High end commerical real estate begins to buckle

[santafe2]

The Four Seasons in San Francisco...foreclosure has begun and it's not an outlier. Luxury is so passe. A few clips from the article:

“All segments are showing signs of distress but the luxury segment carries much higher loan balances and is more clearly affected...

The number of luxury-brand rooms in the U.S. as of the end of July rose 9.1 percent from a year earlier to 100,000...

The Westin Aruba Resort & Spa...was foreclosed on in May...The property’s occupancy rate dropped to 41 percent in May...

But my favorite is the one below. It's not just that the property has a loan some 70% larger than the value of the underlying asset...they're busy hustling people to become owners in the resort. I guess the rental model wasn't panning out.

A $190 million loan secured by the 640-room Arizona Grand Resort is 90 days delinquent...If the loan is liquidated it may lead to a $111.9 million loss...

You can go here to buy yourself a little slice of 115 degree July temperatures.
http://www.arizonagrandresort.com/


And the full article:
http://www.bloomberg.com/apps/news?p...d=acRimZeJH75o

[dcarrigg]

Re: High end commerical real estate begins to buckle

Even the so-called 4-Star business hotels are feeling the burn.

Did anyone else hear about the Hyatt in Boston? They fired 100 maids simultaneously - but not before they made them train 50 minimum wage workers to take their place. I bet the rooms won't be 4-star cleaned.

The story gets even more interesting as protests begin in front of the hotel. Read the article here.

[CanuckinTX]

Re: High end commerical real estate begins to buckle

It's obviously become a great PR mess for the Hyatt the way they handled it but let's face it, this is what businesses will have to do to survive.

The great FIRE economy lifted all boats with the rising tide and somehow it made sense for a while to pay a maid $15 per hour with benefits on top to change some sheets and vacuum a bit. Now there are probably people standing in line to take those jobs for $8 an hour.

All the outrage in the world isn't going to stop this from happening if businesses plan on staying afloat.

[MulaMan]

Re: High end commerical real estate begins to buckle

but let's face it, this is what businesses will have to do to survive.

Really? Do you know anything about business?

So you think it will not be possible to run a hotel at any profit level?

The problem is simply debt, the banks need to go under for taking stupid risk and these commercial assets sold off at real market prices, then these hotels will be crazy profitable over night.

According the article the Hyatt saved $7 per hour per employee, that is ~$14,500 per year per housekeeper.

So that is grand savings of $140,500 per hear (100 housekeepers fired at $15/hr and re-hired at $8/hr) - they could have simply fired one MBA'er Hyatt executive and saved much more per year plus provided better service for thier customers and hence shareholders, ...

[MarkL]

Re: High end commerical real estate begins to buckle

Really? Do you know anything about business?

So you think it will not be possible to run a hotel at any profit level?

The problem is simply debt, the banks need to go under for taking stupid risk and these commercial assets sold off at real market prices, then these hotels will be crazy profitable over night.

According the article the Hyatt saved $7 per hour per employee, that is ~$14,500 per year per housekeeper.

So that is grand savings of $140,500 per hear (100 housekeepers fired at $15/hr and re-hired at $8/hr) - they could have simply fired one MBA'er Hyatt executive and saved much more per year plus provided better service for thier customers and hence shareholders, ...

Yes, but if they'd fired the MBA, they'd never been able to figure out the brilliance of that maid move!:rolleyes:

[bcassill]

Re: High end commerical real estate begins to buckle

Really? Do you know anything about business?

So you think it will not be possible to run a hotel at any profit level?

The problem is simply debt, the banks need to go under for taking stupid risk and these commercial assets sold off at real market prices, then these hotels will be crazy profitable over night.

According the article the Hyatt saved $7 per hour per employee, that is ~$14,500 per year per housekeeper.

So that is grand savings of $140,500 per hear (100 housekeepers fired at $15/hr and re-hired at $8/hr) - they could have simply fired one MBA'er Hyatt executive and saved much more per year plus provided better service for thier customers and hence shareholders, ...

Reminds me of a story about a hospital in a small town my cousin lived in. Seems several years ago some investors came in and bought the hospital. In order to make it more profitable, they immediately fired everyone and then hired them back at lower wages. Real nice group of humanitarians.

As to the Hilton, I wonder how far they've gone to reduce bonuses and salaries of the guys at the top first before throwing the maids out. If they are truly serious about saving some $$$, there has to be at least one or two highly paid deadbeats that can be canned. Maybe they can even do like the hospital investors and hire them back as maids making $8 an hour. :p

[dcarrigg]

Re: High end commerical real estate begins to buckle

Really? Do you know anything about business?

So you think it will not be possible to run a hotel at any profit level?

The problem is simply debt, the banks need to go under for taking stupid risk and these commercial assets sold off at real market prices, then these hotels will be crazy profitable over night.

According the article the Hyatt saved $7 per hour per employee, that is ~$14,500 per year per housekeeper.

So that is grand savings of $140,500 per hear (100 housekeepers fired at $15/hr and re-hired at $8/hr) - they could have simply fired one MBA'er Hyatt executive and saved much more per year plus provided better service for thier customers and hence shareholders, ...

Exactly MulaMan - not only is real estate a huge piece of this (hence me brining it up in this thread) - finance the culperate behind the real estate price explosion - and our good friend insurance, which completes the FIRE are the major inputs to hotel operating costs.

Take this example from the hight of the boom:

U.S. Hotel Industry
Change in Selected Operating Expenses
2001 to 2002
Labor Down 0.2%
Marketing Up 1.2%
Maintenance Up 1.7%
Utilities Down 5.5%
Insurance Up 33.1%

"The single largest increase in hotel operating costs during 2002 was insurance. The average U.S. hotel had to spend 33.1 percent more in 2002 in order to insure the contents and structure of their building, as well as business liability. This comes on the heels of an 18.9 percent increase in 2001. “Ever since September 11, 2001, our clients have been telling us about the staggering increases in premiums they’ve had to pay,” says Woodworth. “This is one of the biggest increases in any one individual expense item that we’ve seen in the 67 years our firm has been tracking U.S. hotel operating performance. From what we’ve heard, this trend of increasing insurance premiums appears to have carried forward into 2003.”

[flintlock]

Re: High end commerical real estate begins to buckle

Even the so-called 4-Star business hotels are feeling the burn.

Did anyone else hear about the Hyatt in Boston? They fired 100 maids simultaneously - but not before they made them train 50 minimum wage workers to take their place. I bet the rooms won't be 4-star cleaned.

The story gets even more interesting as protests begin in front of the hotel. Read the article here.

Key word in that article would be "UNION" maids.

[anniecat]

Re: High end commerical real estate begins to buckle

Not to argue the points being made but, 14,500 x 100 = $ 1,450,000

[flintlock]

Re: High end commerical real estate begins to buckle

Really? Do you know anything about business?

So you think it will not be possible to run a hotel at any profit level?

The problem is simply debt, the banks need to go under for taking stupid risk and these commercial assets sold off at real market prices, then these hotels will be crazy profitable over night.

According the article the Hyatt saved $7 per hour per employee, that is ~$14,500 per year per housekeeper.

So that is grand savings of $140,500 per hear (100 housekeepers fired at $15/hr and re-hired at $8/hr) - they could have simply fired one MBA'er Hyatt executive and saved much more per year plus provided better service for thier customers and hence shareholders, ...

By my math that's a $1,450,000 savings. We are talking a lot of money that could go to executive bonuses here.;)

[GRG55]

Re: High end commerical real estate begins to buckle

Really? Do you know anything about business?

So you think it will not be possible to run a hotel at any profit level?

The problem is simply debt, the banks need to go under for taking stupid risk and these commercial assets sold off at real market prices, then these hotels will be crazy profitable over night.

According the article the Hyatt saved $7 per hour per employee, that is ~$14,500 per year per housekeeper.

So that is grand savings of $140,500 per hear (100 housekeepers fired at $15/hr and re-hired at $8/hr) - they could have simply fired one MBA'er Hyatt executive and saved much more per year plus provided better service for thier customers and hence shareholders, ...

Your math is incorrect, and there is no direct relationship between the number and cost of the maids [and the motivation to cut that cost] and the "market value" of the real estate...

...As to the Hilton, I wonder how far they've gone to reduce bonuses and salaries of the guys at the top first before throwing the maids out. If they are truly serious about saving some $$$, there has to be at least one or two highly paid deadbeats that can be canned...

The high end international hotel companies such as Four Seasons, Fairmont, Ritz Carleton, Intercontinental etc. have converted themselves to management services firms...they rarely, if ever, actually own the properties and therefore probably don't much care what the underlying "value" or cost of the real estate is. Their value is in their brand. Don't expect any of them to start cutting any "highly paid deadbeats" unless and until their own fee revenues start declining. Even in bankrupcy, unless the receiver actually closes the hotel, changing the brand is expensive so these firms will probably still continue to run the properties.

Cutting the opex of the hotel is being driven by RevPAR and the fact that some portion of the performance fees the management company can earn are doubtless tied to current period profit margins...