Repositioning focus of hospitality seminar.
Marriott Corporations Executive Vice President and CFO Stephen F. Bollenbach addressed one of two luncheon sessions. He believes there are hotel opportunities in Asia and sees capital as the biggest stumbling block.
Marriott hopes to add 400 hotels through management contracts and franchises and cited health care as the area of fastest growth, accounting for 8 percent of the new Host Marriott's $325 million in income last year.
Bollenbach will become CEO of that company when Marriott officially splits into two companies: Host Marriott and Marriott International.
The company will retain some properties until the market improves. Bollenbach said, "It's very much a buyer's market and would be a mistake to force sales."
At a workshop on Repositioning and Reprofiling Hotels, conversion to senior citizen homes and nursing homes were also discussed as an area of growth. While Marriott is building new facilities, a California participant noted that Americans with Disabilities Act (ADA) compliance makes conversion too costly for many older hotels and motels.
If a hotel were converted to an AIDS hospice, it would face community opposition at the beginning and possibly total loss at the end, the workshop was told, as a stigma could be attached to the premises.
Workshop moderator Stephen W. Brener, CCIM, CRE, CHA, president of Brener Associates, observed that South Beach in Miami, Florida is one of the few U.S. sites where repositioning has been successful and is a growth area. Older hotels in Washington and California will also need to be repositioned in order to survive, participants said, while Hawaii is facing challenges.
Birge Watkins, director national investor outreach program for the Resolution Trust Corporation (RTC), said Motel 6 is one of the few chains he has worked with that has successfully bought "mom and pop" motels around the country and repositioned them.
William H. Lanting, director of hotel acquisitions for Hotels of Distinction in Palm Beach, observed the Marriott chain has also turned mom and pops into Courtyards.
In one total repositioning, Watkins recounted how the RTC sold a California building to a movie company that subsequently blew it up while making Lethal Weapon 3.
Alan Tremain, chairman of Hotels of Distinction, observed many older hotels and buildings should be knocked down, a sentiment that is being expressed at other city real estate functions.
Dr. Atid Kaplan, a hospitality professor at New York University, remarked that China is the only place he has been to where a hotel operator has to have a maintenance program in place before the hotel is completed. "You can have a new hotel and 18 months later you need a new one," he said, remarking on their lack of care.
Brener said if the tax law had not been changed in 1986, there would still be hotel development. Prior to that time, hotels were constructed with a built-in loss that would taper out after about 10 years. "It encouraged terrific overdevelopment," he acknowledged, adding, however, that the new law "stopped everything." The Bush Administration, he noted, never thought about what they were creating.
But this law made people treat these buildings as a business and not as a tax loss, Tremain said. He believes investors should be looking at a hotel's useful life as 50 to 60 years. Motels should exist for 20 to 25 years, added Brener. Tremain does not foresee major hotel development in the next three to four years in the U.S.
Motels are difficult and costly to reposition or renovate because of laws governing life safety and building code issues, including the ADA, that must be addressed when major construction work is undertaken. In Massachusetts, Tremain said, building inspectors are charged with ensuring ADA compliance. In most places, enforcement of the ADA is by complainant through the courts. This means case law could carve out new standards in the years to come.
Hotel chains came under fire from participants who complained about management fees, franchise fees and contracts.
Some chains are conducting extensive impact studies when contemplating new franchises to help ensure the new site will not impinge dramatically on current franchisees. "The industry is still in the throes of what [an impact study] is about," Brener observed.
In reality, participants noted these are used to cover the chain's legal position if the current franchise holder opts to sue. "There can be blood to those who can afford to stay [in the legal system and pay their attorneys]," Brener added.
Contracts with franchise owners are full of things the franchisee has to do and contain very little of what the franchise will do, said Lanting.
"The obligations of the franchiser are very thin other than putting their name on the walls and providing reservation services," he noted.
Brener added: "There is more repositioning because franchise companies are interested in selling you a franchise," Brener added.
The two-day confab was sponsored by New York University, School of Continuing Education, The Real Estate Institute and The Center For The Hospitality Industry and drew attendees from around the globe.
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|Title Annotation:||15th Annual Hospitality Industry Investment Conference addresses conversion of hotels to alternative business entities|
|Publication:||Real Estate Weekly|
|Date:||Sep 15, 1993|
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