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Hospitality industry could be in for a wild ride

Thursday November 7th, 2013 - 10:52AM


My father spent some 30-plus years of his life as an esteemed member of the New York Stock Exchange (NYSE). During this time, he rode the emotional roller coaster of countless market rallies and free falls, both of which resulted in plenty of stress—so much so that after I spent a summer working down on the NYSE during college and expressed an interest in making a career of it, he told me to try something less stressful like journalism. Oh well, live and learn I guess. 

Anyway, with this in mind, you should understand why the November 7 issue's cover story on Wall Street and the lodging industry is near and dear to my heart. Our coverage provides a comprehensive look at the profound impact of Wall Street on the lodging sector from several perspectives, including the REITs and the brand companies. In the 13-plus years I’ve been covering the industry, I’ve seen first-hand the evolution of how the industry is viewed by investors. 

It is quite clear that everyone is enamored with the select-service model these days from an investment standpoint and it makes sense. However, one thing we as an industry need to keep in mind is that at its core, hospitality is still very much about the people and that will never change. 

As someone who travels regularly, I can tell you I rarely am impressed by the latest amenities in the guestroom or a free breakfast, but an engaged employee who rides the elevator and asks how my stay is going and if they can do anything to help tells me all I need to know about how the property is managed. 

And that remains one of the concerns about the increasing influence of Wall Street and public companies on the industry. After all, bankers aren’t hoteliers. Are many of these companies going to be solely focused on the bottom line and not interested in guest satisfaction? Are capital improvements going to be put off as some of these firms look to flip the properties for a hefty profit?

Allow me to let you in on a little secret: Plenty of traditional hoteliers did the very same thing, particularly during the downturn when cash flow was an issue every month. And rest assured, plenty more of these owners did the same long after business had bounced back. The reality is at some point, it just makes good business sense to put money into a property or to bring in an experienced management firm that will put an emphasis on hospitality and guest satisfaction. 

Here’s another little secret: While Wall Street seems to like the industry now, don’t expect that to last forever. Before long, another asset class will become the flavor of the month and hospitality will be left behind to the hoteliers—yet again.

My dad used to frequently refer to an old Wall Street saying: “The bulls and the bears make money and the pigs get slaughtered.” The saying means that despite what the famous Gordon Gekko—the fictional character from the movie Wall Street—said about “greed being good,” it can be dangerous. Hopefully, many investors have already learned that lesson, but only time will tell.