By David Wilkening
Missed your plane? Cancelled flight? Airport hotels used to be where you might stay overnight for a short walk to get another plane the next day. No more.
These days if you happen to be in Los Angeles, you might appreciate a good morning greeting by “Sir Hyatt.” He’s the Hyatt Regency’s registered therapy dog for anxiety. He is said to make “travel-related stress melt away.”
That may not always be the case for anxious flyers but there’s no question airport hotels are getting luxury features that attract not only passengers who missed flights but also have growing interest for investors.
“This trend is emerging now. With the increased movement to downsize and shorten meetings, people are looking for convenience. But many are not willing to compromise on quality, which opens the door for a new wave of more upscale airport hotels,” Kevin Gallagher, Prism’s Senior Vice President of Business Development, tells GlobeSt.com. He goes on:
High Ticket Travelers, Investors Agree on High Standards
“As evidenced with our Hyatt Regency LAX winning the Hotel of the Year from Hyatt, the upscaling of airport hotels is resonating with high ticket travelers, which in turn will resonate with investors. This type of group client wants their points and they want quality and they don’t mind paying for it. When rental cars and ground transportation are eliminated from the equation, the value proposition becomes even more obvious.”
The greeting dog is far from the only example of growing luxury at properties such as the Hyatt Regency LAX.
A recent news release described Sir Hyatt among the “surprises” that make the Hyatt an “Unairport.”
These include locally sourced food and beverage offerings, a state-of-the-art penthouse level fitness center, 3GB shared internet access and a 24-hour shopping market. It’s also said to be the only hotel at LAX to offer complimentary, transportation to and from all terminals servicing guests 24-hours daily. And the canine ambassador, of course.
Gallagher had some further thoughts on airport hotels, including their historical performance. “Historically, airport hotels have been a consistent performer as investments, provided the airport is not facing airlift or terminal disruption, or if there is a lack of barriers to entry for new supply. That said, most airport hotels tend to be somewhat uninspired from an experiential point of view and given the very short length of stay at most airport hotels – they tend to become commodity providers without the perceived ADR upside. As a result, they aren’t as appealing to some value-add investors.”
Investor interest in airport hotels have traditionally been appealing to REITs and others seeking a predictable cash on cash yield but not as attractive to Value Add funds with a short term hold outlook, Gallagher says.
Luxury Airport Hotels Also Have Downsides
The disadvantage of airport luxury hotels is that they are not recession-resistant and fall hard when the economy is in a downturn.
For that reason and others, luxury assets don’t necessarily mean a better investment and traditional hotel REITs and Investment Funds tend not to focus on this type of asset. “Investors in luxury hotels are typically a much smaller group than in other chain scales and tend to be more dominated by international sovereign wealth funds and wealthy families. This is due in part to the substantial purchase price for these assets, the significant ongoing capital investment required to maintain their luxury standards, and the patience required to harvest a return on invested equity,” Gallagher says.
Luxury hotels have always been around but their performance tends to fluctuate more dramatically than other properties. But according to STR at the Hotel Data Conference this year, luxury hotel demand is outpacing luxury hotel supply and luxury continues to command the highest ADR without compromising occupancy.
On the other hand, Gallagher has some thoughts about caution as well.
One reason for the popularity of luxury airport hotels is a need to differentiate among various hotel offerings. But that is a tricky trend for investors and others since the trend could change. An example was in 2008 when the luxury hotel sector imploded overnight.
Gallaher tells the famous industry story of a well-known luxury hotel owned by a major bank. A new policy came out that no bank employees could stay at any luxury hotel. So the irony was that employees could not even stay at their own property.
Read the article at GlobeSt.com