hotels articles

MORE than most downtown hotels, the 434-room New Otani Hotel & Garden has struggled, caught in a vice of declining business travel, limited convention business, labor troubles and the steep falloff in travel by its core constituency: Japanese on package tours.

Hotel management claims an occupancy rate of about 50 percent, on par with the downtown market in its price range. But industry trackers believe the real number is below 40 percent.

Now, the market is rife with rumors that the property, at Second and Los Angeles streets, is on the market.

Takashi Ito, president of hotel owner East West Development Corp., a division of Japanese construction conglomerate Kajima Corp., denied the property was being marketed but did not preclude selling it.

“Disposition of the project, it’s always an option,” he said. “When you make business decisions, you are always seeking an opportunity to maximize the value of the hotel. We have no current intention to sell the hotel but that depends on the offer.”

Though Ito declined to estimate the hotel’s value, brokers have placed it at between $30 million and $35 million.

Last year a Kajima subsidiary sold the Long Beach World Trade Center and an adjoining Hilton Hotel for $100 million. Last month, Kajima sold a 95,000-square-foot office building at 901 Corporate Center Drive in Monterey Park, according to a source familiar with the deal.

Ito called those sales coincidental and said they were not an indication Kajima is looking to sell the New Otani, its last L.A. County holding.

“Those were strictly business decisions,” he said. “They were based solely on favorable market conditions.”

Japanese tour groups consistently have made up between 20 percent to a third of the hotel’s annual business, but Japanese travel to Los Angeles is estimated to be less than half what it was in 1997 when a peak of 848,000 Japanese visited.

“Japanese tourists are very concerned about their security,” Ito said. “In the future they will come back but not immediately.”

The property is also the target of an AFL-CIO-sponsored boycott stemming from a 1997 confrontation with the Hotel Employees and Restaurant Employees Local 11.

Restaurants Gain Weight

Locals appear to be loosening their purse strings at area restaurants.

MasterCard International Inc. reported that the average amount charged by its card-holders at L.A. eateries in the first six months of the year increased 9 percent over the like period a year earlier.

But the increase, to $47.08 from $42.88, comes not because of higher prices but a willingness of customers to order more.

Restaurateurs said that customers, though dining out less, have been more likely to buy an appetizer or an extra bottle of wine than they were a year ago.

“We may not have as many people coming through the door, but our sales are just as high as last year,” said Caroline Styne, part owner of A.O.C. and Lucques. “There’ s something about going out and having a good time that lets you get away from the feeling of being stuck in a recession.”

Many restaurateurs attributed the gain to several high-profile restaurant openings, which they believe has renewed an interest in dinning out.

“The culture is changing and improving and there are more people who want to experience good food and drink better wine,” said David Rosoff, managing partner of Opaline.

Pearl After the Rough

From drag queen revue to posh dinner club, the 7,500 square foot restaurant at 655 Robertson Blvd. in West Hollywood has a long history of short-lived tenants.

That’s a pattern the owners of Pearl hope to break with their new nightclub/restaurant. They opened their Asian-influenced dinner club in the space last week.

California Restaurant Authority Inc., operated by Portland, Ore.-based partners Pat Marlton and Clark Goodman, bought the lease out in June after convicted con artist Edward Lindor last year ran the dinner club Moomba, which he renamed Dorcia, into the ground.

“We’ve retooled the whole place,” said General Manager Steve Marlton. “It looks a million times better.”

Marlton, whose brother is a partner in the restaurant, estimated the new owners spent between $900,000 and $1 million to acquire the lease and liquor license from the bankruptcy court, renovating the interior and upgrading the entertainment system.

Before Moomba, the building was the home of drag queen cabaret and restaurant Luna Park, owned by Jean-Pierre Boccara, who has been hired to remodel the interiors.

Marlton said he recruited Joseph Anderson, executive chef at City Grill in Portland, and Cody Diegle, formerly of Patina and most recently Tangerine, as co-executive chefs.

* The Shoney’s Inn and Suites in Branson, Mo., was reflagged a Holiday Inn Express Hotel & Suites. Grand Hospitality owns the hotel, and Leisure Hotels LLC manages it. It’s one of four hotels owned by Grand Hospitality in Branson.

Westminster Hospitality Group announced that Richard Verruni has joined the firm as general manager of the Westminster Hotel in Livingston, N.J. In his new position, Verruni will be responsible for operations, management, and development of the hotel’s business.

Verruni has 23 years of experience in the hospitality business. Prior to joining Westminster Hospitality, he served as managing director of Rosewood’ s Carenage Bay Resort in the West Indies.

Verruni holds a B.S. in hotel management from Pennsylvania State University and an M.B.A. in finance from the Wharton/AT&T Executive Education Center.

As the industry returns to a more normal level defined by better conditions, hotel developers are moving forward with plans that had been sitting idle during the industry slump of the past four years.

For those unlucky developers who were on the edge of solidifying a new project when conditions went sour, the past three years have unraveled financial and industry changes that altered the original identities of their projects.

The Regent Winter Park in Orlando, which was announced in July 2002, is gaining momentum again. The project, which is rising above the grounds of the former Langford Hotel, will consist of 23 condominiums and a 140-room Regent.

The deal had been a long time in the making, according to Mark Ellert, president of IAG Florida, who had been working on the project since its inception with Langford Development LLC.

At the end of 2001, Jim Heistand of Orlando-based Capital Partners, co-developer of the project with John Anderson, was scheduled to close on the former Langford Hotel, but the project fell apart after 9/11. After negotiating several extensions on buying the property, the deal was signed in June 2003.

While Langford Development had to shell out several large nonrefundable deposits to the seller of the Langford Hotel while waiting to make the deal work, Ellert said the time that passed gave the team a chance to “manage their destiny” by restructuring the development to better suit the market with additional residences.

“What occurred was a huge emergence in luxury condos in Orlando, which forced us to take a look at the project makeup,” he said. “We originally were going to move forward with a hotel and 23 residences, but after noticing the surge in luxury residences, we decided to convert the hotel to a condo hotel, adding additional residences.”

The move made the project less risky, allowing Langford Development to gain financing.

“We also had time to make some changes in the adjoining of the hotel and condominium buildings, and increased the number of units in the hotel from 150 to 197, which was more economical because it meant more condos,” Ellert said.

The condominium project is under way and the Regent Winter Park Hotel & Spa is slated to begin construction this spring.

Kemper Development Co. also recently announced progress on its hotel project in Bellevue, Wash., after the project had been put on hold.

The local development and management company now is making strides erecting The Westin Bellevue at Lincoln Square, a 337-room luxury hotel, with construction having re-commenced in January 2004 after KDC affiliates acquired the site from the previous developer.

The mixed-use project will comprise 148 luxury condominiums above the hotel tower, a retail component, a parking garage and a 27-story office tower. Completion of the project has been slated for this fall, according to Kemper Freeman Jr., chairman and c.e.o. of KDC.

Phase one of the property development includes the hotel tower, 148 condominiums, retail and parking. The office tower is expected to follow in a second phase of development. KDC also is developing two projects fronting Lincoln Square–Bellevue Square, a shopping center with 200 stores and restaurants, and Bellevue Place, a mixed-use facility featuring office, retail and a 382-room Hyatt Regency hotel.

Development Management Corp., a real-estate development and investment company based in Boston, recently got the green light to move forward with the development of the Regent Boston Hotel and Residences at Battery Wharf in Boston after the project was left simmering for nearly four years. First announced in March 2001, the project was negatively impacted by industry uncertainty.

In October, however, DMC announced it secured $230 million of financing for the project through Chicago-based Corus Bank and New York-based Fortress Credit Corp.

“We had all of our ducks in a row, and when 9/11 happened, one of our major investors said they needed 90 days to think about their position,” said Francois Nivaud, principal, New England Management Services, which is acting as project consultant. “That investor pulled out.”

While the project lay idle, the development team used the time to refine different aspects of the hotel and residences, Nivaud said.

For example, the residential condominium layout was completely revised to maximize living space. In addition, the size of the hotel was changed from 180 to 150 guestrooms, because a smaller hotel would be less taxing to fill and manage along with the residences, Nivaud said.

Harold Theran, v.p. of DMC, said he expects the facility to open in early 2007. The development will feature The Regent Boston at Battery Wharf, a 150-room, five-star hotel with 40 suites, The Residences at Battery Wharf, 104 luxury residences, an 18,000-square foot European-style spa, a 300-linear-foot marina, a parking garage and retail. Thirty-two of the 104 residences have been sold.

The Real Estate Board of New York (REBNY) held its third annual Commercial Management Leadership Awards breakfast on June 6 at the Roosevelt Hotel with more than 350 people in attendance.

John Santora, Executive Vice President of the Asset Services Group at Cushman & Wakefield, was presented with the Commercial Management Leadership Award for his outstanding contributions to the field of property management.

John is a distinguished member of REBNY’s Board of Governors as well as a Director of the Realty Advisory Board.

Larry Giuliano, of Tishman Speyer Properties, received the John M. Griffin Community Service Award.

Bill Dacunto, of Silverstein Properties, received the Corporate Management Executive of the Year Award.

Lou Trimboli, of CB Richard Ellis, received the On-Site Manager of the Year Award.

Marino Prodan, of Jones Lang LaSalle, received the Portfolio Manager of the Year Award.

Guest speaker, Stefan Pryor, the new President of the Lower Manhattan Development Corporation spoke about the revitalization of Lower Manhattan and gave insight into where things are headed. Stefan was appointed the agency’s chief executive in May. As the first employee of the LMDC, he has helped lead the agency since its inception in November of 2001.

Gerry Schumm, co-chairperson of the event, provided opening remarks and cited the accomplishments of the Management Division in the past year, including its efforts to work with the city on the implementation of Local Law 26, the Corporate Emergency Access System, and the revisions of the building code.

Gold sponsors of the event were: Cushman and Wakefield, Ecoglo, Envirochrome Interiors, Harvard Protection Services, Quality Building Services, Real Estate Weekly, Reckson Associates Realty Corp., and Summit Security.

NEW YORK, June 6, 2005 — The Real Estate Board of New York (REBNY) held its third annual Commercial Management Leadership Awards Breakfast on June 6th at Roosevelet Hotel with more than 350 people in attendance.

John Santora, Executive Vice President of the Asset Services Group at Cushman & Wakefield, was presented with the Commercial Management Leadership Award for his outstanding contributions to the field of property management. John is a distinguished member of REBNY’s Board of Governors as well as Director of the Realty Advisory Board. Larry Giuliano of Tishman Speyer Properties received the John M. Griffin Community Service Award. Bill Dacunto of Silverstein Properties received the Corporate Management Executive of the Year Award. Marino Prodan of Jones Lang LaSalle received the Portfolio Manager of the Year Award. Lou Trimboli of CB Richard Ellis received the On-Site Manager of the Year Award.

Guest speaker Stefan Pryor, the new President of the Lower Manhattan Development Corporation spoke about the revitalization of Lower Manhattan and gave insight into where things are headed. Stefan was appointed the agency’s chief executive in May. As the first employee of the LMDC, he has helped lead the agency since its inception in November of 2001.

Gerry Schumm, co-chairperson of the event, provided opening remarks and cited the accomplishments of the Management Division in the past year.

Minneapolis — AmericInn International is focusing on completing two major technology initiatives to help drive brandwide performance.

The Chanhassen, Minn.-based company recently selected exclusive property-management system and high-speed Internet access providers for its 188 properties nationwide.

“Technology initiatives are very important in helping to drive improved performance,” said Luke Fowler, chairman and c.e.o. of AmericInn. “It is critical to be wired live, with all your rooms available to the central-reservation system, Global Distribution System and Internet. The only way for us to do that is to have a high-speed Internet access component and the new front-desk PMS systemwide. It is a great time to push for consistency in these systems across the board.”

The company announced at its annual convention in April in Minneapolis that Micros Systems’ Opera Xpress will be the PMS brand standard for all properties. The PMS should be installed systemwide by June 2006.

Two weeks before the conference, which was attended by 500 franchise owners and managers, the company said Guest-Tek Interactive Entertainment Ltd. will be its exclusive provider of HSIA. All hotels must offer free HSIA in public spaces and all guestrooms by the end of the year, Fowler said.

“Our decision to have a consistent chainwide PMS will enable every AmericInn to have a two-way interface with our CRS at InnLink,” Fowler said. “Operating real-time through your HSIA, this system will provide you with maximum yield management and the ability for both InnLink and your staff to sell your rooms from the same inventory down to the last room.”

The decision was made to meet guest demand for fast, efficient and automated services. It’s also for group and tour operators, and travel wholesalers that want immediate availability.

The new PMS and HSIA, combined with the existing CRS, will allow hoteliers to better manage their inventory and revenue, Fowler said.

He said that a study of AmericInn locations that posted their full inventory and managed it daily revealed revenue increases ranging from 6 percent to more than 16 percent, and the average daily rate was $75.37.

Development front

Eleven AmericInn hotels opened in 2003 and the brand’s 188 locations offer 10,177 guestrooms. There are 17 properties under construction and seven under development, which means a franchise agreement has been signed but ground has not been broken.

The brand features all-masonry construction and 14-foot wide guestrooms, so only two conversions to the AmericInn brand have been done, and both of those hotels were built according to the company’s standards, Fowler said.

While some people think of AmericInn as a regional chain because of its strong presence in the upper Midwest–including 83 hotels in Minnesota–the company is working to be seen as a national chain.

“We are pushing into Colorado, Montana [and] California, and we have five properties in Delaware,” Fowler said. “We are looking to expand into New England and we have one going up in Tennessee.”

The company has opened hotels in destination markets, such as Eagle, Colo., which is the Vail market, and is moving into the Aspen, Colo., and Sun Valley, Idaho, markets.

The company aims to increase its visibility nationwide by sponsoring NASCAR driver Stanton Barrett in Busch Series races, and through the Americ-Inn Lodging National Youth Chess tournament.

“We are the sponsor of eight of Barrett’s races and we picked races strategically to represent where the chain will gain brand awareness,” Fowler said.

Rates and reservations

AmericInn’s GDS and electronic reservation activity was $6.7 million in 2003, a 168-percent increase over its $2.5-million performance in 2002. Activity at the company’s Web site, americ-inn.com, increased 80 percent in 2003.

The average daily rate on the GDS and Internet reservations averaged $76.62 with an average revenue per booking of $130.59, while the average length of stay was 1.7 nights per booking.

Chainwide year-over-year occupancy in 2003 for comparable properties averaged 54.8 percent, as the second half of 2003 compensated for negative trends earlier in the year.

Average daily rate advanced to $68.95 in 2003 from $68.54 in 2002. Revenue per available room was flat at $37.78 in 2003 compared to $37.79 in 2002.

“Although it is early in the year, the first-quarter indicators are trending much higher for the year ahead,” Fowler said.

AmericInn’s frequent-guest program, the INN-Pressive Club, gained 6,000 new members in 2003 to achieve a total membership of 71,600. Based on average systemwide ADR for comparable locations this year of $68.95, the company estimates that frequency club member revenue contribution in 2003 was $15.9 million, or 12 percent of the total chain revenue.

As part of its technology initiative, AmericInn set a goal for 2006 to automate its frequency club to attract more frequent guests.

We investigate the revenue impact of a new Price Setting Method (PSM) and compare it with the industry standard Bid Price Method (BPM). This comparison is performed via a simulation that was validated by a major hotel chain. In 27 out of the 32 cases, the PSM outperformed the BPM based on statistically significant tests. The PSM produces an average revenue increase of 34%, which can be thought of as an upper bound on the realistic revenue increase.

A Revenue Management System (RMS) consists of dynamic methods to forecast demand, allocate perishable assets across rate classes, and decide when to overbook and by how much, and what price to charge different rate classes. A perishable asset might be a hotel room, an airline seat, or broadcast advertising space. The asset (service capacity) is perishable because its revenue-generating capabilities immediately drop to zero at a point in time-right after the sales period ends. For example, once a night has expired, the lost revenue from an empty hotel room is lost forever.

Although there have been nonpublicized failures in applying RMS (see Cross 1997), most of the applications of RMS increase revenues while maintaining or improving service to customers. For example, Marriott’s RMS improved its revenues by $25-$35 million in 1991 (Lieberman 1992). Royal Caribbean Cruise Lines obtained a revenue increase in excess of $20 million for 1 year (Lieberman 1992). American Airlines increased its revenue by an estimated $1.4 billion over the 1989-91 time frame (Smith, Leimkuhler, and Darrow 1992). Revenue management saved National Car Rental from liquidation in 1994. During the first year of RMS implementation, revenues at National Car Rental increased by $56 million (Geraghty and Johnson 1997). The application of revenue management concepts and techniques has been proposed in other industries as well, such as golf courses (Kimes 2000) and internet service providers (Nair and Bapna 2001).

The focus of RMS is primarily on revenue maximization due to the cost structure and economics of perishable assets. For example, the fixed cost of running a hotel is high, and once the hotel occupancy rate is above the break-even occupancy rate, the contribution to profit and overhead per incremental customer is high.

RMS is viewed from strategic and tactical perspectives. The strategic view involves designing rate classes that cause customers to choose one service provider over the other. The rate class is a clearly defined set of tangible (goods-content) and intangible (service-content) features that benefit the customer and cause the customer to recognize, pay for, use, and experience the service (Collier 1994).

RMS uses “fences” to encourage business customers willing to pay a higher price from taking a lower price because of advanced purchase restrictions. Advance purchase restrictions may include items such as (1) minimum time in advance of arrival that booking must be made, and (2) Saturday night stayover requirements. Refund policies for reserved rooms, kids-stay-free policies, senior discounts, room upgrading policies, and penalties for checking out early or checking out late are other examples of RMS rate class characteristics that are related to the “service-content” or “intangible-content” of the hotel business. In summary, a rate class is a unique combination of room rate, advance purchase restrictions, physical hotel amenities, and other hotel policies.

Tactical revenue management makes rooms available for sale at certain points in time, at specific prices, and for various lengths-of-stay to maximize revenues over a typical 1-year planning horizon. It revolves around opening and closing hotel room availability sometimes on an hourly basis. For example, during peak demand periods, the higher priced rate classes are left open and represent a higher percentage of total room capacity, while the lowest priced rate classes are closed (i.e., unavailable to customers). Weatherford and Bodily (1992) define a taxonomy of tactical revenue management problems and solutions. Definitions of hotel yield management terms are presented in Appendix A. See Hanks, Cross, and Noland (1992) for a detailed discussion of strategic revenue management.

We compare the Price Setting Method (PSM) with an industry current and best practice Bid Price Method (BPM) approach (Talluri and Van Ryzin 1998). We define both methods in detail later in this article. We use the BPM as the competing algorithm to PSM because BPM is the most used hotel allocation approach developed to date. For example, Sabre Decision Technologies and Manugistics are the dominant consultancies for installing hotel revenue management systems, and both use BPM (Furniss 2002; Stewart 1999).

The article first gives a synopsis of revenue management literature. Then, a detailed description of the PSM and BPM methods is provided. We show here that the PSM is a concatenation of Gallego and Van Ryzin’s (1997) undifferentiated network approach and the popular bid price method. The simulation model for method comparison is then described, with details left in the Appendices. We then present the research design, describing the broad range of cases used to evaluate the PSM and BPM. The Results section provides insights into why the PSM dominates the BPM. Finally, we discuss avenues of further study in the analysis and development of explicit price setting methods.

The American Hotel & Lodging Assn. partnered with Aetna to provide dental, medical and employee assistance programs to members. Aetna will provide administrative services to help members get quotes and file claims. The program will pilot in four states during the first quarter, and will expand across the country to other markets over time. Additionally, a prescription drug program was created. Member companies that are self-insured have access to the discounted drug program through Walgreens Health Initiatives.

Park Plaza Hotels & Resorts announced that the former Radisson Hotel in New Orleans will join the full-service hotel chain later this month as the Park Plaza New Orleans. The 759-room hotel is owned and managed by Wyndham Hotels & Resorts.