Why a hotel in a hot market may fail while others prosper?

I’ve received calls from hotel owners seeking assistance who can’t understand why their hotel isn’t performing as well as others in the market. Blame is usually centered on the management company or the brand.

The hotel industry is cyclical; however, failures do occur in good times such as the current 100+ months of RevPAR growth. My interpretation of the issues affecting the hotels that suffer the most include:

  • The amount of revenue to service the debt is too high

  • Perhaps a loan was obtained when equity requirements were low

  • Deferred capital replacement needs

  • Guest perception of a “tired” hotel, further damage to the asset by eventually deferring maintenance

  • Failure to adjust to shifting market dynamics and demand generators

  • Simply not knowing where potential guest come from

  • Operating budgets driven by owner’s expectations rather than local state of affairs

  • Unable to face reality

  • Reliance on the cost-conscious guest

  • Becoming the low-cost provider lowers the guest capture rate for most markets.

Hotels that have three out of the five issues mentioned above have little chance for a turn-a-round.

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