January 21, 2025 • 34 mins
The hardest working man in hotel research talks with us about the state of hotel brand acquisitions, optimism among investors about urban markets and luxury assets, and how hotels can learn from Taylor Swift (can't we all?).
Plus: What's the most overrated statistic in hotel research? What's one piece of unvarnished advice he'd give to a new investment group? Why are partnerships on the rise in Vegas and Orlando?
https://www.us.jll.com/en/people/zachariah-demuth
https://www.hotelmanagement.net/transactions/review-2024-year-us-hospitality-deals
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Hi everybody, welcome to season four.
That's right, season four of noShow.
They said we couldn't do it,but we made it and we're here.
New year, new us, and we havean amazing guest today.
These days, you can't click ona hotel trade article or a
podcast or a clip from aconference panel and not see a
quote from Zach DeMuth.
(00:28):
What's he talking about?
He's talking about industrytrends, investment insights,
destination tourism, assetmanagement, hotel transactions
and a fleet of related topics.
Based in New York City, zach isthe global head of hotels
research for JLL's Hotels andHospitality Group.
He oversees the global hotelresearch platform and drives the
group's content and dataanalytics efforts.
(00:51):
He sits on the Real EstateCouncil at Boston University
School of HospitalityAdministration and is an advisor
to the Pillsbury Institute atCornell University.
He's an alumnus of both worldtraveler, excellent cook, risk
taker, fisherman and the hardestworking man in hotel research.
Zach, welcome to no Show.
Speaker 2 (01:11):
Thank you guys so much for having me.
I don't know if all of that istrue, but I appreciate it
nonetheless.
Speaker 3 (01:16):
Zach the fisherman part.
Matt does good sleuthing.
I didn't know you were afisherman, but excellent cook.
We're going off script rightaway.
Oh boy, what's your go-to?
You're entertaining.
You're having people come overfor the first time.
What?
Speaker 2 (01:30):
are you making?
So my wife and I have recentlyreally got into making our own
pasta.
We got a pasta maker for ourwedding a number of years ago
and I think we've recently triedto break it out more frequently
.
I'd say my wife is more of thecreative type and I'm more on
the execution, but I would saywe're that good at it yet.
But we enjoy our own cooking,nice bottle of wine and fishing
(01:53):
yes, I got that from my dad.
Still do a lot of it Less thesedays than I'd like to, but as
much as possible.
Speaker 3 (02:00):
Let's get to the meat of it, right?
2024, man, no pun there, right,yeah, no pun intended.
Yeah, 2024,.
We saw a lot of activity,particularly among brands using
their balance sheets to drivegrowth.
Why is this remarkable?
Speaker 2 (02:18):
Yeah, I mean, I think , when we think about the way
the hotel brands and we'retalking about Marriott, hilton,
hyatt, ihg, and, if you look toEurope, accor the way they make
money is by generating fees,right, and the way they increase
that on an annual basis iseither by what they call
same-store growth, which youguys know means the growth of
existing hotels right, existinghotels generate more rev par and
(02:39):
they generate more fees and byadding new hotels to their
collections.
Historically, the latter, soadding new hotels to their
collections, is about 50% oftheir year-on-year fee growth,
which drives their shareholdervalue.
And historically, that comesfrom new organic supply
development, right, so thedevelopment of new hotels that
they ascribe their names toconversions, right, an
(03:01):
independent to a Marriott or aHilton to a Hyatt or whatever.
What we've seen, what westarted to see, kind of the
immediate aftermath of COVID inmid 2020 and 2021, is that there
is a material slowdown in newsupply growth.
Construction got exceptionallyexpensive, right.
We all know about thesewell-documented supply chain
disruptions which caused notonly delays in construction
materials but high, driving uphigh costs.
(03:23):
And then, at the back of that,we've seen the US and other
major economic bodies increaseinterest rates, which means
development financing, which isoften the riskiest form of
financing, became exceptionallychallenging, if not impossible.
So these confluence of factorsagain, they started in mid-2020,
2021, 2022, really came to ahead in 2024 and will continue
(03:43):
actually for at least the nextthree to five years, such that
the development of new hotels inthe US and globally is much
slower than it's going, than ithas been historically Nearly 220
basis points or 2.2 percentagepoints less than its long-term
average over the next five years, which is a significant
slowdown.
And so, again, going back to thebrands, the way they derive
(04:04):
growth 50% of their growth byadding new hotels to their
collection.
In the absence of organicsupply growth, really, the only
way to do that in a materialmanner is by acquiring other
brands and again, that isexceptionally rare.
We saw Marriott do that withStarwood, of course, way back,
although that was a bit of adifferent acquisition, although
one could argue, similartrajectory.
But we saw in 2024, you sawHyatt acquired Standard, you saw
(04:27):
Hilton acquire Graduate andwe'll talk about some of the
interesting partnerships such asMarriott, sonder and everything
else.
But I think that's just the tipof the iceberg.
We've heard rumors about Hyattpossibly acquiring Playa, which
is an all-inclusive platform inMexico and the Caribbean.
A lot of other rumors out therethat I can't obviously name
names, but I think we'll see alot of that in 2025, probably
(04:48):
even more in 2026.
And that's just in the US right.
Globally, there's tremendousamount of what we'd call brand
M&A or brand partnerships on thehorizon.
Speaker 3 (04:57):
What stood out to me.
Marriott is kind of awell-oiled machine in this field
.
At this point you mentionedStarwood, which nobody can
forget because it's such a bigdeal.
But by the time it got toStarwood, marriott had made an
acquisition almost annuallyright, buying AC coming out of
the Iberian Peninsula with alittle bit of a Latin American
presence.
(05:17):
But it made Marriott, with thatacquisition, the largest
supplier in those areas.
And then it bought Protea thenext year in Africa, probably
not well known to our listeners,but it made Marriott the
largest supplier of hotel roomsin Africa and after that Delta,
it's the largest in Canada Checkthat box Gaylord, largest of
(05:39):
big boxes, check that box right.
Then along comes Starwood.
So by the time it got toStarwood it felt like it was a
well-oiled machine, ready form&a.
But really I think to yourpoint of using the balance sheet
.
Marriott had a history of doingthose things.
What was really stood out to mein 24 was two things that you
touched on.
First at hilton, did it right?
(06:01):
He'll be rare, not Not one inthe Neseta era, right?
I mean the thinking there wasalways why buy if you can build
and can you guys just fill inreal quick?
Speaker 1 (06:12):
Why was that rare for Hilton?
What do you think stopped themfrom doing that in the past?
Speaker 3 (06:17):
Well, I'll give my take.
I think there is a reluctanceto spend the money to buy a
brand.
When you have a well-oiledmachine to build it right, why
buy?
And, matt, you and I years agotalked about the example with
Kempton.
Why spend the $420 million thatIHG did to purchase Kempton
when, within 10 years, you canjust create Canopy and have the
(06:39):
same distribution?
To create a brand probablycosts you $20 million.
To buy that brand probablycosts you $400.
Zach, what's your take?
Speaker 2 (06:47):
Totally agree, and I think you asked for the look at
the roots of these companiesright.
So obviously Blackstone ownedHilton for a long time.
Blackstone is a real estatecompany, so I think they really
understood the real estate andthey recognized that.
To Jeff's point, you couldeither acquire independent
hotels or even alternative usesand spend less money to convert
into a new hotel brand.
(07:08):
You could build Ground Up whichBlackstone is very familiar
with.
And so I think, again that goesto Hilton's roots of a.
Again, way back all the brandswere real estate companies, but
that goes way, way back.
Hilton's not that far back, it'spretty recent, and Neseta is
still a holdover from thatgeneration, as is Kevin Jacobs
and all the others.
And so you look with Spark.
In my opinion in that space isgroundbreaking.
(07:28):
They took old Home 2s, oldHamptons, old Comforts, and
(07:49):
recognized that it would becheaper and they could actually
get this great arbitrage withowners by offering the
conversion to a new brand,marriott.
At first at least, theirresponse was to acquire City
Express Again an acquisition,not a buildup Now, since they've
followed up with Studio Res andothers Again an acquisition,
not a buildup Now, since they'vefollowed up with Studio Res and
others.
But I think again Hilton's, youhave to go back to the roots of
(08:12):
the company and howhistorically they've been able
to grow at arguably bettermultiples.
They're still a smaller companythan Marriott but their
multiple historically has beenup until this year has traded at
higher rates than the otherbrands.
Speaker 3 (08:20):
Let's say you have 300.
It's all about NUG.
Let's say you have 300, youknow, it's all about NUG.
And if they're going to be 300openings of Hampton, that may,
in a year, only net 150 because150 are going to exit the system
.
Right, right, they're too old,they don't fit the brand and
it's probably too expensive tobring a 30-year-old Hampton up
to the modern Hampton brandstandards.
That's where the brilliance ofSpark, to me, really was, was
(08:43):
the arbitrage that you mentionedis in that example, 150 hotels
don't necessarily have to leavethe system and instead of
upgrading you know, a HamptonInn for 15 million, maybe it
only costs five to become aSpark.
Speaker 2 (08:56):
Exactly.
And you look at what Hilton didacquire this year in Graduate,
it's a very different play.
I think, arguably, buildingit's one thing.
To build from the ground up amid-scale brand, maybe even
upper mid-scale brand, it's avery different play.
I think, arguably, buildingit's one thing.
To build from the ground up amid-scale brand, maybe even
upper mid-scale brand, it's anentirely different thing.
To build from the ground up aI'm not saying graduate is
luxury, but a lifestyle typebrand.
Now, obviously AJ Capital did.
It took them a long time andsuccess was all over the map.
(09:17):
So I think to build a brandlike that from the ground up in
today's environment, giveneverything from a construction
perspective and availability ofland, is a challenge to acquire.
It makes a lot more sense,right?
So you look at what Hilton hashistorically built.
You look at what the otherbrands have built.
Again, it's much easier tobuild in the lower segments.
It's much harder to do it inthe higher segments and
particularly to capture thatlevel of demand.
(09:39):
I mean, we see this amazingconfluence of for a lot of
different reasons demand forlifestyle and both luxury and
sort of that upscale space.
I think that is a secular trendbut it also may be somewhat
short-lived, and so I thinkHilton recognized now is the
time to do it.
We can monetize fees.
It's a relatively low basis,but it's not the same as
(10:00):
acquiring a mid-scale brandwhich they think and have proven
that they can build from theground up.
Speaker 1 (10:05):
What do you think it's going to be a short-term
trend.
Speaker 2 (10:09):
Again, I'm hesitant to say short-term.
I think it's going to be thenext, I think I don't think it's
peak yet, but I think we'regetting there.
You know, life in some wayshaving branded lifestyle is sort
of antithetical, right.
The whole idea of lifestyle tosome capacity is that they are
boutique, independent hotels.
Now I think the collectionbrands, the autographs of the
(10:29):
world, the luxuries, thevignettes have done a really
good job of saying, hey, youkeep your level of independence
but you get our distributionsystem and so you can increase
your demand.
And by and large the averageconsumer doesn't necessarily
think or know they're staying ata Marriott or a Hilton or a IHG
.
They see the independence.
But sort of the brandedlifestyle space, to me again,
(10:50):
that kind of goes against theidea of this authentic
experience.
And again, I know graduates abit different, right, because
they play on, of course, theuniversity and they are all
unique.
But I worry that when you seemore and more of these kind of
upper upscale, even luxury, butthey're branded lifestyle, does
that sort of go against thewhole idea that consumers want
(11:12):
unique and authentic experiences.
Speaker 3 (11:15):
The other trend that you touched on this a bit at the
top that I thought wasremarkable in that I think it
has great staying power andwould love your take on this too
is partnerships.
What Marriott did with MGM,what Hilton has done with small
luxury hotels, that's new inthis space.
(11:36):
You guys stay yourselves, Justget on honors and get on the
Bonvoy platforms.
Hyatt's also doing it.
This whole conversation isn't aHilton and Marriott
conversation, but I mean they'rethe big boys and they're
setting the trend for the future.
That's the one that I see hasalmost unlimited potential.
Speaker 2 (11:55):
Yeah, Totally agree, and Hyatt did it with Mr and Mrs
Smith.
You mentioned, obviously, smallluxury hotels Marriott, mgm,
marriott, sonder which is atotally different beast, but I
think it goes back to what wetalked about at the top is that
brands generate revenue anddrive shareholder value from
generating fees, and, in someways, generating a fee through a
(12:15):
partnership is actually thelowest risk because they really
don't have to outweigh anything.
Sure, in some cases theyoutweigh a little bit of capital
.
Sure, they dedicate some salesresources, obviously some
distribution resources, butthey're not managing the
properties, they're not takingany ownership for them, and so
for them it's just a pure feeplay.
And from the perspective of thepartnered brand, whether it's
(12:36):
Mr or Mrs Smith or Small Luxury,obviously you get plugged into
this, generally speaking,incredible distribution system.
The fees you pay for the bookedreservations are generally
lower than you would otherwisepay on the third parties, the
OTAs.
So, generally speaking, it's awin-win and I think we'll see
more and more of that.
I think what's happening inVegas to me it started with
Marriott and MGM Hyatt justsigned a licensing deal with
(12:58):
Venetian, which is fascinatingbecause they signed it literally
the day that Venetian'sagreement with IHE expired.
It's pretty incredible, rightCoincidence, I'm sure, yeah, I'm
sure, right, exactly, and Ithink Vegas is a market,
obviously tremendous amount ofdemand, one of the highest
occupancy markets in the US andthe world, despite having more
hotel rooms than any market inthe US.
(13:18):
And for years the major brandshave kind of been hesitant to
build because it's veryexpensive, for obvious reasons,
some challenges or some concernswith the casino environment.
But we can do a partnership.
We can still generate close toas much fees as if we had our
own hotel there, we don't haveto assume any risk, and so I
think that's going to be afascinating game.
But these partnershipagreements are unique.
(13:40):
I mean the Venetian sort ofspelled it out they're not
forever, right, they typicallyare 20, 30, 40 years or even
less sometimes, and so youcreate customer confusion, right
, one day I'm saying theVenetian under an IHG rewards,
tomorrow it's, I mean, bonvoy, Idon't know.
Speaker 3 (14:07):
To me it's a bit odd, but great for the brands
overall.
One day we have Uber and thenext day we have Lyft right, the
two big monsters that really Idon't think brands and the hotel
industry in the US really talkthat much about or focus as much
on as they should are Las Vegas.
And then the other, in myopinion, is Disney.
Is there a partnership?
Is there something out therewho could tame Disney?
Would anyone even try to bringthat into a brand partnership?
Speaker 2 (14:24):
A really interesting question, arguably, why not?
What I found interesting aboutVegas and MGM's perspective is,
prior to Marriott creating thatpartnership, mgm and they're
obviously pretty public wererunning 85% annualized
occupancies and it wasn't clearto me from their perspective
what accretive additionsMarriott could add.
(14:45):
It's not an occupancy play.
Were they creating a more loyalcustomer base?
Did they add a higher ratedcustomer base?
And again, it hasn't been longenough to play out and so I
guess there must be that.
But I wonder in Disney's case Imean you'd have to, from their
perspective it would have to addenough value.
But I wonder, in Disney's caseI mean you'd have to, from their
perspective it would have toadd enough value.
But again, I think never saynever.
I look at all the partnershipsthat materialized in the last
(15:06):
two years.
A lot that I know are comingover the next 12 to 18 months.
A lot of them I never wouldhave anticipated 10, 15 years
ago.
I think Disney's interesting,right, you look at what Lowe's
is doing in Orlando, around alot of the new Disney resorts,
and again Lowe's is a brand wealmost never talk about, very
different than the others.
They'll appear to play a realestate company in many ways.
But is that something right?
(15:27):
I mean, there was this talk in2019 around Omni and Lowe's,
possibly forging a partnership,which sort of fizzled for a
variety of reasons.
Again, two smaller brands, butif that's possible, why couldn't
we see one of the big ones getin there and create some sort of
a loyalty sharing partnership?
Speaker 3 (15:43):
Do you remember when the Nickelodeon Marriott
experiment was attempted?
Right, how can they get intothis Disney game in Orlando?
But they needed to find adifferent partner, something
that was also an appeal to kidsand fell flat on its face.
Mainly, you can't recreate theentertainment industry from a
hotelier's background, and Ithink that's where Matt and I
(16:06):
are fascinated with Las Vegas.
But I think that's that similargap why brands have not been
successful on the strip.
Speaker 1 (16:11):
They aren't going to be successful in creating theme
parks, I mean beyond the expenseof getting into either market,
particularly Vegas.
Is the culture just sodifferent from what you need to
do, what you need to provide,the skill set you need to have
to run the hotel?
Is Vegas just kind of a one ofone?
Speaker 2 (16:29):
Yeah, I think in many ways it is and I think you know
it's interesting, right, thebrands, particularly over the
last five or six years, havetried to find new verticals to
expand into again, to increasetheir loyalty, to drive higher
share of wallet.
And I think what you've seen,particularly in 2024, and we'll
see over the next three to fiveyears, is their core competency
is running hotels Doesn't meanthat they don't have loyalty
(16:49):
sharing agreements outside ofthe traditional hotel space
Mentioned Vegas talk aboutSaunders shortly obviously their
credit card companies, yachts,et cetera.
But they typically turn again.
It's either a partnership or athird party to help run it.
Because I think there's arecognition and it's been to
your point about the Nickelodeonexample.
It's been proven out in otherplaces.
They're just not built to dothat.
They.
(17:10):
Also, and it's been very clearbased on some of the unfortunate
recent restructuring, wallStreet doesn't value that right.
Wall Street values fees.
It doesn't value them taking onadditional risk via headcounts,
via experimental things.
It's unfortunate in some waysbecause I think they could do it
if given the resources theyhave the resources, if given the
leeway.
But Wall Street is very quickFor better or worse.
(17:33):
These are all public companies,at least for now, and their
value is generating fee revenue.
Speaker 3 (17:40):
I think that goes back to the spin of Park from
Hilton.
The core principle there is notthat Blackstone still owned the
same amount of real estate.
It did January 7th as it didJanuary 6th of 2017, when it was
Hilton and Park were separated.
But by doing that, theinvestment landscape was very
clean, for sure, for sure.
Speaker 2 (18:00):
Marriott Host, exactly right.
I mean all of landscape wasvery clean, for sure, for sure.
Marriott Host, exactly Right.
I mean all of the all of thebrands have gone through this
evolution.
It's interesting, right?
We talk, obviously we're in theUS, we talk heavily about the
US brands.
My work also covers globalRight, and so it's interesting
(18:23):
because, accor, they're in thestage that most of the US brands
ran a decade ago and it'sinteresting to watch.
They're following a similarplaybook but also possibly
making it better.
But again, valuation, you knowthey still get some credit for
their real estate holdings,whereas in the US, hyatt's
basically sold off all of theirholdings in the past two years
and will sell off the remainingover the next year, and they get
(18:44):
so much credit for that right,whereas 10 years ago it was a
totally different landscape.
Speaker 1 (18:50):
Now that 2025 is here , we're seeing a renewed sense
of optimism among hotelinvestors, who are bullish about
urban markets and luxury assets, and that optimism applies to
both domestic and internationalcapital.
I think it's easy at thebeginning of this year to think
that everything literally is onfire on all fronts.
(19:12):
What do you think is behind allof this optimism?
Speaker 2 (19:17):
Yeah, I mean, I think it's no secret right over the
last two years, the commercialreal estate sector, or industry
broadly has, it's no secretright over the last two years,
the commercial real estatesector, or industry broadly, has
been very negatively impacted.
Right, interest rates not onlyrose, but rose quicker than
really in any other period in UShistory.
Pretty much ground everythingto a screeching halt, and this
comes off the back of 2021 and2022 were actually some of the
(19:39):
best years for hotel investmentvolume in the US.
Cumulatively, around $80billion were invested into
hotels in 2021 and 2022, thebest two-year period we've ever
seen.
Again, 2023 declined to lessthan a quarter of that and then
2024 declined even further.
I think what we're starting tosee is on the back of COVID.
(20:00):
There was a tremendous amountof pent-up travel.
You know, we know hotels manyhotels are posting double digit
rev par growth which, for thoseof the industry know that that's
not normal.
There's a lot of reasons forwhy that happened, but it's not
a normal situation and I thinkowners were kind of saying like
why?
You know interest rates arehigh, I'm not going to get the
value I want, why sell?
Because my hotel's performingexceptionally well anyway, and
(20:22):
so I'm not going to be able totrade for what I want, but I'm
going to be able to getoperating returns.
Now we're starting to seeperformance normalize.
Interest rates remain high butthey're coming down and there's
clarity that at least they'renot going to rise any further.
They may not fall as much aspeople want and this is what
really drives hotel investmentvolume in the US.
Urban hotels are finallystarting to perform
exceptionally well.
(20:42):
You see the return ofinternational travel,
particularly from Europe,starting to see some inbound
from Asia through the turn ofgroups, some corporate demand,
and so investors that have heldthese hotels are starting to see
their performance normalize ormoderate.
Interest rates are at leastthis clarity around that and
performance again there is somegreen shoots from the segments
(21:02):
that historically or that havebeen slow to rebound, so we're
starting to see a lot moreinterest.
Private equity groups, who haveraised a tremendous amount of
money over the two years andjust haven't been able to invest
because interest rates are high, started to come off the
sidelines.
We saw REITs, which have beenhit a bit hard by the public
markets, but some of them, likeHost and others, have been quite
active in the past 12 monthsand will continue to be.
We also see a lot of newcapital coming to the hotel
(21:25):
space, which this, to me, is thelong-term trend and really
exciting Hotels, after decadesof being an alternative asset
class most funds allocate verylittle, if any, to the hotel
space Starting to seeinstitutional funds allocating
5%, 10%, 15% of their realestate holdings to hotels.
Last year, we saw 20% of allglobal hotel capital was
(21:47):
acquired by first-time buyers,and so I think this is exciting.
It creates a lot of educationalopportunities.
We all know hotels are complexbeings operational assets,
everything else but I thinkthere's a lot of excitement, a
lot of optimism, and you know2025 is not likely going to get
back to 2021 and 2022.
I don't want to.
You know it's going to grow,but not to that same level, but
by 2026, 2027,.
We see a lot again, barring anyunknowns, a lot of really
(22:11):
positive momentum on the horizon.
Speaker 3 (22:14):
It's hard to talk about 25 or the future in any
definition without mentioning AIand one of the things that
really stood out.
There was an article in FocusWire recently that I thought was
really good looking in travelpredictions the kind of thing
you get this time of year.
But here's what really caughtmy attention the question of
will AI, powered search,co-pilot and the like take a
(22:37):
significant share away fromGoogle and will startups
flourish or the big get bigger?
Anyone looking at AI as thegreat equalizer might be
disappointed was the quote, andthat intuitively fits where I'm
seeing, or at least myperspective looking forward.
Ai depends on data.
The more it has, the better itfunctions and advises.
So it seems to me like thebiggest companies with the most
(22:59):
data are going to be the firstand the largest winners.
Do you see it playing out thatway, marriott and Hilton?
Are they really in thatwonderful little position to go
value from the?
Speaker 2 (23:13):
technology that's crashing down all around us.
Yeah, you know it sort of painsme to say this, to be honest,
but the hotel industry and thisis well documented has
historically been woefully slowto adopt new technologies.
I mean, we all know this,obviously, jeff, from our days
at Marriott Marriott to this dayI know they're possibly
changing but still uses areservation system that was
built in the 80s, and I thinkthe other brands have
(23:35):
historically similar challenges.
It's really hard for me toenvision that suddenly they're
going to go from theseantiquated tech companies to
riding the wave of the future.
Now there's no reason theyshouldn't.
They have tremendous data.
I mean, beyond the fact they'refee-generating companies, the
reason they acquire all thesebrands and have all these
partnerships is to drive loyalty, and cumulatively they have
(23:56):
upwards of a billion loyaltymembers and there's no reason
why, with all this data theycollect, they basically force
everyone to use the apps.
They shouldn't be able tocreate truly customized trip
experiences, trip planning?
I mean, there's really no limit, but I have personally a really
hard time seeing it just basedon the way they've historically
adopted.
And again, wall Street doesn'tvalue them to be tech companies
(24:19):
and so sure they might dabblehere and there they might
acquire third parties, theymight partner, but for them to
go out and invest all theseresources to become a tech
company, which ostensibly iswhat this would require, it's
hard to envision.
Now, on the flip side of that,everyone wants to talk about AI
from a hotel perspective, fromthe consumer side.
Right, the connected trip issort of this holy grail that
(24:40):
bookingcom touts and some others.
You know personalized travel,personalized marketing, all
these things, and that would beamazing To me.
The opportunity is and hotelshave used this to some capacity.
Obviously we know with revenuemanagement and others, but it's
back of house, it's not as sexy,it's not as intriguing, but it
can have a real impact in youroperations.
Whether, again, revenuemanagement operates on some
(25:01):
level of AI, that's great.
What about staffing?
Again, there are some systemsout.
There goes back to collectingthe right data, staff
optimizations, labor forceoptimizations, food costs, smart
thermostats, I mean, there's alot of these things that, again,
from the consumer's perspective, they don't care, they may
never see it, but that can havea material impact on the hotel
space, which already struggleswith cost challenges and
(25:25):
profitability issues.
And so to me, that's where theopportunity is.
Again, consumers don't wantthat and that's not where the
headlines are going to be, but Ithink that can have a real
impact on the industry.
Speaker 1 (25:36):
Of course, one of the biggest hotel stories of the
last two years was TaylorSwift's Erez tour.
Maybe you've heard of it.
According to JLL, the popstar's world tour generated
approximately $1 billion andcounting in additional hotel
revenue across the US, europeand Asia, with its impact
rivaling traditional tourismdrivers like the Super Bowl and
(25:58):
even the Olympics during itspeak periods.
Quote from JLL in one of thearticles in some ways, she's
created many, many, many SuperBowls.
Now Taylor Swift and Beyonce.
Their impact on local economieshas been reported breathlessly
by news outlets.
My question to you is whatshould hotels do with this
information going forward?
(26:19):
What should hotels do with thisinformation going forward?
Do they sit around and wait foranother mega tour, or do they
start being proactive aboutpartnerships with musical acts
of all sizes?
How can they take what we'veseen over the last couple of
years and set themselves up forsuccess?
Speaker 2 (26:36):
Yeah, I mean, first it's pretty astonishing to me.
I'm, you know, not necessarilya Swifty, although sure the
music's on all the time, but thefact that we write about her
effect on the industry and havebeen over the past almost two
years now is just reallyincredible.
That is probably secular.
(27:03):
At least will hang around for agood period of time.
People are willing to travelfor live experiences, whether
that's concerts, obviously wesee it at sporting events.
We see it in a number of things.
I mean, what's fascinatingabout Taylor Swift is, if you
look at the impact in Europe,more Americans actually traveled
to Europe to see her events,stayed at a hotel, booked an
airline ticket.
The impact from Americans therewas bigger than from Europeans.
(27:23):
Right, and there's a variety ofreasons for that the strong
dollar and everything else butpeople clearly travel for that
experience.
So I think hotels have to beproactive.
I mean, obviously you can'trecreate you know a megator of
that nature by yourself, but isthere partnerships you can do?
You know, another brand that weoften don't talk about but is
becoming somewhat larger isSinesta.
You know they've created theselive music partnerships with
(27:46):
either local artists or regionalartists and then they really
use that kind of as a jumpingoff point to manufacture demand.
And I think again, in theabsence of organic demand from
these events, you have to dosomething to manufacture, you
have to create a buzz and Ithink consumers will travel for
it.
I think again, you have to becautious, right Simply creating
(28:06):
partnerships just for the sakeof partnerships.
They can be expensive, so youhave to figure out is there a
real return?
But I think there's shownthere's huge opportunity.
Consumers will travel forexperiences, whatever that
experience might look like.
Speaker 3 (28:25):
To bring this full circle.
That's exactly what Disney andVegas have figured out a long
time ago how to create demand.
Who goes to the middle of thedesert?
Well, they create a reason forhundreds and hundreds of
thousands of people every daygoing to Las Vegas.
Well, maybe not hundreds andhundreds, but the capacity of
Vegas is what?
About 150,000?
Vegas?
Or maybe not hundreds andhundreds, but the capacity of
Vegas is what?
Speaker 2 (28:40):
about 150,000 renters , yeah, right, and you talk
about similar in some ways on adifferent scale.
But what's happening in KSA andSaudi Arabia?
All the mega projects there?
They welcomed 100 millionvisitors this year.
In 2019, they welcomed lessthan 10 million.
I mean that growth isstaggering.
Now, granted, they've investedhundreds of billions of dollars.
(29:02):
Obviously, they basically have,you know, never-ending capital
for a variety of differentreasons, but I mean, again,
going literally to what was themiddle of nowhere and they're
welcoming people by the droves,you know, europeans, Americans,
asians, like all across.
And again, that's aboutmanufacturing demand.
Speaker 1 (29:20):
It's time for the lightning round, Zach.
What's the most overratedstatistic in hotel research?
Speaker 2 (29:26):
Oh boy, probably an unpopular opinion, but Revpar I
think Revpar should die one day.
And don't get me wrong.
I love my friends at STR and Ithink very highly of them and
what they've created, and I getwhy we use Revpar as an industry
, but Revpar never tells thewhole story.
It's been the case pre-COVID.
But if COVID has taught usanything, as a hotel industry,
(29:47):
revpar should not be used.
Revpar has grown double digitsand in many cases, profit,
whether you look at the GOPlevel or the NOI level has not.
And I think as we move forward,the industry wants to tell
Revpar, revpar, revpar.
And again, if you're theoperator, maybe that's great.
If you're the brand, maybethat's great.
If you're the owner, thatdoesn't help me.
You can't take Revpar to thebank.
And I won't say too much moreabout it.
(30:09):
As I know, the industry lovesRevpar and I don't want to
offend anybody, but I thinkthat's the most overused,
overrated statistic.
Speaker 3 (30:15):
Does the current model of owner-operator and
third-party manager have anyfatal flaws in it over the next
decade?
Speaker 2 (30:23):
I mean absolutely, and I think it has over the
previous decade.
Right, they're just a lack ofalignment.
You know, you look at mosthotels these days in the US and
they have three or fourconstituents that all have
different goals.
You know the brands as wetalked about, they're fee
generating.
Really, all they care about istop line revenue.
In most cases it's just rooms.
(30:44):
What if you have other revenuesources?
If you're the third partyoperator, you care about
everything and you care aboutobviously generating profit for
your owner, but then you take afee off of that, and if you're
the owner, you take what's leftover.
And so, again, I think maybeRevpar is part of the reason to
blame, but there's a lot ofthings in there.
There's just a lack of alignmentand I think, particularly as
the brands become lessinterested in managing and
really turn to again franchisebusinesses, you have more
(31:06):
third-party operators.
It's a very competitive space.
We've seen some of the biggestthird-party operators really
struggle because they compete onfees and that actually leads to
their demise.
And so how does that spaceunfold over the years?
And then, from an ownerperspective, how do you sort
through the chaos?
And I think it's going to beinteresting to see.
You know, in the US we're avery mature industry generally
(31:26):
speaking, but, like in Asia,right now, the third party
management space is basicallyzero, but the brands don't want
to manage, so they have to findsomebody to fill the gap.
Speaker 1 (31:36):
So I think it's going to be really interesting to see
the evolution.
What's one piece of unbiased,unvarnished advice you'd give to
an investment group looking tobuy a select service or luxury
hotel?
Speaker 2 (31:48):
Know your market.
I mean, we love to talk abouthow the select service segment
performs exceptionally well,which it does.
We love to talk about howluxury performs well, which it
does, but it's all marketspecific, right.
I mean you got to know yourmarket in and out.
You got to know what drivesdemand, what supply looks like
today and what it will look liketomorrow.
And if there aren't organicdemand drivers, can you
(32:09):
manufacture that demand at areasonable cost?
Because if any of those thingsare out of balance, it doesn't
matter if you have the besthotel in the world or the best
hotel anywhere.
If you don't know your market,if you don't know what drives
demand, you're never going to besuccessful.
Speaker 3 (32:23):
The way Matt asked was select service and luxury Is
full service.
The monkey in the middle.
Speaker 2 (32:30):
I think it is right.
I mean, I think again, yourtraditional full service hotel,
and whatever brand you want topick, relies very heavily on
think on that semi-commoditizedconsumer right, the average
business traveler or the typicalbusiness traveler, typical
group customer right, Lessdifferentiation.
Again, not saying that thesehotels don't have a place, they
absolutely do, but they've beensort of the forgotten children
(32:52):
of COVID.
Now we're seeing return thereand we're seeing a lot of
renewed interest.
Right, as you know, someconsumers from the top end get,
get hinged down because ofeconomic reasons and group
travel returns.
But yeah, I think it would beinteresting, right, and that's
why liquidity has declined somuch that middle, which
historically has made up 70% ofinvestment volume in the US, has
all but disappeared over thelast two years.
Speaker 1 (33:14):
What's the most essential piece of clothing you
take with you when you travel?
Speaker 2 (33:20):
most essential piece of clothing you take with you
when you travel?
Oh, that's a good question.
I don't.
I'm not really a clothes guy.
You know, recently I've beentrying to switch from not
wearing like traditional dressshoes and go to the sneaker
route.
I think that's been reallyhelpful.
We don't wear ties anymore.
So I'm a really big, like funsock guy.
So I try to, and I havedifferent.
I I've been fortunate to travela lot and so I buy socks for
(33:42):
every city I'm in, try to wearthe socks from that city.
New Orleans has some reallycool socks, um, with the cable
car, um, yeah.
So I guess for me it's that's,that's my like, little bit of
whimsy.
I'm not really a whimsical guy,but that's where I can add a
little bit of differentiation inmy wardrobe.
Speaker 1 (33:59):
So pro socks anti rep par.
You heard it here everybody.
Speaker 2 (34:03):
There you go.
Speaker 3 (34:05):
Can't think of a better way to start season four.
It was insightful, phenomenal.
Thank you, zach.
Speaker 2 (34:10):
Thank you, no, thank you, guys, so much.
Really appreciate the inviteand really enjoyed the
conversation.
Hi everybody, welcome to season four.
That's right, season four of noShow.
They said we couldn't do it,but we made it and we're here.
New year, new us, and we havean amazing guest today.
These days, you can't click ona hotel trade article or a
podcast or a clip from aconference panel and not see a
quote from Zach DeMuth.
(00:28):
What's he talking about?
He's talking about industrytrends, investment insights,
destination tourism, assetmanagement, hotel transactions
and a fleet of related topics.
Based in New York City, zach isthe global head of hotels
research for JLL's Hotels andHospitality Group.
He oversees the global hotelresearch platform and drives the
group's content and dataanalytics efforts.
(00:51):
He sits on the Real EstateCouncil at Boston University
School of HospitalityAdministration and is an advisor
to the Pillsbury Institute atCornell University.
He's an alumnus of both worldtraveler, excellent cook, risk
taker, fisherman and the hardestworking man in hotel research.
Zach, welcome to no Show.
Speaker 2 (01:11):
Thank you guys so much for having me.
I don't know if all of that istrue, but I appreciate it
nonetheless.
Speaker 3 (01:16):
Zach the fisherman part.
Matt does good sleuthing.
I didn't know you were afisherman, but excellent cook.
We're going off script rightaway.
Oh boy, what's your go-to?
You're entertaining.
You're having people come overfor the first time.
What?
Speaker 2 (01:30):
are you making?
So my wife and I have recentlyreally got into making our own
pasta.
We got a pasta maker for ourwedding a number of years ago
and I think we've recently triedto break it out more frequently
.
I'd say my wife is more of thecreative type and I'm more on
the execution, but I would saywe're that good at it yet.
But we enjoy our own cooking,nice bottle of wine and fishing
(01:53):
yes, I got that from my dad.
Still do a lot of it Less thesedays than I'd like to, but as
much as possible.
Speaker 3 (02:00):
Let's get to the meat of it, right?
2024, man, no pun there, right,yeah, no pun intended.
Yeah, 2024,.
We saw a lot of activity,particularly among brands using
their balance sheets to drivegrowth.
Why is this remarkable?
Speaker 2 (02:18):
Yeah, I mean, I think , when we think about the way
the hotel brands and we'retalking about Marriott, hilton,
hyatt, ihg, and, if you look toEurope, accor the way they make
money is by generating fees,right, and the way they increase
that on an annual basis iseither by what they call
same-store growth, which youguys know means the growth of
existing hotels right, existinghotels generate more rev par and
(02:39):
they generate more fees and byadding new hotels to their
collections.
Historically, the latter, soadding new hotels to their
collections, is about 50% oftheir year-on-year fee growth,
which drives their shareholdervalue.
And historically, that comesfrom new organic supply
development, right, so thedevelopment of new hotels that
they ascribe their names toconversions, right, an
(03:01):
independent to a Marriott or aHilton to a Hyatt or whatever.
What we've seen, what westarted to see, kind of the
immediate aftermath of COVID inmid 2020 and 2021, is that there
is a material slowdown in newsupply growth.
Construction got exceptionallyexpensive, right.
We all know about thesewell-documented supply chain
disruptions which caused notonly delays in construction
materials but high, driving uphigh costs.
(03:23):
And then, at the back of that,we've seen the US and other
major economic bodies increaseinterest rates, which means
development financing, which isoften the riskiest form of
financing, became exceptionallychallenging, if not impossible.
So these confluence of factorsagain, they started in mid-2020,
2021, 2022, really came to ahead in 2024 and will continue
(03:43):
actually for at least the nextthree to five years, such that
the development of new hotels inthe US and globally is much
slower than it's going, than ithas been historically Nearly 220
basis points or 2.2 percentagepoints less than its long-term
average over the next five years, which is a significant
slowdown.
And so, again, going back to thebrands, the way they derive
(04:04):
growth 50% of their growth byadding new hotels to their
collection.
In the absence of organicsupply growth, really, the only
way to do that in a materialmanner is by acquiring other
brands and again, that isexceptionally rare.
We saw Marriott do that withStarwood, of course, way back,
although that was a bit of adifferent acquisition, although
one could argue, similartrajectory.
But we saw in 2024, you sawHyatt acquired Standard, you saw
(04:27):
Hilton acquire Graduate andwe'll talk about some of the
interesting partnerships such asMarriott, sonder and everything
else.
But I think that's just the tipof the iceberg.
We've heard rumors about Hyattpossibly acquiring Playa, which
is an all-inclusive platform inMexico and the Caribbean.
A lot of other rumors out therethat I can't obviously name
names, but I think we'll see alot of that in 2025, probably
(04:48):
even more in 2026.
And that's just in the US right.
Globally, there's tremendousamount of what we'd call brand
M&A or brand partnerships on thehorizon.
Speaker 3 (04:57):
What stood out to me.
Marriott is kind of awell-oiled machine in this field
.
At this point you mentionedStarwood, which nobody can
forget because it's such a bigdeal.
But by the time it got toStarwood, marriott had made an
acquisition almost annuallyright, buying AC coming out of
the Iberian Peninsula with alittle bit of a Latin American
presence.
(05:17):
But it made Marriott, with thatacquisition, the largest
supplier in those areas.
And then it bought Protea thenext year in Africa, probably
not well known to our listeners,but it made Marriott the
largest supplier of hotel roomsin Africa and after that Delta,
it's the largest in Canada Checkthat box Gaylord, largest of
(05:39):
big boxes, check that box right.
Then along comes Starwood.
So by the time it got toStarwood it felt like it was a
well-oiled machine, ready form&a.
But really I think to yourpoint of using the balance sheet
.
Marriott had a history of doingthose things.
What was really stood out to mein 24 was two things that you
touched on.
First at hilton, did it right?
(06:01):
He'll be rare, not Not one inthe Neseta era, right?
I mean the thinking there wasalways why buy if you can build
and can you guys just fill inreal quick?
Speaker 1 (06:12):
Why was that rare for Hilton?
What do you think stopped themfrom doing that in the past?
Speaker 3 (06:17):
Well, I'll give my take.
I think there is a reluctanceto spend the money to buy a
brand.
When you have a well-oiledmachine to build it right, why
buy?
And, matt, you and I years agotalked about the example with
Kempton.
Why spend the $420 million thatIHG did to purchase Kempton
when, within 10 years, you canjust create Canopy and have the
(06:39):
same distribution?
To create a brand probablycosts you $20 million.
To buy that brand probablycosts you $400.
Zach, what's your take?
Speaker 2 (06:47):
Totally agree, and I think you asked for the look at
the roots of these companiesright.
So obviously Blackstone ownedHilton for a long time.
Blackstone is a real estatecompany, so I think they really
understood the real estate andthey recognized that.
To Jeff's point, you couldeither acquire independent
hotels or even alternative usesand spend less money to convert
into a new hotel brand.
(07:08):
You could build Ground Up whichBlackstone is very familiar
with.
And so I think, again that goesto Hilton's roots of a.
Again, way back all the brandswere real estate companies, but
that goes way, way back.
Hilton's not that far back, it'spretty recent, and Neseta is
still a holdover from thatgeneration, as is Kevin Jacobs
and all the others.
And so you look with Spark.
In my opinion in that space isgroundbreaking.
(07:28):
They took old Home 2s, oldHamptons, old Comforts, and
(07:49):
recognized that it would becheaper and they could actually
get this great arbitrage withowners by offering the
conversion to a new brand,marriott.
At first at least, theirresponse was to acquire City
Express Again an acquisition,not a buildup Now, since they've
followed up with Studio Res andothers Again an acquisition,
not a buildup Now, since they'vefollowed up with Studio Res and
others.
But I think again Hilton's, youhave to go back to the roots of
(08:12):
the company and howhistorically they've been able
to grow at arguably bettermultiples.
They're still a smaller companythan Marriott but their
multiple historically has beenup until this year has traded at
higher rates than the otherbrands.
Speaker 3 (08:20):
Let's say you have 300.
It's all about NUG.
Let's say you have 300, youknow, it's all about NUG.
And if they're going to be 300openings of Hampton, that may,
in a year, only net 150 because150 are going to exit the system
.
Right, right, they're too old,they don't fit the brand and
it's probably too expensive tobring a 30-year-old Hampton up
to the modern Hampton brandstandards.
That's where the brilliance ofSpark, to me, really was, was
(08:43):
the arbitrage that you mentionedis in that example, 150 hotels
don't necessarily have to leavethe system and instead of
upgrading you know, a HamptonInn for 15 million, maybe it
only costs five to become aSpark.
Speaker 2 (08:56):
Exactly.
And you look at what Hilton didacquire this year in Graduate,
it's a very different play.
I think, arguably, buildingit's one thing.
To build from the ground up amid-scale brand, maybe even
upper mid-scale brand, it's avery different play.
I think, arguably, buildingit's one thing.
To build from the ground up amid-scale brand, maybe even
upper mid-scale brand, it's anentirely different thing.
To build from the ground up aI'm not saying graduate is
luxury, but a lifestyle typebrand.
Now, obviously AJ Capital did.
It took them a long time andsuccess was all over the map.
(09:17):
So I think to build a brandlike that from the ground up in
today's environment, giveneverything from a construction
perspective and availability ofland, is a challenge to acquire.
It makes a lot more sense,right?
So you look at what Hilton hashistorically built.
You look at what the otherbrands have built.
Again, it's much easier tobuild in the lower segments.
It's much harder to do it inthe higher segments and
particularly to capture thatlevel of demand.
(09:39):
I mean, we see this amazingconfluence of for a lot of
different reasons demand forlifestyle and both luxury and
sort of that upscale space.
I think that is a secular trendbut it also may be somewhat
short-lived, and so I thinkHilton recognized now is the
time to do it.
We can monetize fees.
It's a relatively low basis,but it's not the same as
(10:00):
acquiring a mid-scale brandwhich they think and have proven
that they can build from theground up.
Speaker 1 (10:05):
What do you think it's going to be a short-term
trend.
Speaker 2 (10:09):
Again, I'm hesitant to say short-term.
I think it's going to be thenext, I think I don't think it's
peak yet, but I think we'regetting there.
You know, life in some wayshaving branded lifestyle is sort
of antithetical, right.
The whole idea of lifestyle tosome capacity is that they are
boutique, independent hotels.
Now I think the collectionbrands, the autographs of the
(10:29):
world, the luxuries, thevignettes have done a really
good job of saying, hey, youkeep your level of independence
but you get our distributionsystem and so you can increase
your demand.
And by and large the averageconsumer doesn't necessarily
think or know they're staying ata Marriott or a Hilton or a IHG
.
They see the independence.
But sort of the brandedlifestyle space, to me again,
(10:50):
that kind of goes against theidea of this authentic
experience.
And again, I know graduates abit different, right, because
they play on, of course, theuniversity and they are all
unique.
But I worry that when you seemore and more of these kind of
upper upscale, even luxury, butthey're branded lifestyle, does
that sort of go against thewhole idea that consumers want
(11:12):
unique and authentic experiences.
Speaker 3 (11:15):
The other trend that you touched on this a bit at the
top that I thought wasremarkable in that I think it
has great staying power andwould love your take on this too
is partnerships.
What Marriott did with MGM,what Hilton has done with small
luxury hotels, that's new inthis space.
(11:36):
You guys stay yourselves, Justget on honors and get on the
Bonvoy platforms.
Hyatt's also doing it.
This whole conversation isn't aHilton and Marriott
conversation, but I mean they'rethe big boys and they're
setting the trend for the future.
That's the one that I see hasalmost unlimited potential.
Speaker 2 (11:55):
Yeah, Totally agree, and Hyatt did it with Mr and Mrs
Smith.
You mentioned, obviously, smallluxury hotels Marriott, mgm,
marriott, sonder which is atotally different beast, but I
think it goes back to what wetalked about at the top is that
brands generate revenue anddrive shareholder value from
generating fees, and, in someways, generating a fee through a
(12:15):
partnership is actually thelowest risk because they really
don't have to outweigh anything.
Sure, in some cases theyoutweigh a little bit of capital
.
Sure, they dedicate some salesresources, obviously some
distribution resources, butthey're not managing the
properties, they're not takingany ownership for them, and so
for them it's just a pure feeplay.
And from the perspective of thepartnered brand, whether it's
(12:36):
Mr or Mrs Smith or Small Luxury,obviously you get plugged into
this, generally speaking,incredible distribution system.
The fees you pay for the bookedreservations are generally
lower than you would otherwisepay on the third parties, the
OTAs.
So, generally speaking, it's awin-win and I think we'll see
more and more of that.
I think what's happening inVegas to me it started with
Marriott and MGM Hyatt justsigned a licensing deal with
(12:58):
Venetian, which is fascinatingbecause they signed it literally
the day that Venetian'sagreement with IHE expired.
It's pretty incredible, rightCoincidence, I'm sure, yeah, I'm
sure, right, exactly, and Ithink Vegas is a market,
obviously tremendous amount ofdemand, one of the highest
occupancy markets in the US andthe world, despite having more
hotel rooms than any market inthe US.
(13:18):
And for years the major brandshave kind of been hesitant to
build because it's veryexpensive, for obvious reasons,
some challenges or some concernswith the casino environment.
But we can do a partnership.
We can still generate close toas much fees as if we had our
own hotel there, we don't haveto assume any risk, and so I
think that's going to be afascinating game.
But these partnershipagreements are unique.
(13:40):
I mean the Venetian sort ofspelled it out they're not
forever, right, they typicallyare 20, 30, 40 years or even
less sometimes, and so youcreate customer confusion, right
, one day I'm saying theVenetian under an IHG rewards,
tomorrow it's, I mean, bonvoy, Idon't know.
Speaker 3 (14:07):
To me it's a bit odd, but great for the brands
overall.
One day we have Uber and thenext day we have Lyft right, the
two big monsters that really Idon't think brands and the hotel
industry in the US really talkthat much about or focus as much
on as they should are Las Vegas.
And then the other, in myopinion, is Disney.
Is there a partnership?
Is there something out therewho could tame Disney?
Would anyone even try to bringthat into a brand partnership?
Speaker 2 (14:24):
A really interesting question, arguably, why not?
What I found interesting aboutVegas and MGM's perspective is,
prior to Marriott creating thatpartnership, mgm and they're
obviously pretty public wererunning 85% annualized
occupancies and it wasn't clearto me from their perspective
what accretive additionsMarriott could add.
(14:45):
It's not an occupancy play.
Were they creating a more loyalcustomer base?
Did they add a higher ratedcustomer base?
And again, it hasn't been longenough to play out and so I
guess there must be that.
But I wonder in Disney's case Imean you'd have to, from their
perspective it would have to addenough value.
But I wonder, in Disney's caseI mean you'd have to, from their
perspective it would have toadd enough value.
But again, I think never saynever.
I look at all the partnershipsthat materialized in the last
(15:06):
two years.
A lot that I know are comingover the next 12 to 18 months.
A lot of them I never wouldhave anticipated 10, 15 years
ago.
I think Disney's interesting,right, you look at what Lowe's
is doing in Orlando, around alot of the new Disney resorts,
and again Lowe's is a brand wealmost never talk about, very
different than the others.
They'll appear to play a realestate company in many ways.
But is that something right?
(15:27):
I mean, there was this talk in2019 around Omni and Lowe's,
possibly forging a partnership,which sort of fizzled for a
variety of reasons.
Again, two smaller brands, butif that's possible, why couldn't
we see one of the big ones getin there and create some sort of
a loyalty sharing partnership?
Speaker 3 (15:43):
Do you remember when the Nickelodeon Marriott
experiment was attempted?
Right, how can they get intothis Disney game in Orlando?
But they needed to find adifferent partner, something
that was also an appeal to kidsand fell flat on its face.
Mainly, you can't recreate theentertainment industry from a
hotelier's background, and Ithink that's where Matt and I
(16:06):
are fascinated with Las Vegas.
But I think that's that similargap why brands have not been
successful on the strip.
Speaker 1 (16:11):
They aren't going to be successful in creating theme
parks, I mean beyond the expenseof getting into either market,
particularly Vegas.
Is the culture just sodifferent from what you need to
do, what you need to provide,the skill set you need to have
to run the hotel?
Is Vegas just kind of a one ofone?
Speaker 2 (16:29):
Yeah, I think in many ways it is and I think you know
it's interesting, right, thebrands, particularly over the
last five or six years, havetried to find new verticals to
expand into again, to increasetheir loyalty, to drive higher
share of wallet.
And I think what you've seen,particularly in 2024, and we'll
see over the next three to fiveyears, is their core competency
is running hotels Doesn't meanthat they don't have loyalty
(16:49):
sharing agreements outside ofthe traditional hotel space
Mentioned Vegas talk aboutSaunders shortly obviously their
credit card companies, yachts,et cetera.
But they typically turn again.
It's either a partnership or athird party to help run it.
Because I think there's arecognition and it's been to
your point about the Nickelodeonexample.
It's been proven out in otherplaces.
They're just not built to dothat.
They.
(17:10):
Also, and it's been very clearbased on some of the unfortunate
recent restructuring, wallStreet doesn't value that right.
Wall Street values fees.
It doesn't value them taking onadditional risk via headcounts,
via experimental things.
It's unfortunate in some waysbecause I think they could do it
if given the resources theyhave the resources, if given the
leeway.
But Wall Street is very quickFor better or worse.
(17:33):
These are all public companies,at least for now, and their
value is generating fee revenue.
Speaker 3 (17:40):
I think that goes back to the spin of Park from
Hilton.
The core principle there is notthat Blackstone still owned the
same amount of real estate.
It did January 7th as it didJanuary 6th of 2017, when it was
Hilton and Park were separated.
But by doing that, theinvestment landscape was very
clean, for sure, for sure.
Speaker 2 (18:00):
Marriott Host, exactly right.
I mean all of landscape wasvery clean, for sure, for sure.
Marriott Host, exactly Right.
I mean all of the all of thebrands have gone through this
evolution.
It's interesting, right?
We talk, obviously we're in theUS, we talk heavily about the
US brands.
My work also covers globalRight, and so it's interesting
(18:23):
because, accor, they're in thestage that most of the US brands
ran a decade ago and it'sinteresting to watch.
They're following a similarplaybook but also possibly
making it better.
But again, valuation, you knowthey still get some credit for
their real estate holdings,whereas in the US, hyatt's
basically sold off all of theirholdings in the past two years
and will sell off the remainingover the next year, and they get
(18:44):
so much credit for that right,whereas 10 years ago it was a
totally different landscape.
Speaker 1 (18:50):
Now that 2025 is here , we're seeing a renewed sense
of optimism among hotelinvestors, who are bullish about
urban markets and luxury assets, and that optimism applies to
both domestic and internationalcapital.
I think it's easy at thebeginning of this year to think
that everything literally is onfire on all fronts.
(19:12):
What do you think is behind allof this optimism?
Speaker 2 (19:17):
Yeah, I mean, I think it's no secret right over the
last two years, the commercialreal estate sector, or industry
broadly has, it's no secretright over the last two years,
the commercial real estatesector, or industry broadly, has
been very negatively impacted.
Right, interest rates not onlyrose, but rose quicker than
really in any other period in UShistory.
Pretty much ground everythingto a screeching halt, and this
comes off the back of 2021 and2022 were actually some of the
(19:39):
best years for hotel investmentvolume in the US.
Cumulatively, around $80billion were invested into
hotels in 2021 and 2022, thebest two-year period we've ever
seen.
Again, 2023 declined to lessthan a quarter of that and then
2024 declined even further.
I think what we're starting tosee is on the back of COVID.
(20:00):
There was a tremendous amountof pent-up travel.
You know, we know hotels manyhotels are posting double digit
rev par growth which, for thoseof the industry know that that's
not normal.
There's a lot of reasons forwhy that happened, but it's not
a normal situation and I thinkowners were kind of saying like
why?
You know interest rates arehigh, I'm not going to get the
value I want, why sell?
Because my hotel's performingexceptionally well anyway, and
(20:22):
so I'm not going to be able totrade for what I want, but I'm
going to be able to getoperating returns.
Now we're starting to seeperformance normalize.
Interest rates remain high butthey're coming down and there's
clarity that at least they'renot going to rise any further.
They may not fall as much aspeople want and this is what
really drives hotel investmentvolume in the US.
Urban hotels are finallystarting to perform
exceptionally well.
(20:42):
You see the return ofinternational travel,
particularly from Europe,starting to see some inbound
from Asia through the turn ofgroups, some corporate demand,
and so investors that have heldthese hotels are starting to see
their performance normalize ormoderate.
Interest rates are at leastthis clarity around that and
performance again there is somegreen shoots from the segments
(21:02):
that historically or that havebeen slow to rebound, so we're
starting to see a lot moreinterest.
Private equity groups, who haveraised a tremendous amount of
money over the two years andjust haven't been able to invest
because interest rates are high, started to come off the
sidelines.
We saw REITs, which have beenhit a bit hard by the public
markets, but some of them, likeHost and others, have been quite
active in the past 12 monthsand will continue to be.
We also see a lot of newcapital coming to the hotel
(21:25):
space, which this, to me, is thelong-term trend and really
exciting Hotels, after decadesof being an alternative asset
class most funds allocate verylittle, if any, to the hotel
space Starting to seeinstitutional funds allocating
5%, 10%, 15% of their realestate holdings to hotels.
Last year, we saw 20% of allglobal hotel capital was
(21:47):
acquired by first-time buyers,and so I think this is exciting.
It creates a lot of educationalopportunities.
We all know hotels are complexbeings operational assets,
everything else but I thinkthere's a lot of excitement, a
lot of optimism, and you know2025 is not likely going to get
back to 2021 and 2022.
I don't want to.
You know it's going to grow,but not to that same level, but
by 2026, 2027,.
We see a lot again, barring anyunknowns, a lot of really
(22:11):
positive momentum on the horizon.
Speaker 3 (22:14):
It's hard to talk about 25 or the future in any
definition without mentioning AIand one of the things that
really stood out.
There was an article in FocusWire recently that I thought was
really good looking in travelpredictions the kind of thing
you get this time of year.
But here's what really caughtmy attention the question of
will AI, powered search,co-pilot and the like take a
(22:37):
significant share away fromGoogle and will startups
flourish or the big get bigger?
Anyone looking at AI as thegreat equalizer might be
disappointed was the quote, andthat intuitively fits where I'm
seeing, or at least myperspective looking forward.
Ai depends on data.
The more it has, the better itfunctions and advises.
So it seems to me like thebiggest companies with the most
(22:59):
data are going to be the firstand the largest winners.
Do you see it playing out thatway, marriott and Hilton?
Are they really in thatwonderful little position to go
value from the?
Speaker 2 (23:13):
technology that's crashing down all around us.
Yeah, you know it sort of painsme to say this, to be honest,
but the hotel industry and thisis well documented has
historically been woefully slowto adopt new technologies.
I mean, we all know this,obviously, jeff, from our days
at Marriott Marriott to this dayI know they're possibly
changing but still uses areservation system that was
built in the 80s, and I thinkthe other brands have
(23:35):
historically similar challenges.
It's really hard for me toenvision that suddenly they're
going to go from theseantiquated tech companies to
riding the wave of the future.
Now there's no reason theyshouldn't.
They have tremendous data.
I mean, beyond the fact they'refee-generating companies, the
reason they acquire all thesebrands and have all these
partnerships is to drive loyalty, and cumulatively they have
(23:56):
upwards of a billion loyaltymembers and there's no reason
why, with all this data theycollect, they basically force
everyone to use the apps.
They shouldn't be able tocreate truly customized trip
experiences, trip planning?
I mean, there's really no limit, but I have personally a really
hard time seeing it just basedon the way they've historically
adopted.
And again, wall Street doesn'tvalue them to be tech companies
(24:19):
and so sure they might dabblehere and there they might
acquire third parties, theymight partner, but for them to
go out and invest all theseresources to become a tech
company, which ostensibly iswhat this would require, it's
hard to envision.
Now, on the flip side of that,everyone wants to talk about AI
from a hotel perspective, fromthe consumer side.
Right, the connected trip issort of this holy grail that
(24:40):
bookingcom touts and some others.
You know personalized travel,personalized marketing, all
these things, and that would beamazing To me.
The opportunity is and hotelshave used this to some capacity.
Obviously we know with revenuemanagement and others, but it's
back of house, it's not as sexy,it's not as intriguing, but it
can have a real impact in youroperations.
Whether, again, revenuemanagement operates on some
(25:01):
level of AI, that's great.
What about staffing?
Again, there are some systemsout.
There goes back to collectingthe right data, staff
optimizations, labor forceoptimizations, food costs, smart
thermostats, I mean, there's alot of these things that, again,
from the consumer's perspective, they don't care, they may
never see it, but that can havea material impact on the hotel
space, which already struggleswith cost challenges and
(25:25):
profitability issues.
And so to me, that's where theopportunity is.
Again, consumers don't wantthat and that's not where the
headlines are going to be, but Ithink that can have a real
impact on the industry.
Speaker 1 (25:36):
Of course, one of the biggest hotel stories of the
last two years was TaylorSwift's Erez tour.
Maybe you've heard of it.
According to JLL, the popstar's world tour generated
approximately $1 billion andcounting in additional hotel
revenue across the US, europeand Asia, with its impact
rivaling traditional tourismdrivers like the Super Bowl and
(25:58):
even the Olympics during itspeak periods.
Quote from JLL in one of thearticles in some ways, she's
created many, many, many SuperBowls.
Now Taylor Swift and Beyonce.
Their impact on local economieshas been reported breathlessly
by news outlets.
My question to you is whatshould hotels do with this
information going forward?
(26:19):
What should hotels do with thisinformation going forward?
Do they sit around and wait foranother mega tour, or do they
start being proactive aboutpartnerships with musical acts
of all sizes?
How can they take what we'veseen over the last couple of
years and set themselves up forsuccess?
Speaker 2 (26:36):
Yeah, I mean, first it's pretty astonishing to me.
I'm, you know, not necessarilya Swifty, although sure the
music's on all the time, but thefact that we write about her
effect on the industry and havebeen over the past almost two
years now is just reallyincredible.
That is probably secular.
(27:03):
At least will hang around for agood period of time.
People are willing to travelfor live experiences, whether
that's concerts, obviously wesee it at sporting events.
We see it in a number of things.
I mean, what's fascinatingabout Taylor Swift is, if you
look at the impact in Europe,more Americans actually traveled
to Europe to see her events,stayed at a hotel, booked an
airline ticket.
The impact from Americans therewas bigger than from Europeans.
(27:23):
Right, and there's a variety ofreasons for that the strong
dollar and everything else butpeople clearly travel for that
experience.
So I think hotels have to beproactive.
I mean, obviously you can'trecreate you know a megator of
that nature by yourself, but isthere partnerships you can do?
You know, another brand that weoften don't talk about but is
becoming somewhat larger isSinesta.
You know they've created theselive music partnerships with
(27:46):
either local artists or regionalartists and then they really
use that kind of as a jumpingoff point to manufacture demand.
And I think again, in theabsence of organic demand from
these events, you have to dosomething to manufacture, you
have to create a buzz and Ithink consumers will travel for
it.
I think again, you have to becautious, right Simply creating
(28:06):
partnerships just for the sakeof partnerships.
They can be expensive, so youhave to figure out is there a
real return?
But I think there's shownthere's huge opportunity.
Consumers will travel forexperiences, whatever that
experience might look like.
Speaker 3 (28:25):
To bring this full circle.
That's exactly what Disney andVegas have figured out a long
time ago how to create demand.
Who goes to the middle of thedesert?
Well, they create a reason forhundreds and hundreds of
thousands of people every daygoing to Las Vegas.
Well, maybe not hundreds andhundreds, but the capacity of
Vegas is what?
About 150,000?
Vegas?
Or maybe not hundreds andhundreds, but the capacity of
Vegas is what?
Speaker 2 (28:40):
about 150,000 renters , yeah, right, and you talk
about similar in some ways on adifferent scale.
But what's happening in KSA andSaudi Arabia?
All the mega projects there?
They welcomed 100 millionvisitors this year.
In 2019, they welcomed lessthan 10 million.
I mean that growth isstaggering.
Now, granted, they've investedhundreds of billions of dollars.
(29:02):
Obviously, they basically have,you know, never-ending capital
for a variety of differentreasons, but I mean, again,
going literally to what was themiddle of nowhere and they're
welcoming people by the droves,you know, europeans, Americans,
asians, like all across.
And again, that's aboutmanufacturing demand.
Speaker 1 (29:20):
It's time for the lightning round, Zach.
What's the most overratedstatistic in hotel research?
Speaker 2 (29:26):
Oh boy, probably an unpopular opinion, but Revpar I
think Revpar should die one day.
And don't get me wrong.
I love my friends at STR and Ithink very highly of them and
what they've created, and I getwhy we use Revpar as an industry
, but Revpar never tells thewhole story.
It's been the case pre-COVID.
But if COVID has taught usanything, as a hotel industry,
(29:47):
revpar should not be used.
Revpar has grown double digitsand in many cases, profit,
whether you look at the GOPlevel or the NOI level has not.
And I think as we move forward,the industry wants to tell
Revpar, revpar, revpar.
And again, if you're theoperator, maybe that's great.
If you're the brand, maybethat's great.
If you're the owner, thatdoesn't help me.
You can't take Revpar to thebank.
And I won't say too much moreabout it.
(30:09):
As I know, the industry lovesRevpar and I don't want to
offend anybody, but I thinkthat's the most overused,
overrated statistic.
Speaker 3 (30:15):
Does the current model of owner-operator and
third-party manager have anyfatal flaws in it over the next
decade?
Speaker 2 (30:23):
I mean absolutely, and I think it has over the
previous decade.
Right, they're just a lack ofalignment.
You know, you look at mosthotels these days in the US and
they have three or fourconstituents that all have
different goals.
You know the brands as wetalked about, they're fee
generating.
Really, all they care about istop line revenue.
In most cases it's just rooms.
(30:44):
What if you have other revenuesources?
If you're the third partyoperator, you care about
everything and you care aboutobviously generating profit for
your owner, but then you take afee off of that, and if you're
the owner, you take what's leftover.
And so, again, I think maybeRevpar is part of the reason to
blame, but there's a lot ofthings in there.
There's just a lack of alignmentand I think, particularly as
the brands become lessinterested in managing and
really turn to again franchisebusinesses, you have more
(31:06):
third-party operators.
It's a very competitive space.
We've seen some of the biggestthird-party operators really
struggle because they compete onfees and that actually leads to
their demise.
And so how does that spaceunfold over the years?
And then, from an ownerperspective, how do you sort
through the chaos?
And I think it's going to beinteresting to see.
You know, in the US we're avery mature industry generally
(31:26):
speaking, but, like in Asia,right now, the third party
management space is basicallyzero, but the brands don't want
to manage, so they have to findsomebody to fill the gap.
Speaker 1 (31:36):
So I think it's going to be really interesting to see
the evolution.
What's one piece of unbiased,unvarnished advice you'd give to
an investment group looking tobuy a select service or luxury
hotel?
Speaker 2 (31:48):
Know your market.
I mean, we love to talk abouthow the select service segment
performs exceptionally well,which it does.
We love to talk about howluxury performs well, which it
does, but it's all marketspecific, right.
I mean you got to know yourmarket in and out.
You got to know what drivesdemand, what supply looks like
today and what it will look liketomorrow.
And if there aren't organicdemand drivers, can you
(32:09):
manufacture that demand at areasonable cost?
Because if any of those thingsare out of balance, it doesn't
matter if you have the besthotel in the world or the best
hotel anywhere.
If you don't know your market,if you don't know what drives
demand, you're never going to besuccessful.
Speaker 3 (32:23):
The way Matt asked was select service and luxury Is
full service.
The monkey in the middle.
Speaker 2 (32:30):
I think it is right.
I mean, I think again, yourtraditional full service hotel,
and whatever brand you want topick, relies very heavily on
think on that semi-commoditizedconsumer right, the average
business traveler or the typicalbusiness traveler, typical
group customer right, Lessdifferentiation.
Again, not saying that thesehotels don't have a place, they
absolutely do, but they've beensort of the forgotten children
(32:52):
of COVID.
Now we're seeing return thereand we're seeing a lot of
renewed interest.
Right, as you know, someconsumers from the top end get,
get hinged down because ofeconomic reasons and group
travel returns.
But yeah, I think it would beinteresting, right, and that's
why liquidity has declined somuch that middle, which
historically has made up 70% ofinvestment volume in the US, has
all but disappeared over thelast two years.
Speaker 1 (33:14):
What's the most essential piece of clothing you
take with you when you travel?
Speaker 2 (33:20):
most essential piece of clothing you take with you
when you travel?
Oh, that's a good question.
I don't.
I'm not really a clothes guy.
You know, recently I've beentrying to switch from not
wearing like traditional dressshoes and go to the sneaker
route.
I think that's been reallyhelpful.
We don't wear ties anymore.
So I'm a really big, like funsock guy.
So I try to, and I havedifferent.
I I've been fortunate to travela lot and so I buy socks for
(33:42):
every city I'm in, try to wearthe socks from that city.
New Orleans has some reallycool socks, um, with the cable
car, um, yeah.
So I guess for me it's that's,that's my like, little bit of
whimsy.
I'm not really a whimsical guy,but that's where I can add a
little bit of differentiation inmy wardrobe.
Speaker 1 (33:59):
So pro socks anti rep par.
You heard it here everybody.
Speaker 2 (34:03):
There you go.
Speaker 3 (34:05):
Can't think of a better way to start season four.
It was insightful, phenomenal.
Thank you, zach.
Speaker 2 (34:10):
Thank you, no, thank you, guys, so much.
Really appreciate the inviteand really enjoyed the
conversation.
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