q&a | Daniel Lesser

DANIEL LESSER

President and CEO

LW Hospitality Advisors

New York City

Daniel Lesser is among the most pre-eminent lodging industry brokers, advisors and analysts in North America and a more than 40-year veteran of the industry. Prior to starting his own firm more than a decade ago, Lesser worked for Hilton Hotels Corp. and Eurotels-Switzerland. He also writes a quarterly column on the hospitality business and its major transactions for commercial real estate research website Globe St.com, and is a member of the Penn State University School of Hospitality Management Industry Advisory Board.

The U.S. hotel industry has undergone an extended period of robust growth across the board. You noted in LW Hospitality’s third quarter industry report that the industry’s expansion cycle has reached 114 months, as measured by growth in revenue per available room. But you also indicate that some industry metrics are changing. What does that indicate?

The reason the hotel industry has done so well for so long now is because the U.S economy as a whole has done well. There’s no shortage now of pontificators who say the economy is slowing, and that’s true. We are seeing a slowing in terms of the ability to raise room rates. But occupancy remains strong, and everything is relative. The economy and RevPar — revenue per available room — are still growing, it’s just that the amount of growth is declining. But it’s growth nonetheless. By contrast, early in the 1990s the hotel industry was bleeding money. We’re not there. And after 40 years in this business, I’ve learned everything is cyclical. There will be another recession, I’m confident about that. The question is when and how long it will be and how wide. As for now, we’re still seeing record metrics.

What’s your forecast for the he U.S. hotel industry for 2020 as it relates to transactions, and why? 

I see transaction activity continuing to be very active in the year ahead, in part because the world is awash in capital. There’s never been a time in my career that I have seen so much capital, both on the debt and equity sides, and from all parts of the world, chasing yield and targeting America. And we’re still in a low interest rate environment. I’ve been hearing for 10 years now that interest rates are about to spike and that inflation is about to go out of control, and neither has happened. Meanwhile, with hotels, if they’re invested in in a smart and sophisticated manner, it doesn’t really matter at what point in the economic cycle you’re in. Hotels are a superior, risk-adjusted asset class over a long period. So I see no shortage of activity in 2020. There’s a lot of money out there, and it needs to be put to work.

Florida had seven major hotel transactions occur in the third quarter of this year, more than any other state. Is that just because of the sheer size of the hotel market, or are there other factors at play?

Florida is a very hot market, period. It’s business friendly, and there are no shortage of individuals and business entities that are looking to set up shop there or buy properties, if they haven’t already. People like Carl Icahn, (Starwood Capital Corp. Founder) Barry Sternlicht, and not to get political, but Donald Trump. They’re all New York guys, and they’re all either in or working to be in Florida hotel properties. Florida benefits from good weather and a good economy. It’s Capitalism 101. The state has also evolved into a kind of gateway to the U.S., especially for Europe and South America. And it’s a good business and tourism and convention market. It hits on all cylinders. Not everyone can say that.

What do the macroeconomic trends within the industry mean for a market like Tampa? Your report indicates that investors are shying away from some gateway cities like Los Angeles to more tertiary markets like Tampa where returns can be better.

Look at what the smart money is doing. I see Jeff Vinik as being emblematic of a trend. He’s better big on the lodging sector at Water Street Tampa. Guys like Sternlicht and Bill Gates, they’re sophisticated and wealthy, and look what they’re  investing in and where. Hotels in Tampa. Tampa is business friendly, and it’s rising, and I don’t think Tampa has even arrived yet. LA, it’s arrived. Tampa had always been considered a solid secondary market, but now, if it’s not a primary market already, it’s well on its way to getting there. Job growth and population growth draw people, and Americans believe it is a God-given right to go on vacation, in good times and bad, and they want to go to places like Tampa.