process of assessing value comes down to having a deep , authentic , and crystal-clear understanding of revenue sources and knowing the ‘ who , what , and how ’ expenses are aggregated . While this may sound like a rather fundamental exercise , I challenge those of you in my shoes to consider the following :
REVENUE :
• Are we currently the willing victims of ‘ revenge travel ’? Consider this : the entire country has been in varying degrees of lockdown for 16 months or so ; compound that with the fact that many Americans have had thousands of stimulus dollars burning a hole in their pockets . Is this industry performance the new normal , or a prolonged steroid-induced wave foretelling an inevitable pullback in 2022 and 2023 ?
• What does the future of business travel look like ? Never before have people been forced ( for an extended period of time ) to rely exclusively upon technology to conduct normal business operations . How much of that truly becomes standard operating procedure ( s ), and how much reverts to pre-COVID behavioral patterns ?
• What does the future hold for major conferences and largescale business meetings ? Initial attendance at some of our key industry conferences is off from previous peaks . Have the days of heavily attended conferences gone the way of the Blackberry , or will they be met with the excitement as the next best iPhone ? Lastly , how long will it take for largescale events to return to pre-pandemic attendance levels … if ever ? Early indications suggest it could be a long , slow crawl back .
EXPENSES :
• Labor is a challenge unique to this market cycle , as there were no lockdowns , stimulus checks , or vaccination insecurities post 9 / 11 or following the Great Recession . Today , nearly every industry is struggling to find labor , and if they do , they are paying extraordinary premiums to recruit and retain top talent . Do we inflate wages and payroll expenses based off this disconnected inflationary year , or do labor expenses eventually reset to pre-COVID levels ?
• How will the brands react in this environment ? Many brands relaxed or waived certain requirements that have been fixtures for decades . How are service requirements , like daily housekeeping or hot breakfast , going to be reintroduced , or are some amenities gone forever ? Are guests going to accept the absence of amenities they have come to expect at certain hotels , and how will this impact guest satisfaction scores ?
• Does the increased velocity of technology adoption finally stick ? Are we on the verge of seeing the front desk go away , and are we on our way to robotic housekeeping ?
• What happens to fixed expenses like property taxes ? Throughout the nation , cities , states , and local jurisdictions are struggling to recover from substantial tax revenue deficits . Will we face unexpected or substantial increases in tax rates that are completely disconnected from real property values ?
• Decreased costs are being combined with outsized revenue growth in 2021 , particularly in leisure destinations . How do we treat this inflated NOI from a value and underwriting perspective ? Do we carry it forward , throw it out , or something in between ?
There are many questions , old and new , with fewer clear answers or solutions . Successful underwriting has always been an extremely delicate balance of art and science . In a post-COVID world , successful underwriting will require a lot more art . There are vast amounts of pent-up capital on the sidelines eagerly waiting to be deployed , and some in our industry are making very aggressive bets . Who will be right , who will be wrong , and how will the myriad uncertainties above play out ?
It will be critical first to stay disciplined , and adhere to time-tested methodologies analyzing supply , demand , brand opportunity or risk , capital needs , and high-level macro trends and micro trends for a specific property and market . After that , careful consideration of the new dynamics needs to be considered , and each issue overlayed into your underwriting . Nobody knows the future , but a disciplined and well-thoughtthrough approach will put you in the best position for a successful acquisition in a very uncertain world .
September / October 2021 hotelsmag . com 57