The current wisdom among hospitality experts suggests that the 3 RRRs (recovery, rates and refurbishing) will dominate lodging industry concerns and its focus in the near term. However, at the core of the last of the 3 RRRs will be the need for a higher return on investment on PIPs (property improvement plans). Otherwise, we could see the hotel cycle hit another downturn, especially for those owners and operators who cannot meet their franchise refurbishing requirements in the coming years.In terms of lodging fundamentals, RevPAR has seen continued improvement says analysts STR, PKF and PWC in their most recent forecasts. A recap of the most recent studies by these lodging research firms report a number of statistics that we as hospitality experts believe add support to the recovery: a) RevPAR will be up the remainder of 2012; b) Occupancy and Average Daily Rates are estimated to rise in excess of 2% and 4% respectively; c) Personal income is up two to three years now; and d) Corporate profits continue to rise. Many a hotel expert also expect low construction starts in major and secondary travel markets to slow supply. Added to this lower room supply will be an increase in demand by domestic hotel overnight stays according to other industry forecasts that could drive up guestroom rates even more. While an economic recovery and higher rates are expected, many franchisors are taking an aggressive stance when there is a change in hotel ownership to fulfill prior PIPs that were put on hold. During the height of the recession, many brands extended the timeline on “refurbishing” for existing owners while they attempted to get additional financing or find a new buyer. According to several real estate experts on hotel management that are brokering hotel deals now, these PIPs are required as part of the franchise transfer or risk losing the flag. This in turn will put a pinch on sales transactions since the ROI often cannot satisfy the added investment and could further soften an overall lodging recovery. Will the required third “R” (refurbishing) by brands and franchisors force another downturn in the lodging industry? Or, could the shift in RevPAR go to those hotels who renovate and upgrade and not impact the industry at all. Please share your thoughts with readers and our hospitality experts here.
