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Boutique Dominates Long-Term Thinking of Hospitality

Valuation experts from Pebblebrook Hotel Trust and Hodges Ward Elliot weigh in 2020 has brought so many changes to the hotel industry, and amid thi...

Valuation experts from Pebblebrook Hotel Trust and Hodges Ward Elliot weigh in

2020 has brought so many changes to the hotel industry, and amid this crisis, valuation is more important now than ever. In a fascinating session with Daniel Peek, President, Hotel Group of Hodges Ward Elliott, and Tom Fisher, Executive Vice President & Chief Investment Officer of Pebblebrook Hotel Trust at the Boutique Lifestyle Digital Summit by BLLA, the industry experts discuss these changes with interviewer Ronit Copeland, Founder & CEO of Copeland Hospitality

Ronit Copeland speakers with Tom Fisher of Pebblebrook Hotel Trust and Dan Peek of HWE at the Boutique Lifestyle Digital Summit by BLLA

Investors are always looking for new opportunities, and the boutique sector looks promising compared to bigger hotel brands. Peek explained, “I think the general consensus is that boutique and lifestyle hotels will recover promptly relative to perhaps larger group hotels by the nature of their low density; they’re somewhat bespoke, custom, and small, and that is going to be attractive, we think, to the traveller as we come out of the pandemic’s impact.”

Fisher also believes this could be the time for the boutique sector to recover some market share. He explained that boutique has been a beneficiary of capital over the last four to seven years because third party operators were previously focused on big brands and were major franchisees, but were later exposed to soft brands. Through these ventures, they realized they can be more independent for many reasons, according to Fisher: “There’s less friction, there’s less cost, and there’s more flexibility.” 

However, this year’s crisis has had implications regarding owners’ relationships with banks and lenders. Peek pointed out that all business is based on relationships, so now, stress has been put on these relationships. The key to a positive outcome is to understand that everyone is experiencing challenges. In light of the second round of negotiations happening right now, he revealed, “I think we’ll see this cycle–much more than in the past–is more loan sales where they will sell those loans to someone who can step into the negotiation and bring the capital that’s necessary to get to the other side. We think that it will be a different recovery model from an investment standpoint.” When it comes to valuation, one key consideration, according to Peek, is that capital is initially going where there will be short-term growth for short-term recovery. 

As stated by Fisher, lenders have an aversion to owning assets in the hotel industry right now, but more significant transactions will take place as more time goes on. He explained, “Everybody understands we’re all in this together, but with time, there will be more friction in terms of [protecting investments] and lenders will start being a little more stringent in terms of a loan sale or an asset sale to recoup their loan.” 

Both panelists have a strong belief that boutique hotels are in a favorable position to succeed and grow as the industry begins to come back. Fisher revealed, “I think boutique has a lot of advantages: its operational flexibility and control over capital…You can respond and react much quicker to guest preference and you can market to that guest preference within minutes or hours.” This aspect undoubtedly adds value to boutique properties during these times. 

Peek mentioned a more long-term aspect of the value of boutique. “When you think of that rising generation of business traveller who’s focused on having that unique experience, where they’re more likely to stay for the weekend or experience a new town to try something different. I think boutique is well positioned for that.” 

Fisher and Peek are both optimistic about a recovery for the hospitality industry. Peek speculated that this recovery will happen faster than that of the Great Recession; brands will lead the way in beginning to transact again, which will be a signal to the rest of the industry to follow. Fisher disclosed that Pebblebrook’s collection of independent hotels have been more profitable than many of their other big brand hotels due to their flexibility and more lenient restrictions. With this combination of a speedy economic recovery and the appeal of independent hotels, the boutique industry is set to come back stronger than ever. 

BLLA Members can watch the full session in the portal here

Article written by Drew Stephenson of BLLA

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