Tomorrow is the first day of summer, and many people are making their plans for a seasonal vacation. But while most people look into hotels merely for getaways, Mark VanStekelenburg follows the ebb and flow of the lodging industry at PKF Consulting LLC, where he was recently named senior vice president and practice leader of the firm’s office in New York City. We spoke with VanStekelenburg about the current state of the lodging industry and its impact within the wider commercial real estate sphere.
Q:You have been in the lodging industry for 14 years. In your view, what have been the most significant changes to this industry during that 14-year-period?
Mark VanStekelenburg:While there have been many significant changes within the lodging industry during my career, I would say two of the most significant changes are what has happened to communication and how hotel assets are treated by the financial community. For communication, the rise of social media and a range of new channels completely changed the way we do business and market our business, both within the hotel industry and our general way of life.
Second, for hotel assets, the last two cycles have reset the way hotels are underwritten. The hotel industry generally led most other asset classes in recovery following 9/11 and the recession that began in 2008. As a result, and amidst a continued education by and of the financial community, the interest in hotel assets by institutional, REIT, and individual investors continues to rise while at the same time the level of understanding within the investment community has risen significantly for what has historically been a challenging asset class to underwrite.
Q: PKF’s recently released Trends in the Hotel Industry found that hotel profits are on pace to exceed pre-recession levels in 2014. What forces are driving this positive profits picture?
Mark VanStekelenburg:We are at the point in lodging industry business cycle when RevPAR growth is driven by ADR, which is more profitable. And, low inflation is curbing expense growth. Furthermore, the last four years have been characterized by leaner hotel operations as expenses were the focus amidst depressed revenue levels. This continues to assist in driving higher hotel profits, though additional work rule and wage rate discussions may have impact on this going forward.
Q: The U.S. economy can still be considered as a bit on the fragile side. What impact does the current economic environment have on the lodging industry’s viability?
Mark VanStekelenburg:When you dig deeper into the economic data you find positive information regarding the economic factors that have a great influence on the lodging industry. This includes:
>> Strong growth in corporate profits
>> Growth in personal income
>> Growth in the two components of GDP that most benefit lodging – consumer and business expenditures (as opposed to government spending and trade)
>> Relatively low levels of unemployment for people with high incomes and higher levels of education – in other words, the people that historically have stayed in upper-tier hotels
Q: You have recently been named the new practice leader in PKF’s New York office. What will be your primary focus in this new role?
Mark VanStekelenburg:Our goals in the New York office include building on John Fox’s existing footprint for advisory work within Manhattan and New York, while also focusing on synergies with PKF Hospitality Research, which continues to deliver applicable and effective tools for the hotel industry. Lastly, we will focus on building/cementing relationships with the significant number of players in the industry, including those on Wall Street, that are centered in New York in order to provide our products and services both out of our New York office and our national network of offices.
Q: One of the more interesting pieces of data recently released by your company was the news that hotel mini-bar sales dropped 28 percent from 2007 to 2012. Is this the dawn of a new age of sobriety, or are other factors at play in this steep decline?
Mark VanStekelenburg:A combination of economics and changes is social patterns:
>> Mini bars are a small source of income and expensive to maintain
>> Post-recession, it is tough for travelers to put a $15 candy bar on their expense report
>> Hotels are changing the way they offer F&B – mini-marts/grab-and-go, coffee shops in the lobby, etc.
PKF Consulting is online at www.pkfc.com.
Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.