American luxury hotels hit hardest last year

{ Posted on Aug 13 2013 by B-man }
Categories : Travel news

Luxury hotels with $1,000-a-night roomrates and extravagant Caribbean resorts may face a tougher recovery than the rest of the industry, Marriott International executives said this week.

“The most over-the-top excesses will probably be a long time – if ever – coming back,” Marriott president Arne Sorenson told the Reuters Travel and Leisure Summit in New York.

He drew a distinction between these hotels and the typical Ritz-Carlton luxury hotels the company operates. Marriott’s other brands include its namesake properties and Courtyards.

Sorenson added that some projects in the Caribbean, which tend to be smaller and partly rely on residences, “may never come back” because they rely on the kind of lavish spending that has gone out of vogue with travellers.

“They require really that conspicuous consumption to support their entire business model,” Sorenson told reporters.

Of all hotels, luxury properties were the hardest hit last year. While rates sank nearly 9% for the US hotel industry, luxury hotels saw their rates tumble more than 16%, according to PricewaterhouseCoopers.

Many hotels across the spectrum have buckled under their debt loads in this downturn, as lower roomrates constrain cashflow used to service these payments.

Ritz-Carlton Hotel Co, a division of Marriott, will close its Lake Las Vegas property this year.

Reuters reports some distressed properties have bristled against standards set by companies like Marriott. Sorenson said the company is working with some hotels to manage their payments, and has extended the deadline for hotels to put flat-screen television sets in rooms.

“We’ve also got some one-off owners who just don’t have two nickels to rub together,” Sorenson said. “If it goes too long or if it is too severe, that is a place where the response is really to pull the flag.”

Chief financial officer Carl Berquist and Sorenson said typically 5 000 rooms leave the Marriott system each year, but this year a few thousand more rooms could be shown the door.

These properties would largely fall in the limited-service category in tertiary markets.

In the event that a hotel goes into foreclosure, Marriott has “non-disturbance agreements” on many hotels, which prevents that hotel from leaving its brand, Berquist said.

Widespread distress in the hotel industry, lower rates and tough economic conditions do not mean all luxury hotels will go belly-up, Sorenson said. Some of these hotels will be able to restructure their debt with their lenders.

“There’s a whole bunch of hotels that are in established destinations, dealing with meaningfully lower rates,” Sorenson said. “Over the next number of years (these hotels) are going to see their owners work with their lenders.”

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