capital, a private-equity firm in the District.

There is still good money to be made in private equity through purchases at more prudent values, more conservative leverage, and building market share and profits over time. This is the old fashioned way that we have always embraced and is bases on the time proven premise that if you can improve a company’s performance, you can earn a good return.

Both articles are worth the whole read.  And here’s the photo the Post ran:

Fred Malek Thayer Washington Post

Yes, Fred Malek Does Blog

Friday, October 19th, 2007

 

Earlier this week I wrote about the greening of the hotel industry, based on a Washington Post article on the makeover of The Bethesda Doubletree, the hotel owned by my company, Thayer Lodging Group.

That blog post earned a nice mention by Anne Schroeder of the Politico, who writes their Shenanigans column. Here’s what Anne wrote yesterday:

Fred Malek Blogs?

The man who has done everything under the sun in Washington — though possibly best known for his philanthropy, his leading role in returning baseball to D.C. and his advising top Republican officials and presidents — has gotten all Gen X-y on us, admitting Al Gore got to his staunch Republicanism.

And his views on air, too.

“Did Al Gore get to me? Sure — it proves even Democrats can get it right sometimes; and in my view, Mr. Gore earned his Nobel for drawing attention not only to global warming but to the environment overall,” Fred Malek writes about his new goal of hopefully becoming the leader of going green within the hotel industry.

“Ever get sleepy in the afternoons? Wonder why? Maybe it’s more than the big lunch. Maybe it has something to do with the air you breathe. We are convinced that we can differentiate our product and improve preference for our hotels through these measures. Green means more than improving the environment — it can also create more green on the bottom line,” he writes.

Agrees a D.C insider: “Fresh air is something this town sorely needs.”

 

It was a gracious and fun item in Anne’s column. But more important than my blogging, I hope it sparks greater discussion about how going green can help consumers and businesses alike.