Renovate Now, Prosper Sooner Rather Than Later Experts advise being ready for the market rebound. Monday, November 09, 2009 Beth Kormanik

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NEW YORK -- With hotel transactions brought to a near standstill over the past year, opportunities for suppliers have all but dried up.

What to do during the downtime and how to plan for the future was the topic of the panel discussion “Purchasing Strategies for New Realities” this weekend at the International Hotel/Motel & Restaurant Show at the Jacob K. Javits Convention Center.

"A lot of what we do and what vendors do is a change of ownership for property improvement plans," said Alan Benjamin of the furniture, fixtures and equipment (FF&E) purchasing firm Benjamin West. "That’s one of the huge drivers that’s nonexistent right now. Eventually capital will happen, change of ownership will happen, change of brand will happen."

For owners fortunate enough to have capital on hand now, West said there isn't a better time to improve properties.

"If you put it all into a bucket – labor, FF&E cost, freight, construction – you’re probably saving at least 25 percent. In some markets it could be higher," he said. "If you use that as an average, that’s a lot of money, whether you’re renovating or doing new construction. You’ll look like an absolute hero if you do that right now and then the market comes back."

Benjamin noted that anyone renovating now will get the "A-Team" -- the architects, designers and general contractors that might have been too busy for them a couple of years ago.

"They’re there and they’re hungry," he said.

Rob Baker of Baker Project Consulting, agreed, noting it's a particularly good time to complete compliance work such as ADA improvements or brand property improvement plans (PIPs).

"When things start coming back, inflation is going to come back up," he said. "Now and over the next year is a good time to do it. It takes planning, and you’ll get very opportunistic pricing even from vendors who are experienced."

Payal Gandhi of Starwood Hotels & Resorts said maintaining FF&E is particularly important to creating a positive guest experience.

"Those elements are key to brand development. That’s what distinguishes hotel product," she said. "From a business-model standpoint, FF&E and other products that feed into hotels are relevant and critical."

But hoteliers not in a position to start a renovation or who can't secure the financing for a new build or conversion can still position themselves to take advantage of the market when it returns.

Begin meeting with a project manager, designer and architect, so projects are ready to go when capital comes back.

"Get locked and ready to go so when you have the loan you are four months ahead of everyone else and you haven’t pulled the trigger yet," Benjamin said.

Craig Amos of Apple REIT said that's what his company is doing now. It's also a good time to renovate because, with occupancy down, there will be less disruption when rooms and other spaces are closed to guests.

"We’re all hoping at this point, how much worse can it get?" he said. "The business traveler is the guy who hasn’t been out there. It’s only so long that they can stay out there. We’re betting on the fact that it’s coming back. We’ve taken our medicine and we’re preparing ourselves."

Right now, the hope is that the industry will begin its bounce-back in 2010 and continue with strong numbers in 2011 and 2012.

"Most of us thought that by now we would be coming out of this," Baker said. "This recession has been much deeper and broader, especially when it comes to commercial real estate. We think things will come back in the second half of 2010. We think 2011 will be a good year."

Baker predicted good things for the properties as well as the suppliers, especially as the inevitable demand comes through the system.

"Things are going to wear out. Beds are going to wear out, TVs are going to wear out, buildings are going to need renovations," he said. "There is a natural demand of things. People are going to go to properties where they feel they are clean, well-lit and giving good service."

The challenge for the entire industry will be dealing with the bottleneck of projects, Baker said. Many projects that were put on hold or cancelled will be coming back, in addition to the normal work that would be required in any given year.

"Restarting that machine for the pent-up work that’s coming is going to be a slow process," he said. "It will take a long time to hire people back. There will be a lot of stress on the system. Be ready for that."

Clients already are wondering why projects aren't moving more quickly, he said. The problem is suppliers who cut staff because of the lack of orders are short-handed, with some orders taking longer now to fill than at peak demand a couple of years ago.

Relationships with vendors have changed during the recession, the panelists reported.

"I’m seeing a lot more customer service from the vendors," Baker said. "They’re focused on maintaining relationships with people they know or know by reputation. Sometimes they’re exceeding expectations in deliveries or if they have a problem they call me directly to solve it. They’re doing everything they can to maintain clients."