U.S. Hoteliers Turn on the Capex Spigot

Oct 24, 12 | 12:04 am

By Danny King

If you had perused the dozens of presentations and breakout sessions at the Lodging Conference at Phoenix's Biltmore earlier this month, you would have found many attendees who were dressed in sport coats and slacks suffering various stages of anxiety, ranging from downright consternation at worst to, at best, extremely cautious optimism.

But the few guys walking around in shorts? They were beaming.

Amid a three-year run during which hotel development has been at a near standstill, people in the construction industry -- the guys wearing shorts -- finally have reason to celebrate. Hotel owners are just starting to invest in their properties again at prerecession levels.

U.S. hoteliers will spend about $5 billion on capital expenditures this year, according to a report released late last month by New York University's School of Continuing and Professional Studies. That figure is up 33% over last year's capital expenditures and up 85% over the $2.7 billion spent in 2010.

With Smith Travel Research (STR) pegging the domestic hotel supply at about 4.9 million rooms, that means that each room is getting about $1,000 worth of new goodies this year.

What does this all mean?

The good news is that some of this spending is going toward fun items such as in-room iPads, flatscreen TVs, redesigned lobbies, upgraded restaurants and whatever else is left in the till after hoteliers pay to upgrade in-room devices to accommodate the new iPhone 5 connectors.

Slightly less sexy is the investment tied to what's been a recent raft of hotel-rebranding efforts.

As PKF Hospitality Senior Vice President Scott Smith put it in a recent interview, some investors who recently have been able to line up the capital to buy a hotel are using the opportunity to reflag the property and bring it to a higher-rent district, rate-wise.

That might mean a capital investment of anywhere from $5,000 a room for basic upgrades of a budget or midscale hotel to as much as $30,000 per key for a full-scale face-lift for a luxury property.

But the more mundane explanation is that hotel owners are finally making good on improvements to items such as paint, carpet and bathroom fixtures that either they or previous owners skimped on in order to get through the economic downturn with enough cash for day-to-day operations.

Because while the current capital expenditure level marks a jump from the past few years, it's still less than the average amount the industry spent between 2005 and 2008, when the bottom dropped out, according to the NYU study.

Either way, those capital expenditures will be funneled into existing hotels because newbuild properties are few and far between.

Source for full article: Travel Weekly