As an industry that is closely tied to the ups and downs of the global economy, the hospitality sector is largely impacted by economic and social trends. In order to thrive, hospitality companies must adapt to current developments, such as:
- Disputes between owners and brand operators have taken a turn where owners are ousting the operators in contravention of the management agreements and then choosing to fight in court, arbitration or bankruptcy proceeding. This is likely to result in a dramatic revision of the hotel management agreement business model.
- Growth in all segments of the hospitality industry continues to be fueled outside the United States. Activity can be seen not only in Asia, but in Latin America, the Middle East and Africa. The Caribbean still lags, but is showing some signs of life. The world's economies are of concern, and that concern is restraining what would otherwise be pent-up demand dependent mostly upon availability of equity and debt money. In the U.S., the select service sector is growing in certain markets and through rebranding. Sales of existing upscale and luxury properties are also increasing among flagship and rebranding candidates.
- The availability of capital for receivables financing and CMBS securitizations for timeshare and fractional developers has returned to the marketplace as the economy has generally improved. Increased liquidity for developers and a more optimistic outlook by consumer buyers may be a significant indicator of the start of a general industry recovery.
- The fee for service model has become a significant source of revenue for established branded timeshare developers who desire to keep real estate assets off their balance sheets in the future; this "asset light" strategy of using existing sales, marketing and management personnel of branded timeshare developers to sell other developer's or lender's products for a fee has become very popular in the last year as a means if increasing revenues without the need to own the related real estate.
- As a way to penetrate new markets and ensure brand expansion in the face of the continuing limited available of debt financing for new build hotels, major brands have recognized the need to put “skin in the game” through capital acquisitions, equity investment and increased key money in order to secure strategically important assets in key markets, with the understanding that they are in for a long-term hold as the market recovers. Further, market penetration led by rebranding in connection with acquisitions and existing portfolios are on the rise.
- The changing dynamics of international travel trends, driven by the increased investment in BRIC countries (Brazil, Russia, India and China), and the rapid increase in travel from emerging economies due to an expanding middle class, are creating new opportunities for investors and operators around the globe.
- Foreign equity investors continue to view the U.S. as a relatively safe harbor to invest capital, looking primarily at major flags in key gateway cities where they can enjoy additional return on their investments if the U.S. dollar strengthens.
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