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College & University Hotel Ownership Symposium: Key Takeaways ~ by Rachel Roginsky, ISHC

March 27, 2024 7:21 pm

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The College & University Hotel Ownership Symposium (CUHOS) convened at Harvard University in early March. The focus of the symposium was to allow college and university employees charged with the planning and administration of their institution’s hotels an opportunity to attend seminars and discussions important to the development and oversight of hotel assets. The biennial event, hosted by Pinnacle Advisory Group at a college or university partner, featured data analysis, perspectives, and insights from expert hotel industry partners with on-campus hotel experience. Previous CUHOS symposia have been hosted by Pinnacle at the University of Notre Dame, Villanova University, and Swarthmore College.

At this year’s event, representatives from  25 colleges and universities attended two days of seminars and networking events to discuss topics including Objectives in Owning a Campus Hotel, The Development Process, Hotel Feasibility, Structuring Your Hotel Deal, Capital Planning, Operating Issues that Impact Top Line Revenues, Legal Issues, Tax Structuring (UBIT), Conference Centers/Learning Centers and Multi-Purpose Space, and Operating Issues that Impact Profits.

A key theme among all of the presenters can be summarized as ‘collaboration and partnership’ at every phase of the project from early planning to the daily activities in the building. Other principal takeaways from this year’s conference are the following:

Capital planning is an issue of key importance to most colleges and universities, according to Gary Avigne, Director of Asset Management for Colleges and Universities at Pinnacle Advisory Group. Most institutions that own a hotel, both as a real estate asset and operating business, seek to invest in the property only when the hotel is originally developed or purchased, or in some cases, re-purposed. Once the hotel is operating, the College (Owner) wants the hotel to be self-sustaining. This suggests the need for a strong focus by the hotel operator and the asset manager on capital planning. Accordingly, in addition to operational oversight and annual strategic planning, university hotel asset managers must provide administrators with development and renovation support to allow university administrators to focus on the institution’s core mission.

The importance of starting the development and renovation projects on the right foot was noted by Harry Wheeler, Principal, JCJ Architecture, reflecting a key concern of many attendees. Engaging early with the design, operations, and management teams, for either a new construction project or a renovation, is critical to developing the correct program, one that aligns with ownership goals, and thus ultimately to the project’s success.

“Universities/colleges are fully aware that a hotel can leave a lasting legacy and make a meaningful contribution to their educational mission, but the challenge most universities face lies in navigating the complex path of planning, programming, and ultimately developing these facilities to meet the needs of their communities,” agreed Kyle Hughey, CEO,  Charlestowne Hotels; “It’s been shown that a hotel can be the centerpiece for fostering community, enhancing alumni relations, advancement, and supporting academic and professional events. The benefits are broad as they touch every stakeholder from students to faculty, and extend to athletics, alumni and visiting scholars.” However, “recognizing the need for a hotel is merely the first step. This process demands a specific understanding of academic culture, operational requirements, and financial modeling.” And most institutions require multifaceted help including feasibility guidance, development expertise and an operational partner to deliver an impactful campus hotel, according to Hughey.

Sales and marketing of university hotels can sometimes present unexpected challenges according to a presentation by John Hamilton and Nala Holmes, Acquisitions & Business Development of Pyramid Global. They point out that it is a common misconception that university constituents will naturally support the hotel with their university related business. As operators of several college hotels, Pyramid Global stated: “We learned quickly that there are many users: Deans, professors, recruiting, alumni relations, athletics etc., and that they all need to be sold as if they were a corporate account. The college or university that is able to influence and assist the management company with these users will benefit from a more viable project.”  In addition, during the development period, they note that it will ultimately benefit the hotel to “conduct focus groups and solicit input from the many constituents that will ultimately use the hotel. Creating a sense of ownership will ultimately translate to loyalty within the university community.” They also suggest that operator input during the early planning process is key to the ultimate success of a development project that will create a welcoming living room for all University constituents to share, be proud of, and return to time and time again.

Creative pathways to financial sustainability by both looking beyond the institution for demand, but also evaluating how college and university hotel owners engage with their own hotel was the focus of a discussion with John Schultzel, Chief Growth Officer of Olympia Hospitality.  He noted that “constantly exploring operating efficiencies that align with existing campus resources” is a must for the hotel operator. Additionally, “campus partners care deeply about the reputational impacts of their hotel operator’s execution, from local buzz about the restaurant to the hotel’s digital footprint. Collaboration and partnership between the operator and the College owner at every phase of the project from early planning to the daily activities in the building is very important. “

As non-profit institutions, colleges and universities have special tax needs, including structuring their ownership of real estate to deal with revenue that could be taxed as Unrelated Business Taxable Income (UBTI), according to Martha Frahm, Tax Partner and Cecilia Gordon, Hospitality Partner at Goulston & Storrs. In almost all circumstances, the revenue from a hotel owned by a college or university is likely to qualify as UBTI.  In those circumstances, the educational institution has several options to address the taxable income. One of the most common approaches is to lease the real estate to a third-party that will operate the hotel, however, as hotel leases are comparatively rare in the United States commercial real estate market (as compared to Europe), using a lease raises practical and economic questions that should be addressed up front. They point out that to avoid problems down the road, all options should be discussed early in the process with tax counsel experienced in working with non-profit institutions.

As more colleges and universities study the feasibility of developing hotels on or near their campuses, or seek to renovate and reposition older properties on their campuses, I stressed the importance of understanding the local market, conducting demand research with actual college demand generators, and understanding future plans for the college that are critically important when making a decision to pursue hotel or conference center development. All of the speakers reinforced the importance of effective planning in setting up hotel projects for success both within the university or the broader community.

Rachel Roginsky is the founder and Owner of Pinnacle Advisory Group, a national hospitality consulting practice headquartered in Boston with office throughout the United States. Pinnacle has been assisting colleges and universities with hotel projects for over 35 years. 

BOSTON/CAMBRIDGE LODGING MARKET – 2023 YEAR END REVIEW, By Rachel Roginsky, ISHC

January 31, 2024 9:35 pm

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The Boston/Cambridge lodging market ended 2023 at 76.4% occupancy, a 6.8% variance over 2022’s 69.6%. This 6-point increase in occupancy is a result of the market accommodating 8.6% more rooms in 2023 compared to the prior year; 0.6% more rooms occupied as compared to 2019.  Seasonality appears to be in sync with what we typically expect for the Boston market. Peak season, May through October, monthly occupancies ranged between 84% and 89%, averaging 86%.  The three-month shoulder season, March, April and November, market occupancy averaged 75%. December through February, our slow season, market occupancy averaged 58% in 2023. Finally, in terms of the 2023 market demand mix, and based on data provided by hotel managers in the City, the group, contract, transient leisure, and transient corporate mix was 22%, 6%, 45% and 27%, respectively.  This compares to an estimated demand mix for 2022 of 22%, 6%, 42%, and 30%, respectively. Clearly the most significant change was the shift within the transient segment where transient corporate demand increased as the corporate market continues to ramp up from the impact of the pandemic.

Overall, ADR increased by 4.7% in 2023 over 2022. However monthly ADR growth declined from very high rates growth in the early part of the year. In the first five months of 2023, room rates grew at an average rate of 12.8%.  This compares to an average growth rate of 4.0% for the remaining 7 months of 2023.  In fact during the summer months (June/July/August) rate growth slowed even more (an average of 2.6%) which can be attributed to leisure travelers considering alternative locations and not willing to pay significantly more for rooms in the Boston market.

With both strong occupancy and room rate, the Boston/Cambridge RevPAR reached $223.03 in 2023, up 14.9% from the 2022 level, and surpassing 2019 levels by 4.0%. Clearly hotel operators and owners in the City are more optimistic and most believe that the subject lodging market will continue its upward trajectory.

Presented in the table below are the year-end 2023 vs. 2022 statistics for the Boston/Cambridge lodging market.

click on image below to enlarge:

While the 2023 occupancy and ADR for the City have been strong, the actual performance for hotels within the submarkets differs. For example, if we look at geographic submarkets, the Logan Airport submarket achieved the highest occupancy in 2023, reaching 84.6%. This submarket also garnered the strongest rate growth, increasing 10.2% in 2023 compared to 2022. With room rates lower in this submarket as compared to other submarkets, the 2023 RevPAR of $188.95 placed this submarket as the 2nd lowest in the City.  The second strongest geographic areas in terms of occupancy were Fenway/Longwood Medical Area (LMA) and North End/West End, both ending the year at approximately 80%.  Cambridge had the lowest annual occupancy, at 71.5%.  Pre-covid, the Cambridge lodging market performed at an occupancy level slightly below the overall Boston/Cambridge lodging market (2019: Cambridge 81.75% vs Total Boston/Cambridge 82.5%). Unfortunately the Cambridge submarket is still ramping up. According to CBRE’s fourth-quarter Cambridge office report, office demand from tech companies in Cambridge contracted by more than 85% from 2019 to the end of last year. In terms of RevPAR, the top three submarkets with the highest RevPAR were North End/West End, Downtown and Back Bay.

Looking at operating performance by rate tier also shows varied results.  For example, occupancy in the  luxury tier in 2023 was only 58.7%.  While this tier typically operates with lower occupancy, it clearly is taking more time for the ultra-high rated hotels to gain traction.  Furthermore, our newest hotel, Raffles, which opened towards the end of 2023, will add for luxury inventory to the City in 2024. With respect to room rate, the ADR for this rate tier was $596.45, a 2.9% decline from 2022. Regardless of the drop in ADR, the luxury tier RevPAR ended the year at $344.59, a 16.7% increase over prior year performance.  The two lower rate tiers in the City achieved the highest occupancy (79%) with room rates and RevPAR averaging approximately $234.84 and $186.82, respectively.

With a very good year behind us, there is much to be optimistic about as we move into 2024 although the hospitality industry has become accustomed to surprises. Nevertheless, all signs point to a healthier lodging market in Boston/Cambridge in 2024.

About the Author

Rachel J. Roginsky, ISHC, is the Owner and Founder of Pinnacle Advisory Group. She is based in the firm’s Boston office. Ms. Roginsky has more than 40 years of experience in hospitality consulting. Ms. Roginsky is an appointed board member of The Cornell Center for Real Estate and Finance (CREF), and is the current Chair for Boston University School of Hospitality Administration’s Real Estate Advisory Council (REAC). She also serves as a board member to numerous hospitality-related organizations and societies, and is a regular guest lecturer at prestigious institutes of higher education. Additionally, Ms. Roginsky is an adjunct professor at Boston University. She is widely published and quoted, and is the co-editor and author for Hotel Investments: Issues and Perspectives, a well-regarded book (5 editions) published by the Educational Institute of the American Hotel and Lodging Institute.

A Year In Review: How 2023 Exceeded Expectations and Optimism for 2024 – by Rachel Roginsky, ISHC

December 22, 2023 7:01 pm

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The article below was featured in the December 22, 2023 issue of the New England Real Estate Journal, and authored by Rachel Roginsky, ISHC:

The Boston & Cambridge (“City”) lodging market recorded an occupancy of 45% in 2021, only 55% of its performance in 2019. Last year, occupancy increased to 70%, representing an 85% index to 2019. The City’s yearend 2023 occupancy is estimated to be 76%, a 92% index. It’s clear that lodging demand continues to gain strength.  More importantly, if we account for actual demand, by the end 2023, the Boston market will accommodate 8% more roomnights than in 2022 and slightly more room nights as compared to 2019.

The City’s ADR has recovered from the pandemic at a faster pace than its occupancy, climbing to $291 in 2023, a 4.5% increase over 2022 and a 12% premium to 2019 levels. However, it’s worth noting that ADR improvements in 2023 have moderated throughout the year, while occupancy continued to climb month over month. For example, for the first 6 months of 2023, ADR increased an average of 11% for the same time period in 2022, as compared to 3.7% (est.) for the last 6 months of 2023.

The market’s revenue per available room (RevPAR) in 2022 and 2023 was at 90% and 103%(est.), respectively, index relative to its RevPAR in 2019. By comparison, the U.S. lodging market’s RevPAR in 2022 and 2023 was 107% and 112% (est.) when indexed to 2019.  While still below the recovery of the entire US lodging market, the City continues its upward trend. The expectation is that 2024 will feel more like 2019 in terms of overall travel in the Boston market.

Presented below is our 2023 forecast for the Boston/Cambridge lodging market compared to the annual performance pre-covid (2019).

click on the image below to enlarge:

Submarket Performance

Pinnacle Advisory Group tracks market statistics by submarkets.  Presented below is a table showing the October YTD 2023 occupancy, room rate, and RevPAR by submarket.

click on image below to enlarge:

For the first 10 months of 2023, both occupancy and ADR in all submarkets have shown strong growth over 2022. Occupancy for the Boston/Cambridge market increased from 71% in 2022 to 78% for October YTD 2023. The Logan (airport) and Fenway/LMA submarkets continue to lead in occupancy. The higher occupancy at the airport corresponds to the significant improvement in air traffic at Logan.  The Fenway submarket benefits from the strength of the City’s medical industry. While Cambridge occupancy increased 9% this year, this submarket recorded the lowest submarket occupancy. University demand is strong, but lab space and associated biotech industry is still recovering.

New Supply

Between 2015 and 2022, the lodging supply in Boston/Cambridge increased 3%, compounded annually. Even with strong supply growth, and without taking into consideration market occupancy in 2020 and 2021, the City’s occupancy averaged 80% exemplifying the strength of the lodging market. New supply growth for 2023 and 2024 will be minimal. In 2023 supply will decline 1.1%; in 2024 it will increase 1.1%.  The lack of new supply will continue to aid in the recovery of the market from the impact that the pandemic had on travel.

2024 – Momentum Continues

Here’s our perspective on the City’s lodging market for 2024:

Of course, no one can be 100% certain of all the factors that will influence the Boston lodging market’s ultimate performance. Providing projections is a risky business.

With these factors in mind, Pinnacle believes that demand will improve in the Boston/Cambridge lodging market, and room rates will increase. Our expectations for demand growth, coupled with limited new supply in 2024, results in a projection of 78% for year end 2024 occupancy.

Presented below is Pinnacle’s 2024 forecast for Boston/Cambridge: (click on image to enlarge)

There is much to be optimistic about as we move into 2024 although the hospitality industry has become accustomed to surprises. In addition to projections that have risk, local hotel owners and operators will continue to operate in a challenging labor market which has created wage pressures and increased operating costs. Nevertheless, all signs point to a healthier lodging market in 2024.

To download a copy of the article in its entirety, click on the link below:

NEREJ 12.22.23

 

Boston/Cambridge Lodging Market – Outlook is for Positive Growth for 2024, by Rachel Roginsky, ISHC

November 15, 2023 9:32 am

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After spending the last 32 years tracking and analyzing the Boston/Cambridge (“the City”) lodging market, Pinnacle Advisory Group is quite comfortable forecasting top line (occupancy and ADR) revenue for the City.  But projecting the future with precision can be complicated.  Here’s our perspective on the City’s lodging market for 2024:

Of course, no one can be 100% certain of all the factors that will influence the Boston lodging market’s ultimate performance. Providing projections is a risky business.

With these factors in mind, Pinnacle believes that demand will improve in the Boston/Cambridge lodging market, and room rates will increase. Our expectations for demand growth, coupled with limited new supply in 2024, results in a projection of 78% for year end 2024 occupancy.

Presented below is Pinnacle’s 2024 forecast for Boston/Cambridge:

There is much to be optimistic about as we move into 2024 although the hospitality industry has become accustomed to surprises. In addition to projections that have risk, local hotel owners and operators will continue to operate in a challenging labor market which has created wage pressures and increased operating costs. Nevertheless, all signs point to a healthier lodging market in 2024.

About the Author

Rachel J. Roginsky, ISHC, is the Owner and Founder of Pinnacle Advisory Group. She is based in the firm’s Boston office. Ms. Roginsky has more than 40 years of experience in hospitality consulting. Ms. Roginsky is an appointed board member of The Cornell Center for Real Estate and Finance (CREF), and is the current Chair for Boston University School of Hospitality Administration’s Real Estate Advisory Council (REAC). She also serves as a board member to numerous hospitality-related organizations and societies, and is a regular guest lecturer at prestigious institutes of higher education. Additionally, Ms. Roginsky is an adjunct professor at Boston University. She is widely published and quoted, and is the co-editor and author for Hotel Investments: Issues and Perspectives, a well-regarded book (5 editions) published by the Educational Institute of the American Hotel and Lodging Institute.

 

Updated 2024 Forecast and New Supply for Boston/Cambridge – by Rachel Roginsky, ISHC

9:00 am

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The Meet Boston organization asked for an update to our 2024 Boston/Cambridge lodging market forecast.

On November 15, 2023, Rachel Roginsky, ISHC, presented the enclosed deck.

Please click on the link below to view the presentation:

Boston Cambridge Lodging Market – 2024 projections as of 11.15.23

NEIRA Annual Conference: New England Lodging Trends – presented by Rachel Roginsky, ISHC

November 2, 2023 3:45 pm

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Rachel Roginsky, ISHC was the lead presenter at NEIRA’s Annual Conference.  The 2023 Conference was held November 1-3 at the Samoset Resort in Rockport, Maine. The focus of the presentation looked at New England and national lodging trends, Innkeeper and Resort expectations for the coming year, historical data, and lodging outlook.

Please click on the link below to view the presentation:

NEIRA Presentation 2023

MeetBoston’s Quarterly – Boston Cambridge Lodging Market, presented by Rachel Roginsky, ISHC

October 31, 2023 1:54 pm

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Rachel Roginsky, ISHC presented at the Quarterly Meet Boston event on October 31, 2023. She outlined the continued strength of the Boston and Cambridge lodging market.  Key takeaways were that as of September 2023, accommodated demand in the City’s hotels surpassed accommodated demand from 2019 by 1%, and is 10% over accommodated demand in 2022 for the first 9 months of the year.  She also touched on the fact that rate growth is still positive, but that the rate of growth has been decelerating each month.  Rachel updated our forecast for Boston year end 2023, although the updates were relatively immaterial.  By the end of 2023, the Boston lodging market will reach 76% occupancy at an ADR of $289.

To view the presentation slides, please clink below:

Boston Cambridge Lodging Market – Oct 2023 – FINAL