July, 2019 - Hospitality industry experts gathered in New York to talk about increasing labour costs - and how those are starting to filter into how both buyers and sellers are looking at hotel real estate assets.
The Lodging Industry Investment Council members agreed that labour is increasingly becoming the 'top issue' in the industry. As Jeff Dallas, CDO of StepStone Hospitality put it, "labour costs are factoring into asset values and doing due diligence when underwriting deals now more than ever." Continuing, he said, "we are underwriting our benefit model on a pro forma basis versus historic operating costs […] we are at the point in the cycle where more and more capital groups are peeling the onion back further and further. And if you peel it enough, there will be no onion left."
However, there is also a different side to the story. Operators have difficulty in willing vacancies and are themselves struggling with higher employment costs. Adding to this, Keith Kefgen, New York-based Managing Director at AETHOS Consulting Group, said ""we have low unemployment and we have immigration issues from the government which are impacting first generation immigrants […] we are an academy industry, so any difficulties, restrictions and/or obstacles pertaining to labour and labour costs will have a lot of impact on the sector."
Also Chad Crandell, CHMWarnick President and co-founder, said he gets concerned when he sees investors making overly optimistic projections about labour costs, and he believes many hoteliers aren’t properly factoring in the costs of both retention and recruitment. Although, he believes paying a bit more to keep staff is the better of the two.