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TR Mandigo & Company is a hotel consulting firm specializing in market feasibility studies, impact analysis, litigation support, asset management, financial analysis, and acquisition due-diligence for hotels, resorts, and F&B operations. Located in the Chicago area, we have conducted over 400 consulting projects around the globe. Our work has been cited in several publications; in addition, our insights can be found regularly on the business pages of the Chicago Tribune, Crain's Chicago, and other major media outlets.
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Recent Blog Entries
Nightclub Hotels
By Richard Mandigo
Posted on August 02, 2010 1:45 PM
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According to the latest J.D. Power and Associates rankings, the new hotel chains to look out for are the aloft and the Indigo, which represent a similar style and a similar departure from traditional hotel chains.
These two hotels feature modern, edgy style that attempt to market to a younger demographic. Hotel brands are once again in a period of growing pains, trying to appeal to gen-Y as they become part of the consumer base.
The brands to a certain extent are taking their cues from boutique and lifestyle hotels around the country but particularly in New York City. Unfortunately, nobody has satisfactorily given a concrete definition of what these terms mean. I’ll just throw out some definitions to make it easy. Boutique hotels came first, and are generally smaller upper upscale or greater hotels, which offer a high level of amenities and services. Lifestyle hotels followed, can be thought of in much the same way, but specialize further, focusing on spa services or more frequently, nightlife. Essentially, it’s the same as a boutique, but it's trying to appeal, or give the appearance of appealing to a younger generation.
Surprisingly, hotel brands have already learned some important lessons from lifestyle hotels. If you look at new construction or brand renovation standards, it would look similar to a boutique hotel. Hotels today use more interesting furniture and bolder colors. They’ve already integrated most of the latest technology into their rooms. The average new or renovated hotel no longer looks like someone’s grandma designed it.
The term I like to use for what came next is “Nightclub” hotels. As mainstream hotels adopted many of the things that made boutique properties special, new hotel concepts were pushed further to the extreme. These hotels have been the norm for the last decade in Vegas, and started showing up in New York a little afterwards. A nightclub is built to be on the bleeding edge of what’s cool right now, typically at a high cost, and it lives or dies by the buzz it generates, moreso than a bar or coffee shop, which rely on a steady stream of regulars. When a nightclub opens, it basically already has an expiration date. A typical hotel is built for over 20 years. Even though they all serve drinks, a nightclub has to constantly re-invent itself to stay on top of the trends, which means in hotel terms, that lifestyle hotels have a much shorter shelf life than a traditional hotel. Their renovations have to be more frequent and likely more expensive or they will lose buzz which is their lifeblood, which is frequently lost when the next hotel like it opens anyway.
This works in New York City, because hotels run at much higher occupancies year round and they can afford the extra supply. Elsewhere? That remains to be seen. While they’ve been successful in Miami, the market has been strained recently. The Chicago market can reasonably only support a few such hotels compared to New York.
A few lifestyle hotels in a market represent an alternative to traditional properties and capture guests from a theoretically untapped market. The target demo for these hotels is young. In most cases outside of New York, it remains to be seen how deep the pool is. (Anecdotally, most of the working 20-somethings I know stay at business hotels.)
This places these hotels in a bit of a niche. However, the real boon for these hotels is that, like a nightclub, while they’re built to attract the young-and-hip, they also attract people who wish-they-were-young-and-hip. People in their mid 30’s or older, who can afford to spend more at a hotel while they’re on the road for the experience.
The question is, are lifestyle hotels the next short-term trend like condo hotels were before them? In the sense that they’re mostly a buzzword that developers throw around trying to finance their hotels, yes. Like condo hotels, they don’t work as well in reality as they do in New York.
Overall, though, they’re here to stay as an alternative to the traditional hotel. And like all alternative-culture movements, if too many people start doing it, the magic will be lost. When one lifestyle hotel opens, it takes business away from say, a Courtyard by Marriott. When a second one opens, it takes business away from the first, and both need to compete to induce demand from traditional sources. When they reach critical mass, they’re more likely to cannibalize each other than they are other hotels, or just give up the edgy image and become a normal hotel.
To an extent, it should be a somewhat self-correcting trend, because when the first rounds of major renovations are needed, we’ll see how dedicated these hotels are to staying on top of the trends if it means a higher cost.
Aloft and Indigo are essentially lifestyle-lite. To the extent that they have succeeded, they’ve done so because they’re edgy, but underneath it, they’re basically normal brands. The rooms aren’t very different aside from the paint color and the look of the furniture. They’re a bit more expensive to build than a traditional hotel, and the rooms rent out for slightly less, but these variances aren’t huge and some of the lower rate can be chalked up to traditional ramp-up discounting.
When the Hyatt Place concept launched, a lot of complaints from owners and guests revolved around the coffee bar concept, which was seen as out of place and a bit of a hassle. We’ll see the same thing about the pool tables, lounges and other design choices Aloft hotels have made. Ultimately, the pool table isn’t really there for people to play pool on, it’s there because it’s part of the image of the hotel.
0 comments. Leave a comment.Recovery, in a sense
By Richard Mandigo
Posted on June 01, 2010 4:08 PM
tags: Recovery, Feasibility, Projections, Consluting, Hotels
Earlier today, someone told me that our last update on our website’s blog was from October 2009. The truth is, we pretty much just forgot about it for a while. We’re sorry about that!
A lot has happened over that time. There have been tons of articles that could tell you what happened technically, but since this is a blog, I figured I’d try to use as little jargon as I can.
So, people pretty much agree that we’ve hit bottom and now it’s just a matter of time until we start seeing decent recovery. The question of exactly how long that will take is the real trick, of course. Just because something’s not getting worse doesn’t mean it’s getting better.
A lot of different consulting companies have had forecasts out for last year and most of this year that have been revised extensively. This means that the companies can look back at the end of the year and point to their revised forecasts and produce almost perfectly accurate results. To use a bad sports metaphor, it’s easier to know who the winner of the World Series is going to be in October than it is in April. Just don’t claim that you knew what the results were going to be back at the start of the season.
These are still useful tools, and we’re not going to disparage the hard work that went into them. But if you’re looking at where a hotel is going to perform in a year or three, you need to know that in a recovering market, things change, and quickly, and that projection scenario is really more of a best-guess than anything else. There’s a reason long reports come with so many clauses.
It’s pretty easy to guess where something is going to go when you’re in a stable market. It’ll grow a bit, year by year, and then it’ll even out. Occupancies will go up, rates will go up with them, and when occupancies flatten, the rates will still climb a bit further. That’s probably what you’ve read if you’ve ever seen a feasibility study. It’s the most normal scenario.
For a while now, everything’s been going down, and fast. The problem is, now that occupancies are starting to come back up, rates aren’t coming back up with them. And it’s not logical or mathematically sound or statistically probable from past trends. This may all sound a bit self-defeating, but it’s honestly not. It’s just important to know what you’re getting when you look at these projections.
Rates are still down because of a bunch of factors, some of which were accounted for, and some which weren’t. Things like the growing role of travel websites account for some of it. Package deals are part of it. Three nights for the price of two and similar deals help keep up the daily published rate, but are still giving away a night for free, which hurts. The consumer is keenly aware that they can still get great deals, and so they’re going to push harder to get what they perceive as a bargain. And probably the most difficult to predict, hotelier confidence hasn’t come back.
We’re at a point where things are starting to look better, but it seems like it’s very tenuous. Although occupancies are up, the people running the hotels don’t want to do anything to jinx it. This pretty much directly translates into keeping prices low. There’s a lot of data out there that suggests that like most superstitions, this doesn’t have a lot of basis in reality. But it FEELS right. And what’s worse, nobody wants to be the first person to test it out, because if no one else does it, then yes, your customers will go elsewhere for a bargain.
The hotel industry is legally prohibited from sharing rates and such with other brands or hotels because it would be considered collusion. Lots of other industries get around this. Some with fewer scruples than others, but there’s an easy legal way to get your rates back up.
It’s called confidence. And until the whole industry believes we’re actually recovering, those rates are going to stay low. And confidence isn’t something that’s usually taken into account in projections.
A lot of companies earlier this year showed forecasts with all three key metrics down to varying degrees, or only token increases in occupancy. Our earlier forecasts for this year were probably a bit too aggressive in Average Daily Rate, which is remaining flat, but our projections for increased occupancy and revenue per available room have been pretty much spot on.
Since I’m writing again, expect a new article soon about “nightclub hotels”, and why I felt the need to just completely make up a new term to describe a growing phenomenon.
0 comments. Leave a comment.Hotels Vs. Expedia Vs. Customers
By Richard Mandigo
Posted on October 26, 2009 11:42 AM
tags:
I’ve not updated the blog in quite some time, and although there have been a ton of hotel-related developments in the news lately, I haven’t felt like I’ve had a whole lot different to say from everything else that’s out there. This weekend however, I was reminded of the recent dust up between Expedia and Choice hotels, and the larger struggle between online hotel booking sites and the franchises themselves.
As a bit of background that I’m sure most everyone already knows, online hotel sites make deals with franchises and individual hotels to take a block of rooms and fill them for the hotel at a discounted rate. It benefits the booking site, because they make a profit off of each booking, and it theoretically benefits the hotel because it brings in more customers. Except, of course, that many hotels are finding that many of the customers booked through online sites would have, in the past, bought the same hotel room through a different service for a higher price. It’s a bit of a deal with the devil for the hotels, because while they are looking for ways to increase their prices, they can’t afford to lose room nights, and as Choice is finding out, you can’t negotiate with a company that’s in a better bargaining position than you. So now, they have to fend without the extra occupancy that comes from being on Expedia. It’ll be interesting to see how that turns out. But that’s not really my story.
We went down to a wedding this weekend after booking a hotel online. The ceremony began at 3:30, and we had left plenty of time to get down there and change into our dress clothes. We arrived at our hotel shortly after 1, and asked for our rooms. The clerk insisted that they were not ready yet, and that their check in policy stated that you could not be let in before 4 PM. I asked if there were any other rooms we could use just to change beforehand, and she stated that there were not, then offered to let us change in their public washrooms. Thanks, but no. I was getting upset at the bad service, and I’ll admit I could have handled the conversation better, but I’m involved enough in the industry to know that’s not how you run a hotel. But, like everyone’s shared horror stories of waiting at the DMV, this person had an iota of power and by God, she was going to use it. I asked to speak to the GM. She moved on to the next customer, who she proceeded to check in, no problem.
Finally, I talked with the assistant GM who put me into a handicapped room, so that we could change for the wedding. But the experience was already ruined. And it got me thinking, why did a relatively normal situation like that turn into a confrontation? Ruling out myself as the culprit (how could I be at fault, after all?) I settled on two possible reasons, both of which speak badly for that particular hotel and hotels in general.
Bad training. This is sort of an obvious one, but poor training has permeated the industry of late. Whether it’s front desk staff who care about as much about their jobs as they would if they were working a check out register on the low end, or boutique and luxury staff whose bad attitudes seem to say “you’re lucky I even let you in my hotel”, staff attitudes are a major problem in hotels today. I’ve worked the front desk. I’ve had bad customers. I know. But the job of the hotelier isn’t to protect his or her ego from being bruised, and that goes all the way down. Whether you know for a fact that you’re right or wrong, you are wrong, because the customer is always right. If there is a problem, you fix it for them. You’ll probably charge them on their bill, because it’s a service, not a charity, and that’s fine. You don’t say NO unless it’s something that’s clearly wrong. You are not more important than the guest. They are the most important thing in the world as long as you’re working at the hotel. When you punch out and go home, you can go back to being as arrogant as you want, but you cannot do that from behind that desk, or anywhere else in the hotel for that matter. It’s not just another job, because having a good attitude is absolutely essential. I forget who said it, but the truth is, every guest is a VIP, even if some are more VIP than others.
Attitude from above. Going along with point 1, this one can show very clearly in hotel staff. If the managers are aloof, the staff will be too. If they don’t care about the guests and treat it like “just a job” so will everyone else. If they’re treated as expendable they’ll act like they don’t matter. And to bring this back around to my earlier point, if they make a habit of complaining about how Priceline and Expedia are hurting their business, it’s going to show through in the way their staff interacts with their clients.
You can go ahead and bemoan the damage the online booking companies are doing to your bottom line as much as you want when you’re doing your balance sheets, but it’s an absolute sin to treat your guests as less important just because they used the tools they’ve been provided to get a better deal. It’s easy, it’s convenient, and it saves money, and they shouldn’t have to suffer through attitude or worse service once they get there just because you don’t like that they saved a few bucks. It’s not their fault.
2 comments. Leave a comment.The Flurry to Position for Aquisitions
By Ted Mandigo
Posted on August 13, 2009 11:46 AM
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We’ve had two new financial instruments enter the Wall Street market to raise funds, including a $1.5 billion IPO from Hyatt and an $810 million fund for Starwood Properties (a unit of Starwood), both earmarked as intended for acquisition of troubled and non-performing assets. In addition, we've recently seen news that Blackstone is looking to offload its Hilton portfolio, possibly by breaking up the company into smaller collections. While it's indicative of the fact that Q2 earnings were way down and that these companies are looking for ways to raise capital, It's also a sign that we've hit bottom. Generally, the big trend near the top of the cycle is to go private, now the major players are going public. That these companies feel like they can pick up hotels on the cheap means that they're seeing a big upside potential coming down the road.
Non-performing/troubled assets by definition will require patient money and additional investment to carry the properties through a turn-around as well as most likely significant PIP and deferred maintenance attention to bring the properties back to a competitive position.
If you've spotted the inconsistency there, it's because while a good asset CAN be distressed (especially given how many hotels are highly leveraged), it's unlikely to result in a catastrophic doom-and-gloom scenario where every hotel out there is going to default. Of course, SOME will.
There's a sort of general sense that everyone's on the sidelines waiting for their favorite hotel to fall into foreclosure so they can snap it up, in some sort of hotel-buying feeding frenzy, but logically, the situation is much the same as it's ever been.
During these troubled times, those assets which are up for sale will most likely trade well below replacement values, but the carry costs and risk of acquiring those properties will be significant. Just as much work as buying a distressed hotel on the upside. The difference is that now it's a bit cheaper, so more people are gunning for the good ones. It's complicated by the fact that there's less money out there to get them. As always, the distressed hotels are going to need a lot of work and money to get them up to profitability.
...Unless you've got a huge acquisitions arm, because I’m not sure that position is consistent with the investment strategy for those funds, which are ideally looking for well-performing assets, which they can essentially slap their name on.
Which means that, as long as you don't mind the fact that you're never going to have nearly enough shares to ever challenge a Pritzker, or Wal-Mart, or any of the other major holders, investing in a group that CAN move mountians at the bottom of a market is a pertty sweet deal, provided you have an idea of what you're getting into.
A realistic probable scenario would see REITs solicited for possible deals to sell their performing assets at current market values, to raise the necessary funds to carry the remainder of their portfolio through the current recession and into a recovering market. This would accomplish two tasks, supporting the weakened REIT market and providing the selling organizations with necessary resources to survive and providing those firms with ready investment cash with performing properties to enhance their portfolios at a significant discount. Cherry picking portfolios would also allow investors to be deliberate in acquiring properties that fit their portfolio and allow them to target markets that are not currently served by their brands, or improve representation in markets where they under-serve the market.
These huge organizations are also likely to look at possible chain or multi-property acquisitions, such as a possible fit with say, Hyatt acquiring Embassy Suites. These "new" brands would fill a niche and remain compatible with the organization.
This type of selective acquisition makes much more sense than targeting properties in such deep financial holes that they are teetering on the edge of bankruptcy or foreclosure.
There are certainly the funds out there waiting for the right opportunities, and those with the cash resources have multiple opportunities to jump into the market.
0 comments. Leave a comment.2009 Chicago CBD Projections
By Jim Battin
Posted on August 04, 2009 9:01 AM
tags: Chicago, Forecast, Presentation
We've recently made available our Chicago CBD Forecast for 2009. This presentation was given to the Council of Chicago Hotel General Managers today, August 4th, 2009 by Ted Mandigo.
Topics discussed include:
- Our performance estimates for the remainder of 2009.
- Meetings and convention outlook.
- Projections in occupancy, ADR, and RevPAR for 2010-2014.
- How the Chicago market is positioned in these challenging times.
- Historic cyclical performance.
- Estimated supply coming through the pipeline, and the impact the credit-crunch had on pending projects.
