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It seems fitting that my first post of 2014 would come from the year's first major industry conference - the Americas Lodging Investment Summit (ALIS) held each January in Los Angeles. As expected, this year's Summit set near record attendance (nearly 2,600 registered attendees) and its attendees were brimming with confidence.

For me, however, the highlight of this year's Summit occurred on Monday a few blocks away.  On Monday afternoon, Thayer Ventures hosted its third annual meeting focusing on innovation (and investing in innovation) in the travel industry.  This year's meeting included a presentation by Skift CEO and founder, Rafat Ali, a panel discussion by the CEOs of each of Thayer's portfolio companies, and a final presentation by three well-known investors in the travel technology space.

Of the three presentations, Rafat Ali's was the most noteworthy. Rafat provided his predictions for the travel industry in 2014, including Rafat's top travel trends:

1.  The Rise of the (Digitally Empowered) Silent Traveler

2.  Curation

3.  Visuals - the New Language in Travel

4.  The Rise of Locality

5.  The Rise of the Chinese Independent Traveler

6.  Low Cost Carriers Eat the World

7.  The Rise of the Sharing Economy

8.  Substandard Travel Start-ups

9.  Mobile Is Not a Trend - It Is Everywhere

If you are not a regular reader of Rafat's many websites, blogs or tweets, I strongly encourage you to become one.

The discussion among Thayer's fund companies that followed Rafat's presentation, included the CEOs from Adara Media, Duetto, Hipmunk, HotelMe, Posiq, tripBAM, and others, and focused on many of the trends identified by Rafat as well as distribution, the underserved (and often ignored) business travel market, millennials' demand for personalization, and each participant's thoughts on what it takes to truly become a "disrupter" within the travel industry. Nearly all of the participants had strong feelings about all or nearly all of the panel's topics.

Thayer's own Jeff Jackson moderated the final presentation by representatives of Gideon Hixon Fund, Altimeter Capital and the Priceline Group.  Among their many observations, they each acknowledged seeing unprecedented numbers of new start-ups in the travel and technology industry.

Returning to the Summit on Monday evening and overhearing the many lobby conversations about interest rates, discount rates, and other real property investment metrics and attributes, I was reminded of the growing chasm between those who own and operate hotels and those who are using technology to reach, communicate with, and anticipate the needs of, those who stay in those same hotels.  More on my observations on this issue in future blog posts.

The Hospitality Group hosted events in Seattle and Portland March 11 and 12, to discuss the comeback of hotel and hospitality-related development.  More than 140 attendees ranging from construction industry representatives to flag representatives and investment bankers participated in the discussions.  One panel about Construction and Transactional Development highlighted the return of bricks and mortar to the hospitality conversation. 

In both cities, there are grounds for optimism in 2013 given the plans for new rooms - 3,000 in Seattle and 1,000 in Portland.  Also, speakers noted that there is unfulfilled demand for hotels like the InterContinental Hotel Group product in downtown Portland.  In addition, creative construction ideas are afoot in the hospitality sector.  While new builds may occur in Portland, areas like Seattle, San Francisco, and Los Angeles are making headway with adaptive re-use.  For example, in Los Angeles, vacant office buildings are available and developers are finding these buildings can be converted into hotels in a cost effective manner.  This kind of redevelopment in neighborhoods close to tourist amenities represents an exciting economic development opportunity in areas that no longer successfully serve office uses.

Garvey Schubert’s Julia Holden-Davis warned about some of the contract risks associated with hospitality related construction and present market conditions:

  • Given labor and material demands, adequately screening potential contractors and subcontractors for both technical and financial competence is key;
  • Financial terms and active oversight are important to ensure that lower tiers are paid. 
  • Risk transference clauses are only as good as the other party’s financial ability to address those risks.  Because of this, considering appropriate insurance and bonding requirements can be important for the long term success of a project, and the comparative up front cost to the potential risk can be minimal.
  • The risk of hidden conditions should be considered, especially when it comes to adaptive re-use.  These hidden conditions can significantly change design parameters, increase construction costs, and delay completion of the work.  Early analysis, as well as risk-shifting provisions, can be key factors in addressing these concerns. 
  • The extent of renovation or alteration work can also lead to additional requirements under ADA, local permitting ordinances, and building codes.  It is important to understand these implications, plan appropriately, and comply with the applicable requirements. 

When you are ready to move forward with a development, it is important to draft your contracts with particularity about which party will be required to shoulder the particular risk.  Most importantly, when you are ready to move forward consider ways to “lock in” pricing as construction costs have already increased by 2.6% over 2012 construction costs, and an escalation to 5% is expected by the end of the year. 

If you would like to know more about the forum, please contact me, Greg Duff, or Julia Holden-Davis.

“Out of the valley – Toward the peak” summarizes PKF Consulting USA’s predictions as offered by Chris Kraus, at the annual Northwest Hospitality Forums in Seattle, Washington and Portland, Oregon hosted by Garvey Schubert Barer’s Hospitality, Travel & Tourism Practice Group and program sponsors, CBRE Hotels, Premier Capital Associations, LLC, and PKF Consulting USA. The forums are designed for hotel owners, developers, investors and operators as well as hospitality industry service providers, consultants and lenders. 

One suspects that most Forum attendees liked what they heard about the status of Northwest economy generally from economists Mathew Gardner of Gardner Economics, and Mark McMullen, State Economist and Director of the Oregon Office of Economic Analysis, and in particular the Northwest Hospitality Report from Chris Kraus.  The linked chart offers Chris’s analysis regarding the hospitality industry’s place in the market cycle, and shows Seattle ahead of the curve. 

Last week saw another Americas Lodging Investment Summit come and go.  Over the course of 3 days, nearly 2500 lodging owners, operators, investors, consultants and other industry members descended on host hotel JW Marriott and the surrounding LA Live attractions.  The 2500 attendees were the third highest in ALIS history, nearing the peak achieved back in 2006 and 2007 prior to the recession.

From the many attendees I spoke with during the course of the Conference, I’d describe the mood of most attendees as incredibly optimistic.  With operating fundamentals expected to continue to improve in 2013 and beyond (more on this later) and supply growth expected to stay below the industry’s 30-year average, there was much to celebrate.  From the discussions I had, many owners and operators are looking at 2013 as a year of incredible growth.

While I usually don’t make many of the sessions while at the Conference, the one session I try to make each year is the annual industry forecast.  This year’s forecast entitled, “The Numbers – Where Are We Now and Where Are We Headed?” featured presentations by Randy Smith (Smith Travel Research), Mark Woodworth (PKF Consulting), Art Adler (Jones Lang LaSalle) and Adam Weissenberg (Deloitte & Touche).  Highlights from Randy Smith’s presentation included . . .

  • Since 2010, U.S. lodging demand has increased at an annual rate of 15.7%
  • December 2012 set a new U.S. lodging demand record – 91.7 million guest rooms
  • It has taken approximately 5 ½ years to restore U.S. ADRs from the peak achieved in 2007

Travel industry and technology experts gathered at the Four Seasons Seattle this past Wednesday to participate in the region’s first conference devoted exclusively to the intersection of hospitality, travel and tourism with technology. The TNT Travel & Technology Conference was hosted by the Hospitality, Travel & Tourism Practice Group at Garvey Schubert Barer and local angel investment/opportunity facilitator and industry connector Zino Society.  I conducted an informal interview of participants and attendees, which I selected randomly via a complex, proprietary algorithm (red wine vs. white wine; preference for mushroom quiches over Vietnamese spring rolls, cocktail napkin or no cocktail napkin) and 100% of respondents indicated the event was an unqualified success.

Garvey owner and chair of the firm’s E-Commerce and Technology Practice, Scott Warner, and Hospitality, Travel & Tourism Practice chair, Greg Duff, each hosted a panel of experts—Scott, a group of expert technologists and Greg, a group of expert users. The former consisted of representatives from Expedia, Microsoft, Intelity, Sabre Hospitality, Google, Concur Technologies, Urbanspoon, Tnooz and Ascension Software and the latter of panelists from Evergreen Finance Consulting, Virtuoso, Alaska Airlines, Benchmark Hospitality, American Casino & Entertainment Properties, Mandarin Oriental and Holland America Line. See the linked Conference Program for a more detailed description of the panels and each of the panelists.

Garvey Schubert Barer’s Hospitality, Travel & Tourism Practice Group, in conjunction with program sponsors and presenters, recently hosted two morning Hospitality Forums in Seattle, Washington and Portland, Oregon.  The forums were designed for hotel owners, developers, investors and operators as well as hospitality industry service providers, consultants and lenders.  Both events were well attended—a testament to the sponsors and presenters who offered current data, insights and analysis into issues of importance to those in the hospitality industry. 

In particular, Matthew Gardner, of Gardner Economics, provided a macro-level discussion of current economic trends and then narrowed the focus to the Northwest.  Matthew sees Seattle as having strong institutional underpinnings that will contribute to continued economic growth.  Within the Northwest, condominium projects are not being approved by banks.  Apartment construction projects in Seattle are being approved but that segment may soon be over saturated.  Matthew did not express concern with the limited amount of hospitality construction underway.  A similar presentation by Tom Potiowsky, the PSU Chair of Economics and Director of the Northwest Institute for Applied Economic Research, led off things in Portland.  Although not quite as bullish on the local economy as Matthew, Tom was confident that a recovery (although slow) was underway in Oregon, and more particularly, the greater Portland market.  Copies of Matthew’s presentation and Tom’s presentation are attached. 

Days 2 and 3 at this year's ALIS conference were filled with numerous highlights, including a very well attended presentation (or should I say, political commentary) in the Nokia Theater by "the Donald" himself, Mr. Donald Trump.  Days 2 and 3 were also filled with hundreds of meetings by conference attendees in nearly every hallway and corner of the hosts JW Marriott and Ritz Carlton.

While optimism continued to be the theme most often heard in the meetings I attended, the optimism was far from unbridled.  With so many unknowns remaining in the world (e.g. European debt crises, continued high unemployment, the upcoming presidential election), nearly everyone recognized that the many signs pointing to an industry rebound could quickly change.

It has been reported that the producers of the conference this year were torn between an exclamation point and question mark in the program title  As you can see, the optimistic decision was made to include an exclamation point.  As I explain below, I tend to agree with that decision.

Monday marked the opening of the 11th annual ALIS here in Los Angeles.  This year's attendance of 2400 makes the 2012 conference the third largest in its 11 year history.  From the many conversations I had throughout the day, the optimism expressed in pre-conference survey results was shared by many.

The first day included an opening presentation by Wells Fargo chief economist John Silvia.  According to John, five key economic fundamentals that he regularly follows (growth, profits, interest rates, inflation, and currency) lead him to believe that the United States will continue to enjoy sustained growth in 2012, though at rates lower than prior economic recoveries.

Washington hotel owners, operators and suppliers enjoyed two days of learning, socializing and recognizing their colleagues' successes at the recent Washington Lodging Association's 2011 Annual Conference at the incredible Tulalip Resort and Spa. This year's Conference featured a variety of presentations on workforce challenges, recent changes to the ADA, revenue management, fraud prevention and social media. 

Just two weeks ago over 300 restaurateurs, hoteliers and industry suppliers came together in Bend, Oregon, for the 2011 Oregon Restaurant and Lodging Association Annual Conference. I had the chance to attend this year's Conference and to present during Sunday's opening sessions.

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Greg Duff
Greg Duff founded and chairs Foster Garvey’s national Hospitality, Travel & Tourism group. His practice largely focuses on operations-oriented matters faced by hospitality industry members, including sales and marketing, distribution and e-commerce, procurement and technology. Greg also serves as counsel and legal advisor to many of the hospitality industry’s associations and trade groups, including AH&LA, HFTP and HSMAI.

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