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There are several reasons for Starwood Property Trust CEO Barry Sternlicht to be optimistic with the hotel industry. Convention hotels aren’t one of them, apparently.
In a departure from what CEOs at hotel companies like Hilton and Hyatt said earlier this week, Sternlicht predicts an uncertain, long road ahead for some of the biggest hotels in the U.S.
“What we’re most worried about are the Marriott Marquis of the world,” Sternlicht said on a Thursday investor call of the brand known for its often more than 1,000-room hotels. “It’s going to be a while for those businesses to come back.”
While optimistic around more affordable hotel brands as well as luxury resorts, Sternlicht took a notably less optimistic look on the back half of 2021.
Sternlicht, who previously oversaw Starwood Hotels & Resorts between 1995 and 2004, said there is an uncertain recovery ahead for hotels like the Westin Peachtree Plaza, a more than 1,000-room Atlanta hotel the investor claimed banked more than 90 percent of its business on group travel when Starwood managed it.
“I used to manage it, so I know what it is,” Sternlicht said. “It’s going to be a while, and there’s going to be tremendous pressure on rates.”
Hilton CEO Chris Nassetta and Hyatt CEO Mark Hoplamazian this week both touted strong group bookings for the back half of this year at their respective companies.
Hyatt’s group business bookings across the first quarter for future events was up 55 percent compared to the end of 2020. Hoplamazian even thinks group business could recover faster than corporate travel.
Sternlicht is more confident in the summer than the back half of the year. The summer travel season is likely to be a massive windfall for hotel operators, and many are already cashing in.
SH Hotels & Resorts, where Sternlicht is the chairman, has been able to charge as much as $1,600 per night — above the company’s expected $800 per night, he said — at its 1 Hotel South Beach in Miami due to so much leisure travel demand over the spring. But summer travel is unlikely to move the needle much at massive convention hotels in city centers.
“There’s a lot of people booking stuff,” Sternlicht said. “I don’t think a lot of people are heading to the Marriott Marquis in New York.”
Corporate travel and trade shows usually kick in to fill the slack in leisure travel over the fall, but it isn’t clear how much of that will come back this year. Some financial firms like Goldman Sachs signaled a return to the office this summer, but other companies are less committed to traditional workspaces.
“The [summer] numbers will be astronomical, but that’s going to be a bubble,” Sternlicht said. “We’ll have to see across the whole economy what’s sustainable.”
The leaders at Hilton and Hyatt were bullish on group business returning, but even they recognized it won’t come back like a flip of a switch. Nassetta expects group business at Hilton to only be at half of pre-pandemic levels by the end of this year.
“To get those room nights and rates and the compression we need requires the bigger groups to be back, and, while I think they’re coming back and they certainly want to be back, the planning and all of that is on a lag,” he said on Hilton’s investor call this week. “So I think that takes some time next year.”
Despite the less-than-rosy take on convention business, Sternlicht does see plenty of opportunities for the hotel industry in an increased work-from-home environment.
If more workers are at home, companies are likely to encourage more teambuilding meetings that require a hotel stay. That’s a win for hotel companies that position themselves to take on this kind of business.
“The tech companies are most likely to accept work from home because they’re so competitive with each other,” Sternlicht said. “They’ll let you work from Mars as long as you send in your work, but they will do [in-person] team-building exercises and go to markets like Las Vegas.”