Tagged: real estate

The Making of Airbnb

January 8th, 2016 in Business Practices, Hotels, Marketing, Real Estate, Technology, Trends, Winter 2016 1 comment

Airbnb Sliding

Airbnb website homepage (Image via Airbnb)

By Morgan Brown

Shortly before Thanksgiving of 2015, it was announced that Airbnb had raised $100 million at a valuation of $25.5 billion. That $100 million was a drop in the bucket compared to the war chest of $1.5 billion the company raised earlier in the summer, raised on the back of increasingly strong growth. The company reported revenues in the third quarter of 2015 at $340 million, on track for just shy of $1 billion in total revenue for the year. Nights booked, the company’s metric of choice, continues to see incredible year over year growth, estimated at the time of the announcement to hit 78 million nights in 2015, nearly double their 2014 bookings.

Room to Grow


Firmly atop the unicorn heap–the Silicon Valley slang for companies worth more than $1 billion in private valuation–Airbnb has turned itself into an international brand to be reckoned with, and only its own stumbles or government regulation seem to stand in its way on the path to long-term success.

Over the last two years I’ve spent thousands of hours dissecting what makes companies like Airbnb tick, and how they, among all others, found breakthrough success. What I’ve found in them all is an organizational DNA imbued with a singular passion for driving growth. While Airbnb works hard at it’s brand image, success at the company is driven by calculating, relentless focus, and an internal growth culture that drives it’s stratospheric performance in a systematic way.

While we all love to tell stories of “once in a generation” ideas that succeed on their own merits, the truth is always messier. A business idea that seems like it was destined for success from the get-go, Airbnb was far from certain in the early days, with failure not further than a few boxes of cereal away at any moment. (Keep reading.) Flush with cash and Chip Conley’s culture infusion, the company today likes to talk more about brand and experience, but underneath, a driven team focused on growth continues to spur the company forward.

The Beginning of Airbnb

In 2007, designers Brian Chesky and Joe Gebbia couldn’t afford the rent on their San Francisco apartment. To make ends meet, they decided to turn their loft into a lodging space, but, as Gebbia explains, “We didn’t want to post on Craigslist because we felt it was too impersonal. Our entrepreneur instinct said ‘build your own site.’ So we did.”[1]

There was a design conference coming to town and hotel space was limited, so they set up a simple website with pictures of their loft-turned-lodging space—complete with three air mattresses on the floor and the promise of a home-cooked breakfast in the morning. This site got them their first three renters, each one paying $80, and after that first weekend they began receiving emails from people around the world asking when the site would be available for destinations like Buenos Aires, London, and Japan. Gebbia explains, “People told us what they wanted, so we set off to create it for them. Ultimately while solving our own problem, we were solving someone else’s problem too.” [1]

The following spring, they enlisted their former roommate, Nathan Blecharczyk, to help them get Airbed & Breakfast off the ground. Fast forward eight years, and Airbed and Breakfast is now Airbnb—a household name that has surpassed industry stalwarts like Hilton Hotels in nights booked. But how did a few air mattresses on the floor become the most widely-used anecdote for breakout startup growth?

Early Growth from Pure Hustle

As they were starting out, the founders needed a way to raise money. In an ingenious move that would soon be a hallmark of their creativity, they bought a ton of cereal and designed special edition election-themed boxes—Obama O’s and Cap’n McCain’s. They sold 500 boxes of each cereal, helping them to raise around $30k for their new venture.


Image via TechCrunch

Still, the Airbnb idea did not gain much traction, and the founders resorted to living off of leftover Cap’n McCain’s (the Obama O’s sold out)—a time they refer to as a real “low point.” The following spring they had dinner with Paul Graham, the founder of prestigious Silicon Valley incubator Y-Combinator. The incubator is a veritable hit factory, backing companies such as Reddit, Dropbox, Stripe and others. Despite recognizing the startup’s potential, Graham admits to having his doubts, explaining “I thought the idea was crazy. … Are people really going to do this? I would never do this.”[4] Nevertheless, Airbed & Breakfast soon joined Y Combinator’s 2009 winter class. [2]

It wasn’t just Airbnb’s business model that posed a concern. When Gebbia and Chesky—both of whom are Rhode Island School of Design alums—were initially seeking funding for their startup, investors didn’t know what to make of a company with two designers.[4] Yet it was most likely this design background that helped Airbnb to find such innovative, unexpected solutions, an ability that informs much of Airbnb’s growth strategy today.

Breaking Out: Craigslist and the Makings of Silicon Valley Legend

It’s unclear exactly when Airbnb implemented what’s become their most infamous growth strategy, a long-since-abandoned (unauthorized) integration with Craigslist that unlocked a torrent of free users, but there is evidence of the strategy starting as early as 2010. [6] Though the startup worked hard to distinguish themselves from the more impersonal super platform, Craigslist had one thing that Airbnb did not—a massive user base. Airbnb knew that Craigslist was the place where people who wanted something other than the standard hotel experience looked for listings.

In order to tap into this market, Airbnb offered users who listed properties on Airbnb’s site the opportunity to post them to Craigslist as well—despite the fact that there was no sanctioned way to do so. So Airbnb built a bot–a small computer script–to simulate a user’s visit to Craigslist, and automatically create a listing on Craigslist without any additional effort from the person posting the listing on Airbnb. Once complete, the bot would forward the URL to the user for publishing—as Rishi Shah documented in the screenshot below.

The bot also filled out a handful of forms, inputting the proper Craigslist category and region and replacing the anonymous email assigned by Craigslist with a link to the Airbnb listing. To ensure that the listing stood out, the bot made the most of the platform’s limited HTML support during publishing as well. As Andrew Chen, a Silicon Valley growth expert, explains: “This kind of integration is not trivial. … [I]t could only have come out of the mind of an engineer tasked with the problem of acquiring more users from Craigslist.” [7]

With the integration, Airbnb had unfettered access to Craigslist’s massive audience. To boot, the Airbnb listings were far superior to the other properties available—with more personal descriptions and nicer photos—which made them more appealing to Craigslist users. Curious Craigslist users hopped over to Airbnb in droves, and the rest, as they say, is history. [7] While the integration violated the terms of service for Craigslist and automated posting, many view this technical workaround a piece of ingenious engineering and marketing. This “growth hack” has become a thing of Silicon Valley legend, with it used as an example of what can be when marketing and engineering work together, as well as a cautionary tale of drifting into murky ethical decisions when it comes to growth.

Airbnb Gets Greedy on Craigslist

While the first integration got much needed traffic to Airbnb listings fromCraigslist the company saw another opportunity for getting more users to list their properties on Airbnb in the first place. This time, Airbnb went from clever to spammy, trying to get the most out of the platform. Dave Gooden, who works in the vacation rental sector, says that in late 2009 he began looking into Airbnb’s mysterious growth. He explains: “In my AirBnB research, … I couldn’t find any rational or traditional reasons for this type of growth. All of these AirBnB users can’t be coming from tech blogs, can they? Word of mouth? I didn’t think so. After thinking on it for a day or two, only one possible answer popped into my head: ‘These guys are black hats!’” [50]

To test his theory that Airbnb was spamming the service to attract users, Gooden set up a “mouse trap” on Craigslist. Within a couple of hours, Gooden says he received an email from a “young lady” who really liked his property and wanted him to check out Airbnb. To make sure it wasn’t just an earnest fan, he listed additional properties, each time receiving similarly worded messages. As Gooden explains: “When you scale a black hat operation like this you could easily reach tens of thousands of highly targeted people per day…I am pretty sure that AirBnB isn’t the only company that has used this strategy/technique, but I think they are the first to turn it into a one hundred million dollar investment at a one billion dollar valuation.” [50]

Though this hack isn’t as elegant as the first Craigslist platform integration discussed above—and it and it definitely constitutes spam—it certainly helped Airbnb to grow their listings quickly and at almost no cost. And while the company was eventually shut out of Craigslist, their traction had already been cemented.

Opportunistic Growth at Every Turn

Craigslist shenanigans aside, Airbnb’s focus on the customer is a continual spring of new ideas that unlocked new growth. In the summer of 2009, Airbnb wasn’t gaining much traction in New York, so Gebbia and Chesky flew out and booked spaces with 24 hosts to figure out what the problem was. As it turned out, users weren’t doing a great job of presenting their listings. According to Gebbia, “The photos were really bad. No one was booking because you couldn’t see what you were paying for.”

Their solution was low-tech but effective. The pair rented a $5,000 camera and went door to door, taking professional pictures of as many New York listings as possible. The new photos resulted in two to three times as many bookings on New York listings [2], and by the end of the month Airbnb’s revenue in the city had doubled.

What was stunting growth in New York was also stunting growth in Paris, London, Vancouver, and Miami.[4] This led to the Airbnb photography program, which launched in the summer of 2010. Hosts could automatically schedule a professional photographer to come and photograph their space.[4] Though this initiative wasn’t cheap, the enhanced listings from this program are two and half times more likely to be booked, and they earn their hosts an average of $1,025 per month— they were well worth the cost.

Image via Analytics Lessons Learned

Image via Analytics Lessons Learned

No detail escaped that type of applied learning and optimization, right down to the small matter of saving favorite properties on the site. In this case, the team decided to test changing the generic star icon users used to save a property to a heart, and they were surprised to when engagement increased by 30% as a result of that simple change.

The company tests things big and small, including their international expansion strategy. In August of 2014, Airbnb’s Rebecca Rosenfelt gave a talk entitled “Going for Global,” in which she outlined some of the company’s international growth strategies, including a test in France to determine the optimal way to launch new international cities. Airbnb randomly selected half of the international launch cities to physically visit, and half to target using Facebook ads. [51]

Airbnb kept meticulous track of what it cost to send people and the listings that resulted, and compared that to the Facebook ads and resulting listings in the markets they didn’t visit. It turned out that cost per acquisition was 5x better for actually sending people into markets. Not only that, but after “kickstarting” these markets with a human presence, they kept growing 2x faster by themselves.

Yet another example of their scientific approach to growth is the work the company has done to maximize opportunity on mobile devices, including giving users the ability to invite new friends to Airbnb. By October of 2013, around 50% of hosts were using the mobile app [34], and those hosts tended to respond to guests three times faster than those on desktop. [36] As Chesky explains, “Can you imagine if every Uber driver had to go home first to check their laptop in order to find their next ride?” [24]

In late 2013, Airbnb decided to relaunch their “underutilized and underperforming” [53] referral program. Gustaf Alströmer, Growth Product Manager at Airbnb, describes the referral system as something they weren’t proud of. After 3 months and 30,000 lines of code, Airbnb’s referrals program relaunched in January of 2014. As you would now expect, they immediately A/B tested all kinds of variables to learn as much as possible. It turned out that invites with a photo of the sender helped to reinforce that feeling. Another A/B test involved the promotional emails sent by Airbnb to potential referrers. When testing self-interested versus altruistic language, they found that altruistic emails resulted in more invitations sent globally. [53]

Image via Nerds.Airbnb

A/B testing was used to compare self-interested versus altruistic language in the Airbnb referral program. Image via Nerds.Airbnb

Airbnb’s new referrals program resulted in hundreds of thousands of nights booked by referred users in 2014,[52] and referrals increased booking as much as 25% in some markets. [53] Airbnb found that referred users tend to be better than the average user—in other words, they’re not merely in it for a free night. They tend to remain engaged with Airbnb and book future trips, and they are much more likely to send referrals themselves.

Dodging Controversy

Airbnb has not been without it’s stumbles and controversies. From nearly the beginning, the company has battled both renter and guest abuse, theft, and a raft of legislative issues from government and special interest groups. Airbnb has survived many of these issues primarily through its mostly proactive approach to resolving them. Airbnb has scaled their customer support staff, create a dedicated Trust & Safety department, a Host Education Center with safety tips for hosts, design enhanced userprofile verification, facilitate richer communication between guests and hosts pre-booking, and offer insurance options to hosts—a $1,000,000 Host Guarantee. Thanks to these measures the safety and liability concerns of 2011 are less of an issue for Airbnb, although the stories of wild Airbnb guests continue to be hits in the press.

Only July 16, 2014, Airbnb officially relaunched their site and mobile apps with an entirely new look and feel which Chesky claims he was able to distill it all into a single concept—belonging. He explains, “Airbnb is about belonging anywhere. The brand shouldn’t say we’re about community, or our international [reach], or renting homes—it’s about belonging.” [47]

The company's logo, nicknamed Belo, stands for the universal symbol of belonging. Image via Fast Company.

The company’s logo, nicknamed Belo, stands for the universal symbol of belonging. Image via Fast Company.

But the Bélo, the company’s nickname for its logo, hasn’t been received with excitement and positivity all around. Some have noted that it seems to be a ripoff, [48] while others—in particular, a Tumblr that was started the same day as the redesign—have made more crass comparisons to genitalia. [49]

The company’s biggest concern isn’t their logo, however, it’s dealing with blowback from the hotel industry, along with city and state officials—both of whom aren’t quite sure what to do when it comes to taxing and regulating Airbnb transactions. The hotel industry in New York City has been particularly outspoken about their disdain and concern over Airbnb. The company’s home base of San Francisco is also in the midst of redefining and regulating the laws governing short-term rentals. This back and forth between the hotel industry, state and local government, and landlords—all of whom want their share of the action—will be Airbnb’s biggest struggle as it seeks to deliver on its brand promise and continue to grow.

As Chesky explained to Fast Company in early 2014, “Our business isn’t [renting] the house—our business is the entire trip.” [23] As Paul Graham explains, “If you ask Brian now what drives Airbnb’s growth, it’s not that people want to get a cheaper space. Airbnb could’ve spread out horizontally into the sharing of power tools and cars and stuff like that. But Brian has decided the growth is in hospitality.” [24] This focus lead to the hiring of Chip Conley, who joined the company out of semi-retirement after 24 years as CEO of Joie de Vivre. Conley, now Head of Global Hospitality at Airbnb, has become one of Chesky’s most trusted advisers.

Now flush with cash, a growth engine that shows no signs of slowing, and an emerging brand, the future of Airbnb is much of what it makes of it. Will they be able to navigate the city-by-city regulatory hurdles to become an iconic hospitality brand? Or will the missteps catch up to them and ultimately upend the promise of the shared economy promised by Airbnb? It will be a saga that will play out over the next handful of years; but one thing will be certain–the Airbnb team will be experimenting and optimizing their way through it to the end.


Morgan-CroppedMorgan Brown is the COO of Inman News and the co-author of “Startup Growth Engines: How Today’s Most Successful Startups Unlock Extraordinary Growth” with Sean Ellis. A 15-year startup marketing veteran, Morgan most recently led growth for GrowthHackers.com and Y-Combinator backed TrueVault. Previously, Morgan held marketing and growth leadership roles at ScoreBig, Science, and SmartShoot (formerly TurnHere). He publishes a semi-regular newsletter on growth at morganbrown.co. Follow Morgan on Twitter at @morganb.

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Hotel Crowdfunding Grows Up

September 9th, 2015 in Business Practices, Fall 2015, Hotels, Real Estate, Restaurants, Trends, Uncategorized 1 comment

By Joshua Bowman

In July 2014, Zack “Danger” Brown famously launched a crowdfunding campaign on the Kickstarter website. To his surprise, he raised ten times the desired amount in the first day. Within a few months, Mr. Brown raised over $55,000 from 6,911 different complete strangers. Mr. Brown’s idea? Potato salad. Mr. Brown’s crowdfunding campaign was intended to be a joke, but the joke was on him. He ultimately raised over $55,000, most of which he graciously elected to donate to charity.

Mr. Brown’s story, which attracted national media attention, may give the impression that crowdfunding is a quirky new idea, well outside the commercial mainstream. However, the numbers tell a very different story. This year, Massolution and Bloomberg estimate that $34.4 billion will be raised through crowdfunding websites. Of that amount, Massolution estimates that $2.5 billion will be invested in real estate in the US - a 150% increase from 2014.

For those not already familiar with crowdfunding, it is essentially the raising of money, usually for a business idea, through an online portal. Crowdfunding was first made possible in the US by the Jumpstart Our Business Startups (“JOBs”) Act signed into law by President Barack Obama in April of 2012. The JOBs Act was designed to ease long-standing prohibitions on the mass marketing of so called “private offerings” of securities. To provide some perspective, in 2014 approximately $1.3 trillion dollars was raised via private offerings in the US. Private offerings, as opposed to public offerings, are exempt from the Securities and Exchange Commission (“SEC”) registration process, which means they are more affordable for, and more frequently utilized by, smaller businesses.

Although one might not realize it given the large numbers involved, the SEC has actually been quite slow to implement the JOBs Act. Regulations enacting Title II, which allow the mass-marketing of privately offered securities over the internet only to wealthy persons or entities, called “Accredited Investors,” did not take effect until September 2013. In order for an individual to be considered an Accredited Investor, he/she must have a net worth (excluding the value of his/her primary residence) of at least $1 million or have had income of at least $200,000 (or $300,000 together with his/her spouse if married) each of the previous two years with an expectation of making the same amount in the year the investment is made. The regulations that would allow everyday retail investors to invest in the most common type of crowdfunded real estate deals (under SEC Rule 504), have not yet been enacted; and it is not clear when or if they ever will be.   Although, in April 2015, the SEC enacted Title IV, which allows non-Accredited Investors to invest in “Reg A+” offerings, which, so far, are not popular with offerors because of their cost and more stringent regulatory requirements. The bottom line is that presently most of the “crowd” for legal real estate investment through crowdfunding in the US consists of somewhere between five and seven million high net worth investors.


Leipzig, Germany, the planned site for the first Podstel location. (Photo Source: Creative Commons  MatthiasX1 License 2.0)
Leipzig, Germany, the planned site for the first Podstel location. (Photo Source: Creative Commons MatthiasX1 License 2.0)

THE WORLDS FIRST CROWDSOURCED HOSTEL: Millennials are both tech savvy and eager to not only enter the work force, but create their own entrepreneurial career path. In recent years, a number of young entrepreneurs have launched crowdfunding campaigns with goals of building new and inspired hostels. Now, a new campaign is set to launch in October 2015 by Daniel Beaumont, founder of the hopefully first ever crowdsourced hostel, Podstel. The Podstel team has spent the last three years planning for their €100,000 campaign. If all goes according to plan, the Podstel team will break ground on their first hostel location in Leipzig, Germany. (Source: Podstel)

With regard to the hotel industry specifically, crowdfunding is definitely gaining momentum. Many of the largest real estate crowdfunding sites (such as Realty Mogul, Fundriser, Real Crowd and Prodigy Networks) frequently have hotel private placements mixed in with offerings for other types of real estate. In addition, a few crowdfunding sites that specifically focus on hotel crowdfunding have been created. The first hotel crowdfunding website dedicated solely to the hospitality industry was Hotel Innvestor, although others sites have recently been created such as iCrowdHotels and Equity Roots.

Route 66 REVITALIZING AMERICA'S MAIN STREET Patch of Land, a real estate crowdfunding website based in Los Angeles, CA, recently launched its first hotel offering. According to Bankless Times, the project, with a goal of $3.2 million in funding, will support a Ramada Inn located on Route 66 in Arizona as part of an effort to revitalize the historical Route 66 landmark. (Photo Source: Creative Commons Ctrlaltdileep License 2.0)

There is little doubt that hotel crowdfunding presently makes up only a tiny fraction of the estimated $2.5 billion that will be raised from the crowd in 2015 for US real estate investment. According to Tim Edgar, Founder and President of Hotel Innvestor, in 2015 somewhere between $25 million to $30 million is likely to be raised through hotel crowdfunding. That amount may seem paltry, but hotels in general make up only a small percentage of total real estate in the US. Moreover, most hotels are fairly large assets, which can make them more difficult to crowdfund than small residential or retail developments.

Even still, there have been some notable successes. In April of 2014, Kittridge Hotels & Resorts LLC garnered national attention by using Realty Mogul to raise $1.5 million for a new night club at the 163-room Hard Rock Palm Springs Hotel in Southern California. As part of the offering, investors were offered such benefits as improved bookings, room-rate discounts and free use of poolside cabanas. According to Realty Mogul, the offering sold out that July. Since then, Realty Mogul has completed two other hotel offerings.

An even bigger success occurred in September 2015, when Korman Communities started accepting guests at the newly renovated AKA United Nations Hotel-Condo located at 234 East 46th Street, New York City. Of the $95 million needed to purchase, gut and renovate the extended-stay hotel-condo project, about $12 million came through a crowdfunding portal run by Prodigy Networks. Prodigy Network’s CEO and founder Rodrigo Nino is widely quoted (in sources including September’s Time Magazine and Bloomberg News) as calling the Manhattan hotel “the first ever crowdfunded building in New York coming to completion, from A to Z….”

Furnished apartments at the AKA United Nations Hotel-Condo building in New York City is financed by crowdfunding

Furnished apartments at the AKA United Nations Hotel-Condo building in New York City are financed by crowdfunding (Getty Images)

Crowdfunding a hotel in Manhattan, which has traditionally been the top hotel market in the country, is no small feat. However, this milestone is only one of several signs that hotel crowdfunding is accelerating. Another is that hotel developers have recently started crowdfunding ground-up development projects, as evidenced by Hotel Innvestor’s $4 million offering for a 150-room Hyatt Place to be constructed at the Philadelphia Airport.

It is still early days for hotel crowdfunding, but the industry is growing up quickly. According to Tim Edgar, “The conversations that we are having with potential investors and issuers now are completely different from the conversations we were having eight months ago. People now know what crowdfunding is. They’ve heard about certain hotels that have been crowdfunded.”

BowmanJoshua M. Bowman is a partner at Sherin and Lodgen's Real Estate Department and Corporate Department and is the Chair of the firm’s Hospitality Practice Group. He has substantial experience dealing with complicated issues related to commercial real estate ownership, development, finance, joint venture arrangements, acquisitions and sales, leasing, land use, licensing, management and franchise agreements, construction agreements, and food and beverage agreements.  Bowman has a particular concentration in representing owners and operators of restaurants and hotels, and is a member of the Hotel Industry Advisory Board for the New England Real Estate Journal, where he regularly writes articles of interest to the hospitality industry. In 2014, Bowman was selected as a Super Lawyer in the real estate industry by the publishers of Boston Magazine. He can be reached at 617.646.2281 or jmbowman@sherin.com.

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Hospitality Management: Perspectives from Industry Advisor

July 1st, 2013 in Business Practices, Hotels, Human Resources, Marketing, Real Estate, Summer 2013 0 comments

By Rachel Roginsky and Matthew Arrants

In prior quarterly reports, Pinnacle Advisory Group presented timely updates about the New England lodging industry, which included focused profiles on particular cities. In this issue, the firm offers more general insight about the hospitality industry. Several Pinnacle executives recently participated in a panel discussion about investment, management, and careers in the hospitality industry. The results appear below.

What issues most affect hotel investment and valuation at the property level?

Jonathan Jaeger

Within our daily practice, we focus attention on the hotel investment community and what prospective investors are considering when acquiring hotel assets. Two of the most important issues frequently discussed are hotel management and franchise affiliation (flags).

Not all hotel management companies are created equal. We have been involved with several projects involving a turnaround/repositioning where new management was able to drastically increase the profitability of a hotel. Since profitability (or net operating income) directly leads to hotel value, the ability of a management company to drive top line revenues in addition to operating efficiently on the cost side is enormously significant. Depending on the hotel type/chain scale, management must have the tools necessary to drive profitability for the hotel owner. When hotel properties are listed for sale, investors often find unencumbered assets to be more desirable.

While management does not always have the ability to select and/or change a franchise affiliation, this is another integral component affecting hotel valuation. Each brand targets specific customers and offers rewards/benefits to frequent travelers. When investors are considering purchasing a hotel property, one of the first questions is often regarding the brand. Is there an opportunity to renovate and reposition? Is there an opportunity to convert to a new franchise affiliation? The type of brand in each particular location can dramatically affect the overall value of a hotel property. It is important to select the right brand for each location.

Rachel Roginsky

Hotel values and investment are typically driven by a hotel’s potential income. A hotel’s estimate of value and investment are further determined, and potentially reduced, by current and/or anticipated capital needs. While property-level managers and owners cannot control the macroeconomics of a particular market, they can certainly impact day-to-day activities, which can ultimately improve a hotel’s amount of income, and they can preserve the physical condition of the asset thereby reducing capital needs. By doing this, the property-level owner and manager are helping to boost the value of the hotel and make it a more attractive investment.

A hotel’s income is driven by top-line revenues and reduced by operating expenses. Competent and effective property-level managers and owners should continuously monitor and address both supply and demand factors within the competitive market. The on-site team should strive to obtain the greatest fair share of demand, and the highest room rates possible, allowing the property to surpass competitors in its REVPAR penetration. Controlling expenses at an optimal level, combined with high gross income, will ultimately provide the hotel higher net income levels and elevated value.

Property-level management and owners also need to be aware of all deferred maintenance. They should continue to upgrade the property to the required standards of the brand, and ensure that the property’s physical condition exceeds the condition of its competitors. When a potential investor is deciding how much a hotel is worth, a lesser amount of capital requirements for the physical aspect of the hotel will only serve to increase the value of the hotel asset.

What strategies should hotel owners or managers follow in times of financial uncertainty?

Natalie Francoeur

There has been a fair amount of volatility in the economy over the last decade. One only has to look at the soaring hotel rates and values in 2006 and 2007, and then to the fallout experienced in the industry from 2008 to 2010 following the national economic recession, to have an understanding of how economic instability can significantly impact hotel operations. During tough or uncertain economic times, weakening demand, price sensitivity, and shrinking budgets (both for the customer as well as the hotel operator) can have tremendous detrimental effects on a hotel’s bottom line. To help get through these periods of economic turmoil, hotel operators can focus on two main areas: revenue management and customer service (guest satisfaction). These areas should always be in focus, but they can be particularly helpful in weathering the tougher times.

Revenue management is crucial during economic uncertainty. Understanding how to best utilize the multitude of distribution channels can prove to be the difference between maintaining rate integrity and having average rates fall off a cliff. Significant rate declines that occur as a result of recession often take multiple years to recover. It has not been proven that lower rates lead to more business, but lower rates certainly lead to lower profitability. Equally, if not more important, is a focus on customer service and guest satisfaction. During tough economic times, there is a tendency to eliminate amenities and ancillary services. To some extent, this may be necessary to achieve acceptable levels of profitability. However, ensuring that hotel associates are visible and truly are customer-centric can have a huge impact on the overall satisfaction level, and intent to return, for guests.

Sebastian Colella

During an economic downturn, such as the recent times experienced due to the housing crisis and the years that followed the terrorist attacks of 2001, market demand is negatively impacted as travel across all segments decreases. Subsequently, market rate declines as individual properties compete for what little demand is available. Eventually occupancy will begin to rebound, but it is much more difficult for markets to drive rates to previous levels. For this reason, maintaining rate integrity during financial uncertainty is important to long-term profitability.

One of a hotel’s largest expenses is labor. As demand levels decrease, management must strategically budget (reduce) labor costs, while being careful not to sacrifice the product/service and ultimately the hotel’s reputation. Staffing needs are directly influenced by demand levels. When occupancy drops, so should labor.

Lastly, management will be held accountable for the strategies put in place to mitigate declining profitability. For this reason, communication between management and ownership plays an important role in avoiding any surprises as market demand declines and a hotel’s performance seems to dip.

Sandy Lien

Financial uncertainty is a given in the nature of the real estate cycle. To protect yourself and your asset during a downturn, it is often best to strive for operating efficiencies throughout the entire cycle, both good and bad. Avoid over-hiring and over-spending. Most of all, avoid over-leveraging the asset and making it more susceptible to risk. Anticipate heavy capital spending at least every four to six years, especially if the asset is licensed with a major brand. Reserve requirements are typically underwritten in the 4 percent of total revenues range, but from an owner’s perspective it may be more beneficial to establish a reserve 1 to 2 percentage points higher than the underwriting standard (especially for a full-service, branded property). Also, avoid ‘giving away’ rates too much during a downturn for the sake of filling up rooms. This will make it harder to re-establish the property’s former rate position following a down-cycle period.

What advice would you give to recent graduates of hospitality schools?

Allison Fogarty

It’s exciting to have achieved a degree. It’s a sign that you have really persevered and completed something. But to make your first years in the industry as productive and successful as they can be, I would offer the following advice.

In the hospitality industry, we all rely on each other. The most expensive facilities in the world do not achieve five-star status without kitchen porters and room attendants who care about their work and take pride in it. Acknowledge and appreciate the contributions of others, particularly the unsung hourly workers who make our hotels great. And along the way, you can learn a lot from those hourly workers, including how to make the hotels you eventually manage more efficient and profitable.

It is very tempting to point out the deficiencies we see in others. “This person messed up this” or “that’s not how this should be done.” The advice: Don’t. When you complain or gossip about others, the walls have ears and it inevitably gets back to the person you are talking about. One management trainee at my hotel complained about a restaurant manager to the food & beverage director. When he completed his training program, he became an assistant manager in that very restaurant. He got the worst possible shifts. Every time. Coincidence?

In interviews, focus on the positive. Telling an interviewer about all the negative things that a prior employer has done will not make you seem more knowledgeable or a pleasant person to be around.

Rather, the interviewer will start to wonder if you are a troublemaker .Nobody knows everything. And if you don’t know the answer to a question, don’t be afraid to say: “I don’t know. May I do some research and get back to you?” Then follow up. At this point in your career, you are not supposed to know it all. You just need to be willing to pitch in and find out.

Be curious. Ask questions. It’s a great way to learn, and most people will be delighted to help. Most people love to be considered experts. Just remember, at this point in your career, you are most expert at being a student of hospitality management, not being a hospitality manager. Be humble. You’ll get farther faster, and people will like you better for it.

Matthew Arrants

When asked for career advice, I encourage students to focus on learning the industry and building strong relationships. They should not focus on the money. That will come with experience. Besides, as my mother used to say: “You’re supposed to be poor when you’re young, it builds character.”

The best way to learn the industry is to expose yourself to as much of it as possible. Most of the leaders in our business started washing pots and pans, or cleaning rooms, or parking cars. They all worked their way up the ladder. Rarely is the ladder straight. The breadth and the depth of your experience are equally valuable.

If you are entering the hospitality industry you are a ‘people person’ by definition. Building and maintaining relationships with your colleagues will serve you well in the future. In this industry, you are going to work hard and work with a lot of different people at a lot of different companies. Over time, you should be developing a strong network of friends that you can call on for advice and information that will provide you with future growth opportunities. Finally, whether you stay in the hospitality business or not, your range of experiences and depth of relationships will provide you with a rich life.

Rosemary Rowen

The hospitality industry offers a wide range of career options, and where your interests lie while you study in school may not be the only path worth exploring once you discover more of what is available in the field. Even if your major while in school was in one area, try to be open-minded when considering aspects of the industry that are outside of your focus. For instance, if you are looking to go into operations and your concentration was in marketing throughout your coursework while in school, don’t limit yourself to only looking for job opportunities in the sales and marketing department in a hotel. Often, to get your foot in the door with a company or property that you want to work for, you may need to look for options in other departments, such as rooms or food & beverage. Once you are working for a property and you work hard to prove yourself, others will see your successes, which can open doors for movement into other areas of the hotel. Continue to stay in close touch with senior managers in your hotel, so they know what your aspirations are. Always look for opportunities to show your skills which might be outside of your existing role. You may even discover that your passion lies in an area that you hadn’t considered before being exposed to it.

Along the way, perhaps one of the most important things you can do for your career is to maintain and increase your connections. This starts with your classmates from school. Within a few years, your peers will hold positions in a variety of disciplines, and the connections that you made in school will be valuable as you progress in the industry. The industry as a whole is close-knit, so it is important to maintain friendships and remain in good graces with former colleagues as you change jobs. You never know where your paths may reconnect again sometime in the future.

Rachel J. Roginsky, ISHC, is the owner of Pinnacle Advisory Group. She has more than 30 years of experience in hospitality consulting. Ms. Roginsky is a board member of numerous organizations related to hospitality, is a regular guest lecturer at the Cornell Hotel School, and is co-editor of five leading hotel investment books. Email rroginsky@pinnacle-advisory.com
Matthew Arrants, ISHC, is the Executive Vice President of Pinnacle Advisory Group. Prior to joining Pinnacle, Mr. Arrants worked in operations with Four Seasons Hotels and Rock Resorts.
He holds a master’s degree in hotel administration from Cornell University, and a bachelor’s degree in political science from Hartwick College. Email marrants@pinnacle-advisory.com

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The Morris Nathanson Design Collection

July 1st, 2013 in Design, History, Real Estate, Restaurants, Summer 2013, Uncategorized 0 comments

Morrison 1By: Christopher Muller

What is unique about being a designer and also an artist is that you are always composing and designing. It’s like breathing. It’s inherent. It’s like musicians who are always humming when they walk down the street and don’t even know they are doing it.-Morris Nathanson

For more than a half century, Morris Nathanson has been at the forefront of creative interior design for the hospitality industry. Along with his own artistry, his influence on many of today’s top hospitality designers is a testament to his lasting vision.

Originally trained in theatrical and stage design, Nathanson worked early in his career for the Paramount Restaurant Supply Company in his native Rhode Island, where he helped create iconic concept designs for companies such as Dunkin’ Donuts

With an entrepreneur’s drive and an artist’s eye, he was a pioneer in the field of restaurant and hospitality design when he opened his own firm in 1967, Morris Nathanson Design. Since then Morris has nurtured, trained, and mentored scores of designers and project managers, while helping to launch the concept and brand development for dozens of landmark restaurant companies.

Nathanson has been designated as a ‘Thought Leader’ by the American Society of Interior Designers and his firm has received numerous accolades. He is also a recognized fine artist and an exhibiting member of the Providence Art Club, which was founded in 1880 and is one of the oldest in the country

The images that follow are a small sample of the more than 400 hand-drawn renderings of restaurant, hotel, and resort projects that have been donated to Boston University. They are part of the Morris Nathanson Design Collection in the renowned Howard Gotlieb Archival Research Center.

All images from the Morris Nathanson Design Collection in the Howard Gotlieb Archival Research Center at Boston University, reproduced by permission.

chris-muller-423x636Christopher C. Muller is Professor of the Practice of Hospitality Administration and former Dean of the School of Hospitality Administration at Boston University. Each year, he moderates the European Food Service Summit, a major conference for restaurant and supply executives. He holds a bachelor’s degree in political science from Hobart College and two graduate degrees from Cornell University, including a Ph.D. in hospitality administration. Email cmuller@bu.edu

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Lodging Update: Providence, Rhode Island

April 1st, 2013 in Hotels, Real Estate, Spring 2013, Trends 0 comments

CaptureBy Rachel Roginski and Matthew Arrants

Each quarter, Pinnacle Advisory Group prepares an analysis of the New England lodging industry, which provides a regional summary and then focuses in depth on a particular market. These reviews look at recent and proposed supply changes, factors affecting demand and growth rates, and the effects of interactions between such supply and demand trends. In third issue, we spotlight the lodging market in Providence, Rhode Island.

New England Summary

Revenue per available room (REVPAR) for the region grew by 5.4% in the first quarter compared to a growth rate of 5.6% for the year in 2012. While growth in the region lags behind the country as a whole, which had REVPAR growth of 6.4%, it is important to note that the first quarter is the slowest for the region due to seasonality and is the last to recover following economic downturns. The first quarter this year was also impacted by the extremely mild winter of 2012 and the fact that there were several weekend snow storms that impacted leisure travel.

Performance by State


Connecticut had a very strong first quarter, out-pacing the region and the nation as a whole in terms of REVPAR growth. The primary factors fueling the growth were limited new supply (0.2%) coupled with strong growth in demand, which together resulted in strong occupancy growth. Demand in Connecticut appears to be picking up steam, growing by 5.5% in the first quarter as compared to a decline of 0.3% for 2012. In Southwestern Connecticut, demand was fueled by a project at the submarine base in Groton that is expected to go through June. Demand in the Hartford area benefited from strong transient corporate travel.


Demand in Maine declined by 2.7% in the first quarter. That decline, coupled with a slight increase in supply, helped to push occupancy down from 41% to 39% for the state. This is surprising given the strong winter for skiing, but it reflects the fact that ski-related lodging represents only a small portion of total lodging supply in the state, and weekend snowstorms impacted non-ski travel. The state did, however, benefit from strong growth in average rate, which outpaced the rest of the region and the country as a whole, growing by 4.0% compared to only 2.3% for the year in 2012.


Massachusetts experienced growth in demand of 2.8% compared to only 1.8% during 2012. Growth in supply remained fairly steady, at a manageable rate of 0.6%. Occupancy grew by 2.2%, which was above 2012 levels, but average rate growth slowed from 6.7% in 2012 to 3.1% during the first quarter of 2013. Occupancy levels are at their lowest levels in the first quarter (55% in the first quarter of 2013) as compared to the year as whole (66% for 2012). As a result, there is less of an imbalance between supply and demand and fewer high demand periods where operators can significantly drive their average rates. Therefore, average rate growth for the year is likely to exceed the 3.1% achieved in the first quarter.

New Hampshire

New Hampshire was the only state in the region to experience a decline in REVPAR during the first quarter. The decline is not surprising, given that it benefitted from the presidential primary elections in the first quarter of 2012. In addition, New Hampshire also had the strongest increase in supply, growing by 1.6%. The state’s occupancy performance would likely have been worse had it not been for strong demand from skiers and snowmobilers. The impact of the primary election demand in 2012 is most apparent in the decline in average rate. The primaries create a period of very strong demand that allows operators to increase rates significantly above what they normally charge during that time of the year, as election teams and members of the media flood the state.

Rhode Island

Demand for hotel rooms in Rhode Island grew by 5.0% in the first quarter, putting it just behind Connecticut in terms of growth in the region and well above the national average of 2.6%. It also represents a significant increase over its 2012 growth of 1.8%. This suggests that Providence, the largest market in the state, may finally be recovering from several years of lackluster performance. Average rate growth for the state, while above last year at 2.3%, was rather tepid as compared to the national average of 4.5%.


The Vermont lodging industry continues to be very strong, with REVPAR growth of 8.0%. It was the strongest growth rate in the region, and follows on 2012 when it also finished with the strongest rate of growth at 7.7%. In addition to a very strong winter for skiing, the state also likely benefited from Canadian travelers encouraged by the exchange rate and by a decline in supply.


Anticipated Changes

We are watching several market areas over the next 6 to 12 months. These include the following.

Burlington, Vermont

The Hotel Vermont is expected to open in May with 125 rooms and 3,000 square feet of function space in a prime downtown location. A new Hilton Garden Inn is also under development with an expected opening in 2014. In suburban Burlington, a developer has plans to build a new Hampton Inn in Williston.

Cape Cod, Massachusetts

Hotel operators on the Cape are enthusiastic about the coming season, but many are concerned about the impact of the new train service between Boston and Hyannis. They are also concerned about the impact of the new Doubletree Hotel, which reopened at the end of July 2012 after being closed for 8 months and converting from a Radisson.

The Pioneer Valley, Massachusetts

In downtown Greenfield, a developer has proposed a 62-room Best Western through the adaptive reuse of a former department store. To the south in Northampton, there is speculation about the conversion of a former hospital to hotel use, and a local developer also has plans to build a new Fairfield Inn.

Portland, Maine

A large annual citywide convention that normally occurs in late May or early June has been pushed out of town this year, due to renovations at the Civic Center. Operators remain optimistic, as group booking pace looks strong and the Westin renovation is behind schedule, with the reopening date pushed back from Fall 2013 to Spring 2014.


The regional lodging market remains strong. Snow storms and colder weather, which had a negative impact on leisure travel though most of the region, were off-set by strong commercial demand.

With the strong demand, operators were able to increase average rates, leading to respectable growth in REVPAR. The continued growth in REVPAR has led to renewed development, with plans for new hotels throughout the region. While new supply is likely to impact some markets, meaningful new supply is not expected to impact performance until the middle of 2014 at the earliest.

Spotlight on Providence, Rhode Island

Providence is the capital of Rhode Island and the most populous city in the state, and it was one of the first cities established in the United States. Currently, there are nine hotels in Providence with a combined total of 2,295 guest rooms. The Providence lodging market has experienced cyclical occupancy and room rate patterns similar to regional lodging trends. However, while market occupancy has improved dramatically since the 2009 recession, room rates are still well-below levels before the recession.

Between 2000 and 2004, Providence’s market occupancy ranged from 70% to 77%. In 2005, market occupancy started to decline, hitting a low of 57% in 2009. Since that time, the Providence market has experienced substantial improvements, increasing to 64% in 2010, 65% in 2011, and 68% in 2012.

Although lodging demand has recovered, the average room rates in Providence have not. While ADR is improving with positive growth in 2011 and 2012, the steep decline between 2008 and 2009 will take years to get back to historic levels. Specifically, the ADR in 2007 was $154.35, but in 2009 ADR fell to $130.92 and then fell again in 2010 to $127.11. As a result of the stronger uptick in demand, and the recent ADR growth, the REVPAR in Providence reached $93 in 2012, but as noted in the table below, this falls well short of the $97 RevPar in 2007.The primary drivers of lodging demand in Providence are corporate, tourism, education, and groups attending meetings at conferences at the Rhode Island Convention Center. The education and healthcare sector is one of the largest employers in the metropolitan statistical area (MSA), anchored by the Lifespan Health System and Brown University. This sector accounts for 21% of total employment. In late 2011, state and city officials began developing a ‘Knowledge District’ in downtown Providence. Brown University spent $45.0 million to renovate a building for its medical school in this district. In addition, Johnson & Wales University plans to expand its campus, and the University of Rhode Island and Rhode Island College plan to build a joint nursing school for a reported $60.0 million in the Knowledge District. Headquartered in the City of Providence, RBS Citizens Financial

Group is one of the 15 largest commercial banking companies in the country, with a reported asset base of $140.0 billion. In the aftermath of the recent recession, the Providence region has started a long, measured process towards a recovery. Due to the weak business environment and the relatively high unemployment rate, revitalization in the Providence MSA will continue to progress, but at a slower rate than the nation as a whole.



There are no major changes planned with respect to new supply in Providence in 2013 or 2014. The most recent new supply increase was in 2009, when the Hampton Inn and Suites opened in downtown Providence. There have been several recent shifts in ownership and brand changes.

The Biltmore

The Biltmore was purchased in May 2012 from state receivership by Finard Coventry Hotel Management. The new owners acquired the hotel for $16 million and are in the process of conducting a $16 million, two-year renovation of the hotel. Once completed in early 2014, the hotel will operate as a three-diamond hotel, being positioned as “the finest, yet affordable hotel in the state”. The owners of the hotel recently agreed to a new collective bargaining agreement with the applicable labor union.

The Renaissance

The Renaissance was purchased by The Procaccianti Group and Rockbridge in early 2013 from Sage Hotels. Although it is not entirely certain, the hotel will likely remain a Renaissance by Marriott Hotel.

The Westin

In January 2013, the Westin Hotel was sold to Omni Hotels and immediately converted to the Omni brand.

The Sportsman Inn

The Sportsman Inn, a former adult entertainment venue, was purchased. It is rumored to be the subject of renovation and conversion to a 60–room boutique hotel. This hotel will probably not be open until late 2014 or early 2015.


Market segmentation for the Providence lodging market is approximately 70% transient and 30% group. The following is an overview of demand in each segment.


Approximately 70% of lodging demand in Providence is transient demand. This is comprised of both leisure transient and corporate transient types. Corporate transient demand is generated from visitors to local businesses, while leisure demand is primarily a function of tourism, as well the abundance of higher education in the city.

Commercial demand in Providence is generated primarily by the number of corporate tenants in the surrounding area. The downtown Providence office market ended 2012 with a vacancy rate of 16%, slightly higher than the 15.9% level at the end of 2011. There was significant positive absorption in the Class A sector, leading to the lowest Class A vacancy rate in nearly a decade. The largest generators of commercial room night demand include GTECH, AMGEN, RBS Citizens Financial Group, Hasbro, State of Rhode Island, City of Providence, Textron, Bank of America, CVS/Pathmark, Blue Cross Blue Shield, and the universities and hospitals.

Providence’s historical significance drives much of its tourism industry and produces significant leisure demand. The primary tourist destinations are along the Providence River and within downtown Providence. These attractions include the Providence River Walk, Roger Williams Zoo, John Brown House Museum, Battleship Cove, Providence Children’s Museum, Providence Piers, WaterFire Providence, Rhode Island School of Design Museum, Museum of Works and Culture, and various shopping districts including Federal Hill and the Providence Place Mall.

Within a half-hour drive of Providence is the Rhode Island coast and the very popular tourist destination of Newport. Most of the coastal Rhode Island communities have excellent access to the Atlantic Ocean, Narragansett Bay, and ancillary beaches.

In addition to tourism, there are several major colleges which provide significant leisure demand. These include Brown University, Rhode Island School of Design, Johnson and Wales, and Providence College. Leisure traveler demand is strongest on weekends in the spring, summer, and fall months.

Demand growth in the transient segment has been improving since the 2009 recession. While there are no major events, attractions, or developments underway that will dramatically increase transient lodging demand in the near future, overall economic improvement in Providence and the region will continue to spur modest growth.


Meeting and group demand includes groups that reserve blocks of rooms for meetings, seminars, trade association shows, and other similar group gatherings. Meeting and group demand is typically strongest during the spring and fall months, while the summer months represent the slowest period for this market. Meeting and group travelers typically achieve an average length of stay of three-to-five days.

Meeting and group demand in the Providence area is driven by venues facilities in local hotels, university halls, the Rhode Island Convention Center, and the Dunkin Donuts Center. Providence’s five full-service properties (Biltmore, Hilton, Marriott, Renaissance, and Westin) are the primary hotels supporting group demand. These properties have combined meeting space of approximately 69,000 square feet.

The Rhode Island Convention Center, built in 1994, is the largest convention center in the State. This facility has approximately 100,000 square feet of exhibition space, 20,000 square feet of ballroom space, 23 meeting rooms, and 30,000 square feet of pre-function space. It is connected to the Dunkin Donuts Center. The Rhode Island Convention Center had an excellent year in 2012. According to the

Tap Report, there were 153 definite events in 2011, compared to an estimated 178 events in 2012. Total room night demand from the Convention Center in 2011 was 287,602, while room night demand from the Convention Center was an estimated to have increased 11% increase in 2012.

The strength of the Convention Center was one major factor in the continued upturn in demand in the Providence lodging market. Based on both the definite and tentative booking at the Convention Center, 2013 should be a reasonably good year for group demand in Providence.

Demand Conclusion

Lodging demand in the Providence market is expected to continue to experience modest growth into the foreseeable future. Corporate, leisure and group demand growth is expected to experience gradual, measured growth in the absence of any major corporate expansions, new attractions, or more robust group and convention demand in the market. In 2012, overall lodging demand growth in the Providence was approximately 4%. We expect positive, albeit slower, growth in 2013 in all demand segments within the lodging markets.

Average Rate

Room rates are the biggest challenge within the Providence market. While average daily rate (ADR) increased above 5% in 2012, average room rates are still well below historic room rate levels. At its peak in 2007, the ADR in Providence was $154. After several years of declining room rates, the mark reached bottom with $127 in 2010. In 2011, the ADR improved slightly to approximately $130. Most recently, the ADR reached $137. And while the local operators are pleased with the uptick in room rates, the Providence market still has a way to go until it reaches the peak ADR.

2013 looks promising for ADR growth. Changes in ownership, re-branding, and renovations will likely mean higher rates, as owners push the operators to gain above inflationary room rate increases.

Room rates are up over 3% year-to-date in Providence, and by year-end we expect to see room rates increases of 4%


We expect 2013 to be an improvement over 2012 for the Providence lodging market. Specifically, we expect occupancy to grow by approximately 1%, with average rates growing by 4% for a REVPAR increase of approximately 6%. There is no new supply for 2013, and the substantial renovation at the Biltmore, along with various flag changes and ownership, all bode well for the Providence lodging market. Furthermore, without new supply in 2014, the Providence lodging market should once again see an upward trend in occupancy, room rate, and REVPAR.

Rachel J. Roginsky, ISHC, is the owner of Pinnacle Advisory Group. She has more than 30 years of experience in hospitality consulting. Ms. Roginsky is a board member of numerous organizations related to hospitality, is a regular guest lecturer at the Cornell Hotel School, and is co-editor of five leading hotel investment books. Email rroginsky@pinnacle-advisory.com


Matthew Arrants, ISHC, is the Executive Vice President of Pinnacle Advisory Group. Prior to joining Pinnacle, Mr. Arrants worked in operations with Four Seasons Hotels and Rock Resorts. He holds a master’s degree in hotel administration from Cornell University, and a bachelor’s degree in political science from Hartwick College. Email marrants@pinnacle-advisory.com.

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Lodging Update: Portland, Maine

January 1st, 2013 in Hotels, Real Estate, Winter 2013 0 comments

Creative Commons // Jeff Gunn

Creative Commons // Jeff Gunn

By Rachel Roginsky and Matthew Arrants

Each quarter, Pinnacle Advisory Group prepares an analysis of the New England lodging industry, which provides a regional summary and then focuses in depth on a particular market. These reviews look at recent and proposed supply changes, factors affecting demand and growth rates, and the effects of interactions between such supply and demand trends. In this second issue, we spotlight the lodging market in Portland, Maine.

New England Summary

After a strong first eight months of the year, the New England lodging market’s performance slowed considerably. Revenue per available room (REVPAR) for the region had been up 7.6% through August. However, it finished up 5.6% compared to 6.8% for the country as a whole. The slowdown in performance was widespread, with every state in the region experiencing REVPAR growth that was lower than it had been through August. Likely explanations for the slowdown include the effects of ‘Superstorm’ Sandy, concerns over the fiscal cliff negotiations in Washington, and a softer convention period in Boston. On a positive note, the REVPAR growth in both the Massachusetts and Vermont lodging markets exceeded the national annual REVPAR growth.

Performance by State


Room nights sold (demand) in Connecticut declined in 2012 by 0.3%. Fortunately, operators were able to achieve 2.6% growth in average rate, leading to positive REVPAR growth of 2.1%. The decline in demand can be attributed to a variety of factors, but a reduction in government contract demand and softening demand from the casinos are considered to be the primary factors.


Maine finished the year with an occupancy rate of 56.8%, which was slightly higher than 2011. Although demand growth was modestly positive at 1.6%, the 0.8% supply increase limited the state’s ability to move the needle on occupancy. The average rate for the state grew by 2.3% to $102, less than half the growth rate of the combined New England lodging market. During the first half of the year, the Maine lodging market had reasonably strong REVPAR growth (4.0% as of August 2012), but by year-end the REVPAR growth stalled, ending with 3.1% growth as compared to 2011. Two notable markets that performed well were Bangor, which benefitted from casino and airport related demand, and Portland, which will be discussed in more detail below.


Lodging performance in Massachusetts, as a whole, is heavily impacted by activity in Boston. More than half of the hotel rooms in the state are located in the Greater Boston area, with approximately one-quarter in the cities of Boston and Cambridge alone. Boston also serves as a critical gateway for the rest of New England, as travelers frequently add extra days to business or convention trips to visit other areas of the region. Very strong convention demand in the first eight months of the year helped increase demand for the state by 2.9%.

However, demand softened significantly in the convention, corporate, and leisure segments during the latter portion of the year, such that demand was up only 1.5% for the year as a whole. One possible explanation is that the market was already operating at or near capacity during those periods, particularly in the peak demand months of September and October.

New Hampshire

The performance of the New Hampshire market in 2012 was surprisingly tepid for an election year. Normally, the state experiences a strong surge in demand and average rate leading up to the presidential primary, as candidate teams and media flood the state. In 2012, however, only the Republican primary was important and the reorganization of the primary calendar likely had an impact. Lastly, tourism was probably impacted by a very mild winter. These factors contributed to minimal change in the statewide occupancy. Operators, however, were able to raise room rates, which resulted in a 2.9% increase in statewide ADR.

Rhode Island

After a strong spring and summer, demand in Rhode Island began to slip during the fall. According to Smith Travel Research, demand in the state finished the year up 1.8% compared to 3.0% for the country as a whole. While average rates grew by a strong 3.6%, they still fell short of the national average of 4.2%. The good news for Rhode Island is that REVPAR has come a long way since 2009, when the state’s REVPAR dropped to $60. However, the state’s $73 REVPAR in 2012 still falls below the peak $78 REVPAR that the state experienced in 2007, and even further from the $83 REVPAR in 2000. The Providence market experienced the strongest lodging metrics, while the Warwick (airport) market continued to experience anemic performance.


Vermont was one of the top performing states in the region, with REVPAR growth of 7.7%. While the state benefitted in the early part of the year from crews related to the cleanup from Hurricane Irene, the drop in demand during the second half of the year was not as significant as might have been expected, leading to an annual demand growth of 2.5% and an annual occupancy of 60.1%. Operators were not shy about increasing room rates during the peak tourist seasons. In fact, average rate growth in the last four months of the year was stronger than during the first eight months, which resulted in a $124 ADR in 2012. Vermont is one of only five states with ADR over $120.

Portland Maine

Anticipated Changes

Several markets are poised for changes over the next 12 to 18 months. These include the following.

Providence, RI

Three transactions over the past year are likely to impact the market in future. The Biltmore sold early in the year and a major renovation is underway. The Renaissance Hotel was purchased by the Procaccianti group, the former owner of the Westin. The Westin was recently sold to Omni.

Hartford, CT

The downtown market continues to struggle. In 2012, occupancy declines off-set gains in ADR leading to a slight REVPAR decline of 0.1%. The Ramada that had been the Crowne Plaza is reportedly for sale. The Ramada in East Hartford is now an independent property. Beyond downtown, the developers of the Delamar in Greenwich have reportedly been selected to develop a boutique hotel in West Hartford.

The Berkshires

Demand in this area of western Massachusetts is fairly typical of the resort markets in the region, with occupancies that rarely top 60%, but strong average rates in excess of $150. Owners in the area have been investing in renovations and there is interest in new development.

Brattleboro, VT

There is considerable speculation about the fate of the Vermont Yankee nuclear power plant. If the plant receives the necessary approvals to stay open, then the construction work could prove a boon to the local lodging market. If it is forced to close, then the market will benefit over the short term from contractors brought in as part of the decommissioning process.

Greater Boston

The cities of Boston and Cambridge, and the suburban Boston lodging market, should continue to show very strong numbers in 2013, due to capacity constraints caused by limited new supply. While there are two hotels expected to open in Boston in 2013, market occupancy is expected to remain at or near 78%.


While demand growth in New England softened in the second half of the year (2.0% demand growth as of August 2012 versus 0.7% demand growth as of December 2012) we remain optimistic about the prospects for the regional lodging market. Boston will have a softer convention year, but many operators have been successful in getting smaller in-house groups to compensate. Moderate economic growth in other areas of the region coupled with limited new supply should help occupancy levels remain at healthy levels and enable operators to continue to increase room rates at or above inflationary levels.

Spotlight on Portland, Maine

The Portland, Maine market is composed of two submarkets, downtown and the mall/airport area. Given their proximity, approximately five miles apart, it is not surprising that many hotels compete in the adjoining area. Nonetheless, these are distinct markets that behave somewhat differently. Leisure travelers generally prefer the downtown location, and as a result average rates are higher.

The Portland market is in the midst of a major change in supply. Helping to drive the change has been a moderately strong economy and the market’s ability to absorb new supply over the last few years.

In 2008, the market added a Courtyard by Marriott (88 rooms) and a Homewood Suites (92 suites) near the Maine Mall. In the downtown area, a Residence Inn (179 rooms) opened in 2009, followed by a Hampton Inn (122 rooms) in 2011. Currently there are four new hotels proposed and a major renovation/repositioning underway.


The following is a summary of proposed hotel projects.

Courtyard by Marriott

A joint venture including Maine Course Hospitality Group has plans to develop a Courtyard by Marriott (120 rooms) on the J.B. Brown site. This is located on the corner of Commercial Street and Maple Street, on the southern edge of the Old Port District. The project is expected to open in 2014.

Portland Press Herald Site

This proposed development is currently in the pre-planning stages. Near the intersection of Congress and Market streets, an urban rehabilitation project has been rumored. Initial plans include a boutique independent hotel (80 units) on the site. Assuming the developer is able to obtain financing, this project could open as early as 2014.
Eastland Park Hotel

In 2011, Rockbridge Capital purchased the Eastland Park Hotel with plans to completely renovate and re-brand the property as a Westin. The hotel closed in July 2012 for a renovation that is expected to cost in excess of $30 million. It is scheduled to reopen in August 2013. Upon reopening, it will have 290 rooms.

Thompson’s Point

Thompson’s Point is located directly off the I-295 highway, southwest of the downtown area. Two owners of the Maine Red Claws basketball team have rolled out plans for a $100 million multi-use development. Elements of ‘The Forefront’ project include a 48,000 square foot convention center, a 3,500 seat arena, a 700-car parking garage, an unspecified amount of office space, and a 125-room hotel. The project was first introduced in April 2011 and has since been refined. The developers are rumored to have plans for a Homewood Suites with a projected opening in late 2014.


Market segmentation for the Portland area is approximately 40% commercial, 20% group, and 40% leisure. The following provides an overview of each segment.

Corporate Transient

Corporate demand represents the largest segment. This market is primarily comprised of executives visiting their respective offices, traveling consultants and salesmen, and employees traveling to the local area for training purposes. The largest demand generators in this category are TD Bank, Idexx, Unum, National Semiconductor, and WriteExpress. The commercial individual traveler demand is characterized as follows:

◦High degree of single occupancy;
◦Average length of stay one to three days;
◦Efficient check-in and check-out procedures required;
◦Frequently books rooms via corporate travel agents;
◦Desires high quality accommodations; and
◦Requires proximity to place of business and accessibility to major transportation routes.

Within the two geographic submarkets, more senior executives stay downtown, which is considered more desirable and room rates are generally more expensive. There are no major events that are expected to dramatically impact corporate demand in the near future, and therefore we expect only moderate growth in the segment.


Group demand represents the smallest source of room nights in the competitive market, accounting for approximately 25% of total demand. Group demand in Portland is comprised of corporate groups, convention-related groups, business training sessions, state and regional associations, trade shows, tour groups, and SMERF (Social, Military, Educational, Religious, and Fraternal) groups. This segment can be characterized as follows:

◦Discounted room rates required;
◦Prefers being proximate to tourist destinations;
◦Flexible meeting and banquet facilities of-ten required;
◦Quality on-site food and beverage service preferred; and
◦Variety of room configurations required.

Portland has four primary hotels that cater to groups. These are the Marriott Sable Oaks, the Doubletree near the mall and the airport, the former Eastland Park (soon to be a Westin), and the Holiday Inn by the Bay. Due to the limited supply of function space in the market, some groups have reportedly been forced out of the area. The attractiveness of the destination to leisure travelers has helped to generate demand from tour groups and SMERF organizations. Demand growth in the group segment is expected to be moderate to low until the opening of the Westin.

Leisure Transient

Portland is a popular leisure destination during the warmer months. The major demand generators for the Greater Portland area include the Casco Bay Islands, the Old Port in downtown Portland, the Maine Mall, the Freeport Outlet Shops, and general weekend travel. Leisure traveler demand is strongest on weekends in the spring, summer, and fall months. This demand segment can be characterized as follows:

◦High incidence of weekend occupancy;
◦Average length of stay one to two nights;
◦Highly seasonal; and
◦A relatively high percentage of multiple occupancy.

Demand growth in the leisure segment has been very strong in recent years, as new hotel product in the downtown area complemented the development and marketing of the city as a culinary and arts center. During the warmer months, most of the leisure demand comes from New York and southern New England. In the shoulder and off-season months, lower rates attract leisure travelers from other parts of Maine and northern New England. There are no major attractions or developments planned that are likely to dramatically increase leisure demand in the near future. However, the civic center is being renovated and new restaurants, galleries, and breweries continue to open at a fast pace.

Demand Conclusion

Lodging demand in the Portland market is expected to continue to remain robust into the foreseeable future. Due to the strong seasonality of demand and limited function space, there appears to be significant unaccommodated demand in the group and leisure segments. Corporate demand is expected to experience slow growth in the absence of any major corporate relocations or expansions in the market. In 2012, lodging demand growth in the Portland region was approximately 1%. We expect similar growth in 2013. Most of the growth is expected to occur in the leisure segment during the shoulder and off-season periods.

Average Rate

Transient Corporate

Rate growth in the corporate segment is expected to be limited into the foreseeable future. The local companies remain price sensitive and have leverage during the shoulder and off-season months. With occupancy levels for the region below 60% on an annual basis, operators are not willing to give up demand during the winter months, when group and leisure demand are weakest. As a result, local negotiated rates will only increase between 1% and 3%.


Growth in group rates will benefit from the reduction in supply that resulted from the closing of the Eastland Park Hotel. Following its re-opening as a Westin, the market will benefit, as the new product will dictate higher room rates. In 2013, we expect group rates to grow by 2% to 4%.

Transient Leisure

Rate growth in the leisure segment has been very strong in recent years, as new higher quality product in the downtown market has warranted higher room rates. In addition, capacity constraints due to the seasonality of demand have also helped operators achieve strong increases in this segment.

Looking forward, we expect rate growth in this segment to be the strongest. Specifically, we project that rates in this segment will grow between 3% and 5%.

Rachel J. Roginsky, ISHC, is the owner of Pinnacle Advisory Group. She has more than 30 years of experience in hospitality consulting. Ms. Roginsky is a board member of numerous organizations related to hospitality, is a regular guest lecturer at the Cornell Hotel School, and is co-editor of five leading hotel investment books. Email rroginsky@pinnacle-advisory.com


Matthew Arrants, ISHC, is the Executive Vice President of Pinnacle Advisory Group. Prior to joining Pinnacle, Mr. Arrants worked in operations with Four Seasons Hotels and Rock Resorts.
He holds a master’s degree in hotel administration from Cornell University, and a bachelor’s degree in political science from Hartwick College. Email marrants@pinnacle-advisory.com

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