In the past decade, the low cost of labor in countries like China, Taiwan, and the Philippines naturally caused a large amount of US furniture to be imported. We’ve especially seen this amongst hotel FF&E renovations.

But new reports from the U.S. Bureau of Labor Statistics, The Boston Consulting Group, and Old Dominion Freight Lines are telling a different story. With the inflation rate skyrocketing in China and high productivity in the US, cost of production is expected to be equal in China and the U.S. by 2015. This infographic looks not only at that productivity for furnishings made in America but also the disparity in freight costs when shipping large containers.

As consumers, we are not strangers to the tumultuous impact the recession has made on our wallets. Customers had to cut back on seemingly frivolous expenses during this period of economic stress, and luxurious trips to Las Vegas were not immune to the changes in spending. With frugal functionality on the brain, people are opting to spend their money at casinos closer to home- creating a dent in the Vegas title as the gaming capital of the United States.

Despite the bleak trend in Las Vegas hospitality and tourism,  the numerous and sizable renovations that hotels have recently made are slowly changing the game. Due to the number of large CapEx projects that key hotel players are making, the year-to-date visitor volume has increased 3.6% from this quarter last year.

The upgrades being made in both luxury and (comparatively) midscale resorts and hotels are not purely superficial facelifts or PIPs, but tweaks and tune-ups in services as well. The new era of renovation is benefitting the incoming traffic of Las Vegas, but it comes with a hefty price tag. Resorts need to provide an experience that consumers can’t get anywhere else- a calling card for Las Vegas that will get and keep people interested and willing to dole out the cash.

One resort that is tailoring their experience to the price conscious individual is the Tropicana Las Vegas. Since its building in the 1980′s the Tropicana hadn’t undergone a massive renovation until now- spending $180 million on upgrading guest rooms and public spaces. They added a 5 acre pool and club complex. The Tropicana also implemented a service upgrade. As a middle-of-the-road hotel in Vegas, the Tropicana has lowered it’s prices with the intention of creating a balance between offerings- making it appealing and possible for guests to spend at the hotel’s restaurants and clubs. One attraction the Tropicana has added is the taping of the popular show “Dancing with the Stars”- an example of hotels updating their attractions and guest experience.

Poolside lounge area at the Tropicana.

Luxury hotels, like the Bellagio and the Wynn Las Vegas, are updating their design schemes, opting for new and fresh color schemes. The Wynn Las Vegas in particular has had their furniture, fixtures, carpeting, etc. custom designed specifically for the Las Vegas powerhouse- creating a truly one of a kind stay.

Newly redesigned room at the Bellagio.

What has made massive revamping possible? As aforementioned, the recession has made hotel investors weary of backing such lofty renovation projects. The answer: the two prominant controlling companies, MGM Resorts International and Caesars Entertainment Corporation, are discarding some of their non-essential assets- creating the opportunity  for other corporations to profit. Additionally, as the macroeconomics of Las Vegas are looking up so is the credibility of the hotel industry- increasing the rates of investment and reinvestment.

Last week, I was fortunate enough to join some of the brightest minds in the lodging and hospitality world for two days of panels and keynotes on putting together deals, CapEx projects, economic outlook, and more.

Across panels and throughout the Bisnow Lodging Investment Summit, there were definitive trends.

The US Government is Broken, Everyone Knows It, and It’s Hurting the Lodging Industry (and the Economy In General)

It seems like just yesterday the economy was stalling due to “what would happen in the midterm elections”. Eighteen months later, consumers and the market have just as much (or as little) confidence in what will happen in November. (Are we really going to do this every two years??)

As we know, when people feel uneasy about what will happen, it means certain paralysis. Bruce Wiles, COO at Thayer Lodging Group said that we will likely see a stalling in any deals getting done by August until the election.

My idea for ensuring prosperity for the industry

Former Director of the Congressional Budget Office, Doug Holtz-Eakin, said that we are in very big trouble due to the 6 major Congressional decisions that need to be made between elections and the end of the year–tax cut expirations, spending cuts, and another extension of the nation’s borrowing limit.

This proverbial “kicking of the can down the road” means that there is no cushion for the inevitable “bad things” that happen that few could predict. The lodging industry could suffer from a lack of financing due to uncertainty in the markets and will lose due to lack of consumer confidence. It all sounds vaguely familiar.

Also, don’t get Tom Corcoran, Chairman of the Board of FelCor started on the pool-lift legislation going through Congress currently. (Somehow we can’t manage to pass a national budget…but I digress).

Luxury Demand from China Is Big

Whether it be Chinese traveling domestically or those who want to travel internationally, there is a large demand from China for luxury. Arne Sorenson, new CEO for Marriott International, said that in the next few years, there will be more Ritz Carltons in China than in the United States. However, the consensus seemed to be amongst panelists that if you’re not already in China (and it’s a long process to get your first deal), it’s better to be in the US on a risk-adjusted basis.

Europe Could Be Catastrophic

The day before the conference started, French president Nicolas Sarkozy was defeated by Socialist party candidate,

Taking its cues from Ernest Hemingway (seen here in my hometown of Sun Valley, Idaho), Congress continues to kick the can down the road.

Francois Hollande. If Germany and France commence open sparring, the market will take notice. Portugal, Italy, Greece, and Spain remain questionable. Doug Holtz-Eakin noted the unrest in Europe and an increase in oil prices as his two major macroeconomic concerns.

Deals Are Getting Done…and There is Financing

A resounding tone throughout the conference was that there is money out there and you can get financing. It was noted that now is an especially good time for transactions before Bernanke increases interest rates in 2014. Several panelists said that they were buying caps now, or even fixing their debt if they intended to hold the asset for a longer period of time.

Major REITs are moving away from secondary markets and looking mostly at major markets on the coasts. DC remains a highly coveted market for hotel deals. Although Suril Shah, VP of Acquisitions for Starwood Capital Group, did say that they have completed more than 60 deals in middle-America markets and found those assets to be good hedging for their greater portfolio.

While there are likely to be more debt restructuring and foreclosures when $30 billion of debt in the CMBS market comes due in 2012, it’s not as daunting when we learn that many owners are finding financing and able to invest in bringing distressed properties back to par rather than allowing them to go into foreclosure.

Part two of this series to come where I’ll cover the asset management and guest outlook trends…

Many of us have felt the belt-tightening effects of the recession, but after reading the article Economic factors will affect hotel investment I’m left with a smile on my face. The future looks hopeful, no economists predict a recession in 2012 and the corporate balance sheet looks strong. What about the lodging sector?

Fairview Park Marriot, Washington, DC

Predictably so, lodging follows the upward trend of the economy. It seems like lodging will fare well in 2012. Commercial real estate prices are up across the board and there are ample funds available to the government to buy. Hotel sales prices have also improved.

After a recession, there are also many opportunities to buy. Those who borrowed and have found themselves in debt, inevitably have to sell off some of their assets. For this reason, a US hedge fund Fortress Investment Group estimates more than $2 trillion in global real estate assets are up for sale. Compare this to a $260 billion dollar estimate for 1990 – the figure for 2012 proves significant.

The demand for hotels is also expected to go up. The 2012 Omnibus Budget includes some key elements that will induce foreigners to travel to the US and for longer:

• In-person interview requirements minimized
• Certain visas expire later,
• More visa officers in Brazil, India, and China to reduce wait time.

Room rates are also expected to increase because the lull in commercial construction, holding competition relatively constant.

The article highlights that debt is still a main concern for hoteliers, so they need to be more careful with their investment. Cities that will be of focus will have “robust corporate travel, strong leisure travel, and improved group bookings”. Some examples o f these cities include Austin, Charlotte, LA, Northern Virginia, and Miami.