As U.S. hotels adopt new safety protocols and evolve the experiences they will deliver, James Risoleo, CEO Host Hotels, and Bob Webster Vice Chairman & President, CBRE Hotels Institutional Group, discuss the sector's future.

Listen to the podcast

Spencer Levy
I'm Spencer Levy and this is the Weekly Take on this episode. We've got a room reserved for two VIP guests from the hotel world, a sector that's been it r- during the pandemic and is emerging as one of the trickiest to reopen.
James Risoleo
We've got to get through this crisis. We've got to get a vaccine. We need a vaccine or a strong therapeutic, I think, to give businesses and groups the confidence that they need to travel again, that their employees are going to be safe. And I think it's going to take some time before that happens.
Spencer Levy
That's James Risoleo, the chief executive and president of both hotels and resorts and S&P 500 company comprising 80 hotels with over 46000 rooms from South Florida to the South Pacific and
beyond.
Bob Webster
There's going to be markets that recover and there's going to be markets that take a little bit longer based on how the hotel accommodates its demand throughout a given year. That's the debate. But it's still a debate.
Spencer Levy
And that's Bob Webster who's been working with investors in the hotel sector since 1985 and now leads CBRE Hotel Institutional Property Group and is one of most prominent investment sales professionals in the entire industry. So here's your key, and this is the destination for an in-depth conversation about the hotel business. That's right now on the weekly take. Welcome to The Weekly Take. And this week, we're going to talk about hotels and hotels have been one of the most impacted asset types by the Colvard 19 crisis.
Spencer Levy
But to help us understand where we are today and where we're going. We have two of the leaders of the industry, starting with James Risoleo, the president, CEO and director of host hotels calling in from California. James Risoleo, welcome.
James Risoleo
Hey, Spencer, how are you doing today?
Spencer Levy
Doing great. Great to talk with you. And next, we have Bob Webster. My friend, colleague and vice chairman of CBRE, who's also the president of the Institutional Group for Hotels. Bob is calling us from Maine. Bob, welcome.
Bob Webster
Thanks, Spencer. Looking forward to spending some time with you.
Spencer Levy
James let's start with you. A lot of people in our audience might not be familiar with host hotels. Tell us who you are and what you do.
James Risoleo
Sure, Spencer. Look, I really appreciate the opportunity to have this podcast. Mr. Webster and I go back over 25 years now, and I got to tell you, I'm afraid so. A long time and a lot of crisis that we've navigated together. But, you know, nothing like this one goes without saying. I know we'll get into that in a little while.
James Risoleo
But let me tell you about host hostess, the largest lodging rete were publicly traded on the New York Stock Exchange. Our market cap today is roughly eight point seven billion dollars. That's down meaningfully from where we were pre covered. We took a fairly big hit as everyone in lodging world did.
James Risoleo
We own 80 hotels, all full service properties, all upper upscale and luxury spread across really 22 markets, predominantly in the United States with broad geographic distribution.
James Risoleo
Some markets are an open, yet some markets are shutting back down. So we like the fact that we have geographic distribution, Bob.
Spencer Levy
What do you tell the audience a little bit, about what you do? And also what James Risoleo mentioned, your 25 year relationship, how do you kick that off?
Bob Webster
Well, I was in, I guess, the first crisis together, a gym in the actually in the 1990s, which was a bad crisis. Honestly, it was probably the worst credit crisis that the industry's ever experienced because of the S&P crisis. It was probably one of the best buying markets coming out of that crisis. James Risoleo and I met actually on a golf course, and I've pretty much been beating them ever since. It's been great and a great relationship for that many years.
James Risoleo
I lose on the first tee with Bob all the time. You know, he is never handicapped. Yeah.
Bob Webster
But anyway, James Risoleo and I do go way back and, you know, aside from doing a considerable amount of business together, you know, we're close friends as well.
Bob Webster
So James Risoleo and I have been through these crises before. We will get through this. This is a defined event that's affecting demand in the industry. This event will go away at some point. And the big question is just the time of it. That's the variable that nobody can predict from a host perspective.
James Risoleo
We came into this year with the strongest balance sheet in the company's history. We have enough cash to take us through 2021 if we're in a worst case scenario, which thank goodness we're not in the worst case scenario. I mean, this fits and starts and drive to leisure markets.
James Risoleo
But what we've seen happen is, you know, our resort properties on the Gulf Coast of Florida. Good example. Right. The Ritz Carlton, Naples over July 4th weekend ran 60 percent occupancy at a six hundred dollar ADR, which is pretty strong. And frankly, we think if it weren't for the surge in Florida of cases, we would've done better. We opened the one hotel, South Beach, which is Miami Beach.
James Risoleo
I think June the 2nd or thereabouts. And as you know, the mayor of Miami Dade shut the beaches. So we did see about 20 percent occupancy at a healthy ADR at the one hotel. But we were anticipating much stronger performance. So it really is. It just fits and starts. And I think that's how it's going to continue to play out.
Spencer Levy
What are some of the operational things you're doing to make your customers more comfortable?
James Risoleo
You know, that's a really great question, because in all of the consumer surveys that have been completed, the top of the list is cleanliness and safety. That's what they want. They want to be assured that their stay is going to be safe, that they're going to be in a sanitized hotel room. And we think, given the fact that 90 percent of our portfolio is run by the major brands, Marriott, Hyatt, Hilton is a plus for us because the customers can take comfort that they are going to get into a hotel in public space. That has been cleaned and sanitized starting August 30th, electrostatic spraying at all of our Marriott hotels. In the common areas, in the public space, in the restaurants and in all the meeting space, not in the guest rooms per say, I mean, we're doing a good job of cleaning the guest rooms. And, you know, when a guest checks out, the room is thoroughly sanitized. We've taken a lot of the collateral materials out of the room. So there are less things for people to touch and to leave eventually leave the virus on.
James Risoleo
And then we're you know, we're going to put a we put a seal on the door so that the next guest checking in knows that no one has been in that room since it's been cleaned and sanitized. Chela, century is going to be a big thing.
James Risoleo
I think going forward, 80 percent of our rooms today have the capability of keyless entry. So we're testing out no touch kiosks in the lobby where someone can just bring their phone in if they don't want to use their phone to check into the room. They can just open a code on the phone. Touch it over the kiosk and it will spit out a key for you. So, you know, that's another thing that we're doing to just give people peace of mind and less interaction with the guest. I think we're going to be requiring that masks are worn in all public spaces in the hotels. It's something that we're discussing. And this is this would be above and beyond what the local jurisdictions might require. But again, safety and comfort is really critical.
Spencer Levy
Let's get to the question that a lot of our investor clients are going to ask. And I'm sure James Risoleo asked you every day what's happened to values today.
Bob Webster
Well, there's been a few marks that have been made on a handful of hotels. If you drill down on those trades, I think the established average is probably somewhere between 25 and 35 percent of a degradation of value from where value would have been year in 2019. So that's average. Now, a durable asset in a top tier market is going to trade well inside of that. A vulnerable asset in a secondary or less desirable market. People trade well. Why does that? If you look at the trades that some of the readers have made, I think that's the bandwidth of value. Sunstone just traded at a hotel last week, for instance, and they in their release, they said it was a 20 percent discount and that was for a hotel. And Balts one is a full service hotel. You know, the Baltimore market's experiencing the same demand crisis that all other markets are. And so that was their stated discount to their book value on that. So I think that's instructive to where the market is today.
Spencer Levy
Well, it would've traded worse if the Baltimore Orioles were not currently in first place, which they are. So we've got that going for us, right? Well, they're undefeated. Exactly.
James Risoleo
Exactly. I think you say the same about your home team there, Bob.
James Risoleo
The Boston Red Sox.
Bob Webster
My Red Sox are undefeated to Spenser's. Sorry about that. We're all tied for first place today.
Spencer Levy
So, James Risoleo, what Bob is talking about right now is the offense defense question. How much are you and host on offense today saying this is a great opportunity for us to expand?
James Risoleo
We think clearly you're going to see a lot of opportunities coming out of this, probably meaningfully more than we saw coming out of 2008, 2009, just because of the severity of the decline and the timeframe of the decline. I don't think a lot of people are going to be able to survive. I think it's still a little early.
James Risoleo
You know, there just aren't that many, quote, durable assets out there that are that are trading today. I think underwriting is going to be, you know, underwriting our hotels, operating performance. I'd love to give Bob Webster's perspective on this. You know, you're not going to be able to make a buy based on two thousand twenty one numbers or two thousand twenty two numbers. I really think you're going to have to look out beyond two thousand twenty two to 23 and 24 and wrap your arms around how you think a property is going to perform coming out of this.
James Risoleo
I mean, obviously, first things first venture. I mean, we've got to get through this crisis. We've got to get a vaccine. We need a vaccine or a strong therapeutic, I think, to give businesses and groups the confidence that they need to travel again, that their employees are going to be safe. And I think it's going to take some time before that happens.
Bob Webster
I think the basic methodology is you take a baseline value of what you would have been willing to pay. And that's a debate in its own right, because, you know, obviously a seller is going to have their own view on value and buyers are going to have a different view on value. But assuming you can come to terms with that baseline, then you need to really drill down on where is the demand coming from for a specific hotel. And you have to then make predictions as to how long it will take for that demand to come back. And. Will it come back full force? And how long will it take to do that? I know CBRE Hotels Research is predicting getting back to 2019 levels by the year 2023. That's across the entire industry. And there's going to be markets that recover quicker and there's going to be markets that take a little bit longer. Based on how the hotel accommodates its demand throughout a given year. So that's the debate. But it's still a debate.
Spencer Levy
Well, let's talk about the future for just a moment, if we can. James and Bob, I want talk about the future in a couple of different categories. First, I guess this isn't the future. That's the present, which is a new competitor that's been very strong in the space, which is air being beat. We'd like to get your point of view on how that has impacted the business. The second future change I want to talk about is if we are at the more pessimistic end of the scale and we do see a lot of hotels closing and I've heard a number, as many as 20000 hotel rooms in New York City may never reopen. How does that impact your portfolio moving forward?
Bob Webster
Well, you know, coming into this, every MBA is shadow supply. So, you know, supply, when you when you're an owner of a hotel that's outside of the basic fundamentals of the supply of hotels is never a good thing. What we have been finding prior to the was that it has impacted particularly big events like the Super Bowl and the gatherings like that. I've been hearing two things on the air. BMB front post covered. One, reservations are up in destination drive to locations similar to hotels. Reservations are up in those same destinations. But I've also been hearing that inner city urban air BMB is not doing well. There could be considerable stress in the system of owners who bought air BMB units in major metro areas who now are carrying those units. It's the same as if you owned a hotel. Right. And so if you bought the a year, you leverage your balance, your own personal balance sheet and bought five units in New York City and you've been doing really well with that investment. Well, that demand's dried up. So what happens to that person that owns those units? They're going to be under the same liquidity stress as hotel owners. I don't think you can kind of paint air BMB with the same brush everywhere. But, you know, no question if you want to take your family somewhere and you don't want to be around other people, you know, V.R., BAEO or Air BMB is a good solution for that. But once travel becomes more normalized, I think we go back to the same dynamic with maybe less supply than we had coming into this on both.
Bob Webster
Hotel ownership and air BMB ownership all echo what Bob said about her BMB in certain markets. You're going to see less air BMB product. I think some of the other home sharing platforms that came online like Sonder and Lyric. I don't think that they're going to make it for the same reasons. You know, they've gone long on leases and, you know, unless the landlords are truly willing to, you know, forbear and forgive. I think it's going to be challenging for them to stay in business. And, you know, net new supply when you talk about the rooms that are come onto the market. I agree with you completely, Spencer. New York is going to be significantly impacted. I mean, twenty thousand rooms is a number that I've heard. And, you know, you can point to certain hotels that have already said, you know, we're closing. I mean, the Omni Berkshire in New York City said they're not reopening the addition in Times Square.
James Risoleo
The Roosevelt, the Hotel Pennsylvania. You know, this is early days of this crisis. So I think you'll see a number of hotels closed, not only in New York City, but in other markets as well.
Bob Webster
Hey, James Risoleo, I have a question. Do you take the over or the under on 20000?
James Risoleo
I take the over about you.
Bob Webster
I did, too. I want to bet against you, but I can't. I can't take that.
Spencer Levy
Well, as the host who's been criticized for being too optimistic, I'm going to take the under. OK, good.
Spencer Levy
But the reason I'm going to take the under is because I think that and again, I hate to bring up the 9/11 comp, but you have to talk about how business behavior is going to rebound in. A lot of people post 9/11 were concerned about coming back to New York City and tall buildings. But once the buildings were made safer, people came back. And I think buildings are now going to become. Well, sir, if that's even a word and people feel comfortable coming back. So I think, you know, New York City will come back strong. It's going have a tough twelve, 18 months, don't get me wrong here. But it will come back strong. It just has too many things going for it from a durable demand driver standpoint, from capital, infrastructure and otherwise.
James Risoleo
I agree with you. And New York has been down before. But I do think that the reason I'm going to take you over is because there was way too much supply in New York. It couldn't absorb what was being built, precut of it. And, you know, it is a very high cost operating environment. It's challenging from that perspective. I think you're going to see that change going forward.
Spencer Levy
One more operational question for a consumer that's going to one of your hotels today. How will the experience be different today and then say, 18 months from now, 18 month from now, go back to business as usual or there's some permanent operational changes to things like pools and restaurants and gyms. What do you think?
James Risoleo
I think you're going to see permanent changes to the operating model going forward. We're having conversations with the brands with respect to brand standards. Each of the brands has approximately 300 brands standards, and we are methodically reviewing each of those standards with them. So you may not see, in many instances, restaurants open for three meals. If it's not necessary going forward, you're going to see breakfast buffets eliminated and they club lounges whereas they or the concierge lounge or the M Club. You're not going to see hot buffets there. You're going to see cold buffets only going forward, you know, with respect to fitness centers. I would hope that we get back to where we were before. That is a number one guest amenity today. I mean, in many markets, even if the hotels open, the fitness center has to remain shuttered due to local regulations. And you're going to see less people in the lobby.
James Risoleo
I think, you know, we are talking about the potential of combining various job, great job classifications. So, you know, you're not going to need to have a fully functioned and staffed front desk, assuming that we can convince people to use mobile key.
James Risoleo
And you might have one attendant in the lobby who will not only function as a, you know, a front desk agent, but also, you know, as a concierge and as a at your service individual as well. So I don't know that you're going to have a separate concierge desk going forward.
James Risoleo
So it's obviously, you know, vary by market. It's going to vary by, you know, whether properties union or nonunion. But I think you're going to see a lot of changes.
Spencer Levy
Let me jump on that for a second and would come to you, Bob, right now, because and I use this term because I read it once in the Financial Times. They talked about the breakfast buffets as being the Muffin Mountain at these hotels and, you know, stacking up all this food. And a reason why they did it is because food is cheaper than labor. So Bob Howard's labor play into your analysis for your buyers and sellers of hotels?
Bob Webster
Well, I think James Risoleo actually touched on a number of changes that he's predicting brands are willing to make. And I think all of those are labor related. So that's more overall a reduction in labor, despite the fact that you might have, particularly in the interim, you're cleaning costs and labor costs might actually spike because of the virus. I think coming out of this call it 2023, theoretically, if we get back to 2000, nineteen levels of rev par and we make these changes, theoretically, hotels should be more profitable than they were in 2019. On the same revenue, with a few exceptions, real estate taxes, no one can predict the stress on municipalities given the value degradation of real estate that they apply to their real estate taxes and insurance could be affected. So those are two fixed costs that that could actually, you know, go up and had been going up coming into 2020. So there's going to be an offset. Impossible to predict. I do know that, you know, I'm a big believer and in our research group, as you know, Spencer, and they're predicting that. Why GOP levels actually will trail the recovery in Rafah. Probably because of those cost items. Intuitively, I think actually in a way, you would come back earlier than Rafah because of what James Risoleo just said. But, you know, just impossible to predict at this stage.
James Risoleo
It's impossible to predict is right. I mean, we looked at the recovery of the hotel operating model post 9/11 and post the Great Recession. And, you know, I think 2023 is a pretty good metric.
James Risoleo
If we perform relative to how we performed in the past. But, Bob, I mean, I hope you're right that I don't mind coming back faster because I don't I don't think that out of line. But I was gonna come back for another year after we get back to peak levels because of all the cost.
James Risoleo
So we'll see.
Bob Webster
Well, that's exactly what our research group is predicting. Yeah. So and you're you know, you're more knowledgeable because of your portfolio as to how that flow through, you know, will look. But impossible to tell Spencer.
Spencer Levy
So as a consumer going into these hotels, are you still going to have a fun and unique experience? And how do you do so and still have that safety feeling safe factor, James Risoleo?
James Risoleo
Look, Spencer, I think it comes down to when do we get a vaccine? I really believe that there is going to be heightened caution on the part of everyone. And there should be, quite frankly, until we get a vaccine in total, till we rolled out one that I think people will get back.
James Risoleo
I'm fine. I mean, I can tell you, you know, we are ready to travel.
James Risoleo
And I think my whole team is ready to travel.
James Risoleo
mean, that hosts we're loosening our travel restrictions this week. Actually, we had prohibited business travel, but there are a lot of people who've got to get back on the road. So we're slowly getting back to business.
Spencer Levy
Well, Bob, let me ask you a wrap up question. You mentioned. You've been through many crises. What do you say to some of the younger professionals, particularly those in the hotel area that haven't? This has got to be a little scary to them. A lot scary to them. What are you telling them?
Bob Webster
You know, I've been through four deep downturns in hotel demand shocks to the system. This is by far the worst. There's always opportunity coming out of events like this, Spencer. And while it's difficult to be a young professional today, you know, you just have to make sure that you're aware of what's going on so that you can use it in the future and remember what it was like, because I'm very different today than I was in the 1990s when, you know, I was worried. You change your habits, you change how your own personal balance sheet looks and so forth. So I think they need to be eyes wide open, but also be optimistic.
Spencer Levy
James, what's your advice to younger professionals?
James Risoleo
Absolutely the same advice. There will be opportunities to come out of this, a crisis as an opportunity to learn and to learn what to do and what not to do.
James Risoleo
I was steeped in the real estate downturn in 1989, 1990, 1991, and I had a mentor back then who gave me a piece of advice that I'll never forget. And I tell people this all the time, the younger professionals, you're getting APHC and you don't even know it. You'll never learn this in a classroom. You'll never learn how to manage business through turbulent times out of a textbook.
James Risoleo
So take advantage of it and just hang in there and there will be better times around the corner.
Spencer Levy
Well, on behalf of the weekly take, I want to thank you, James Risoleo president and CEO of Host Hotels. James, thanks for joining us.
James Risoleo
My pleasure, Spencer. Thank you.
Spencer Levy
Thank you. And Bob Webster, my colleague, my friend, vice chairman and president of the Institutional Hotel Group at CBRE, Bob, thank you for joining us as well.
Bob Webster
Thank you, Spencer. I always enjoy our podcast together.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world's largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.