Tariffs, Travel Disruption, and What Hotel Leaders Must Do Now - Jan Freitag, CoStar

Jan: We get the question a lot, you know, how do you navigate this uncertainty? Is this different from the other uncertainty of COVID and the Great Financial Crisis? Is this the same? And what have we learned from the prior downturns? And can you be more specific? What do these tariffs mean to the state of the US hotel industry where we are today, given that the tariffs, I guess yesterday were partially reversed, but three days ago were in full force? So who knows where they're going, but let's just have sort of a high-level maybe conversation about what the tariffs could mean to the industry. And the way I think about it is there's the tariffs on goods, and then there's the rhetoric around the tariffs, which impacts the service delivery, which impacts the US hotel industry, in my opinion. On the good side, clearly, if things get more expensive, that means that it's harder to build and harder to renovate. So if lumber, timber from Canada, and concrete from Mexico gets more expensive, it just elongates your construction site because you have to source it differently. Maybe you have to go for more money. Or maybe if you're in the final planning stage and you were about ready to pull the trigger, maybe you're saying, given that this changes all the time, let me just sit for, I don't know, three months before I actually start coding concrete, so to speak. So I think, so if you're a developer, this isn't great news. If you're an operator, you could say, hey, less competition for me, right? The number of rooms in construction in the United States has been between 150,000 and 160,000 rooms for well over three years. So what that means is that some rooms open and some rooms break ground, sure. But there's not this huge spike up or down. It's just sort of slow and steady, which means the number that we look at is called supply percent change. Last year was 0.6 percent. The long run average is 1.7. So we're not overbuilding. And these tariffs certainly make me believe we won't be overbuilding. The other side to it as an operator is, and you've talked about this, there are a lot of these PIPs, right? Property Improvement Plans. The brands are telling the owner, look, you haven't renovated since 2018, 2019. You've got to refresh these rooms and these ballrooms. and the lobbies and the owners are like, yep, I'm ready. I have money now. And now things get more expensive. So are our owners now saying, maybe I can't do all the rooms. Maybe I can't do all the restaurants. And maybe my renovation elongates as well time wise. So that's how I think about it on the tariff product side. But I think there is this, the rhetoric is just terrible. It's like, we're looking at the Canadian inbound flights in March from the four major airports into the, Canadian airports into the US down, you know, 6%, 7%. Total Canadian air inbound in March is down 7%. So clearly Canadians are I don't want to use the word on the air, but they're angry, you know. There are other words you can use about the state of mind of the Canadians right now with regards to the Americans. And I think that will translate into travel behavior, especially when you think about the… I used to live in Phoenix, used to call the snowbirds, right, people who come down between Canadian Thanksgiving and Tax Day, November through April, who stay in Arizona or in Florida and to just stay the winter. You know, retirees, you know, certainly a part of the economy that these states rely on, and I'm afraid the Canadians this year are just going to go straight to Mexico and straight to the Caribbean.

Josiah: Well, it's interesting. You had a good chat with Glenn Haussman, I'll link in the show notes, on the rhetoric piece a little bit. I find interesting. I find this personally interesting because my dad's Canadian, my mom's from the San Francisco area, and so I kind of find it interesting. I find what you and Glenn were talking about for a few moments there interesting in your chat with him because rhetoric, to your point, makes a difference, right? Even if only a few people are being detained at the border, And, you know, from a percentage perspective, it's not a lot, but you have a psychological feeling that could, you know, put a damper on travel, right?

Jan: Yeah. And I think that, I mean, that service card fits very close to home for you, right? I mean, how does the family interactivity work? Is it all going to be on Zoom or are we physically leaving the country? Are we okay leaving the country? You know, and I'm then fast forwarding to next year when the World Cup's in town. And I wonder, will all the Germans and the French and the Spaniards actually make the trip if they're not 100% sure that they can make it into the country? Or will they just sit it out? The World Cup in 2030 is in Spain, Portugal, and Morocco. And will they just say, you know what? Let me just do this on TV. And in 2030, I'll travel again.

Josiah: I'm kind of worried about that. I think, Jan, I wonder if we, you know, before we started recording, we were talking a little bit about speaking to things unfolding now, but also being somewhat timeless if people are listening to us years from now in this conversation. I think you had a really interesting chat with Karen Stevens at Hotel Moment a few months ago about this notion of kind of unprecedented times versus things that we've seen before. I feel like that whole notion of unprecedented times, the phrasing of that's kind of funny and feels like the pandemic. I would love to get your thoughts on this though from the perspective of like, it feels like there's a lot of uncertainty here, a lot of chaos. Does this feel like anything that's unfolded in the past decades? And the reason for that is I'm curious if we've learned anything about getting through these moments from things before that might be applicable now, or is this totally new and we have to come up with a new playbook? Yeah.

Jan: So the headline, I had an internal email that I, with the headline I used was, may you live in precedent at times. You know, I hope that we have seen some of this before and we have learned our lesson. So a couple of, you know, things that might be interesting for it, for our listeners today, it's okay. So Jan, you said that new supply is going to be super subdued, right? There's not going to be this whole, this wave of new supply. What does that mean for me as an existing owner operator? Clearly, If you can position yourself as the new kid on the block, I'm using air quotes that you can't see. My point is, if you can lean into the renovation and become the newest hotel in your competitive set, there won't be a new hotel, but you can be the one that is freshly renovated, has all the latest technology. That is certainly one way for you to differentiate yourself, you know, and hopefully then attract customers that way. The other piece is about price. We know that when you cut rate, it takes twice as long to come back than it is to cut. So just be very, very careful when it comes to deals or when it comes to your desire to say, oh, there's so limited visibility, I have to entice people through rate and rate only. No, there are other ways to provide value. And you have good staff, you have good restaurants, you have a good ballroom. You have ways with creative thinking to say, look, here's a unique value proposition for my property that has nothing to do with rate and everything to do what we deliver. And I think we learned that post 9-11. I think we learned that post COVID. And hopefully we remember it. this time around. And then lastly, most importantly, probably is just take care of your staff. You know, they have uncertainty as well. But you as a leader, you have to be out there saying, look, focus on what we can control. We can control the guest service experience when they check in, when they check out, when they come to the restaurant. We can't control the stock. So don't even look at that. You know, like, what can you control today here?

Josiah: I wonder if we could dig into this a little bit further because I like thinking about things that are unfolding through the context of, it's overly simplified, but this notion of operators or management companies, the owners, investors, and the brands. And obviously there's organizations that are all three of those and various mix of them. I like the advice for the operators. Is there anything else you would share? We have the chance here in this conversation to speak to investors and speak to brands. I guess specifically for investors and brands, is there any advice that you would have for them or things that you would like to see them do in this moment?

Jan: I mean the brands live and die by the ownership relationship. You know, we're all going asset light. Very, very few brands own their own properties. They have to have the conversation with the owners and the owners are saying, look, you know, what what is really driving rate and ref par and occupancy in this box? And what is a brand standard? And what can we maybe negotiate about? What do I, as the owner, have to pay for absolutely 100%? And what can we maybe push aside for a couple of years or maybe not even do? And here's a different way that we can activate the space or change the restaurant up that's maybe not as expensive. So I think the conversation between the brand and the owner is critical. Now, the good news is that I'm in a part of roundtables where both parties are at the table and I'm just listening to them. And it's clear that that conversation is ongoing all the time. But there's a push and a pull and there's some, you know, yelling. But, you know, I think we're going to come out at the other side where both sides can say, OK, the brand got what they needed to maintain the brand standard, but the owners didn't pay for everything that was on the wish list of the brands. So I think that conversation is number one. The other pieces for an investor, I'm hearing more and more that in this specific environment limited partners so people who gave a general partner a fund some money and often these are closed-end funds that only run for five to seven years when they did that in 2018 and 19 they're now coming to the end of their fund life and the limited partners are saying hey give me back my money And so the general partner is saying, well, but we haven't fulfilled the dream of this hotel. There's more opportunity. And the limited partner is like, I get it. Give me back my money. So we're seeing that some funds are now being, I don't want to use the word forced, but are now rapidly coming to the end of their life. And they will put some properties on the market. And for investors, there's then an opportunity to say, oh, you know, maybe there's a way for us to step in here into a property that it's not a distress sale, but it's certainly an active sale.

Josiah: At Hunter conference, there's some conversations from the stage and in the hallways around this, and it's easy to say, to act when there's fear in the market stuff. It's much harder to do in the moment, but I think it's interesting to look at what might be unfolding here, where the opportunities may lie, that sort of stuff.

Jan: And you had this really interesting conversation with Zach from JLL. You talked about San Francisco, and San Francisco for the longest time was just, oh, you can't touch that. I got the question for the last couple of years all the time. There's people like, OK, so where's the distress, Jan? And I'm like, well, I got some distress in San Francisco. And they're like, no, no, no, we don't want that distress. No, we want the good distress. But it sounds like San Francisco is turning the corner and that there's going to be some announcements or some pretty big deals coming down the pike there and some smaller acquisitions already been publicized. So hopefully, San Francisco is one of those markets where people can can take the quote-unquote risk because there's so much upside runway.

Josiah: So interesting to see what's happening here. I wonder before we go, Jan, if we could speak a little bit about data, you know, kind of zoom out from the moment, think about data broadly. You have spoken before about the difference between interesting and actionable data. I wonder if you could speak a little bit more to this because I think this can be a challenge, especially in, you know, media too. It's like, oh, maybe this grabs a headline. versus like, what do I do with it? You know, can you explain a little bit about the difference? Why does it matter? How can our listeners think about that?

Jan: Yeah, so I talk a little bit out of both sides of my mouth on that, because on the one hand, I'm the king of the quick data head and the stuff that makes it on the Wall Street Journal. But that's always total US, right? And there are just around six million or so hotel rooms. What I say may not actually be true for your specific courtyard in the Keys, you know. So it's the interesting thing that's my role. I have to go out and say hey here's an interesting data point, here's an interesting track. The actionable piece is how does that translate or not into your specific property. So we at Coaster, we at STR, we have a lot of data and it's probably a little hard to look at everything all the time. You know you had an interesting episode about AI and can AI help you sort of focus your thinking and do you manage by exception say give me all the data and then tell me what are the three data points I need to look at what is actionable for me today coming to back to the earlier part of the conversation you can't like the stock market is certainly interesting But that's not actionable. Having customer satisfaction scores that teeter, that is actionable. Because you can say, oh, we need to invest more money in training and make our check-in experience easier, whatever it is. So we provide a lot of the data that is backward looking. It's very timely, right? It ends last Saturday. So we have weekly data that comes out every Wednesday morning for the week ending Saturday. And you have last year's data. And then we can say, OK, so what do we think next year is going to be based on the trends of the last four weeks of the last two months and what happened a year ago next week? And that's how you then take our data and say, oh, we have a hunch what's going to happen. Nobody knows, but we have a hunch about what's going to happen. And that will impact our occupant strategy and our pricing strategy. So this idea to say there's a lot of data out there, a lot of it is interesting. but how can I parse out the two or three data points that really help me drive my bottom line? That's the actionability.

Josiah: I love it, Jan. Thanks for breaking that down for us. I know many of our listeners are very familiar with you and your work and all the good stuff that you're doing. For people who are new to kind of what you and your team do, where would you appoint them to kind of get started in learning and following your work? And then is there any specific resource that you'd like to highlight that we can maybe include a link in the show notes and promote? I mean, three ways to get in touch with us and with our data.

Jan: One is, you know, follow me on LinkedIn, follow Isaac Collazo, who's the head data guy for STR on LinkedIn, for sure. Number two, Isaac and I have our own podcast, the Not A Lot Of Hair, But A Lot Of Good Data podcast. So once a month, we talk about the monthly data and break it out. So it's called Tell Me More. And then lastly, if you really want data, Once a year, in August, when it's too hot to go outside, we gather 750 of our best friends in Nashville, Tennessee, in dark ballrooms, and throw PowerPoint at them. It's called the Hotel Data Conference, and it's exactly what's on the package. It's hotel data for two and a half days. In August, it has sold out for 16 years running. It will sell out again this year. It's a super interesting way to meet fellow data nerds, revenue managers, marketing managers, but also to get really deep into the data. And then lastly, a non, my favorite, non-CoStar dataset is the terribly named i92-APIS dataset from the Department of Commerce, which gives you the international inbound and outbound air travel counts, not just by country, but by city. So if you're in Boston, you can see how many people fly from Frankfurt to Boston, how many people fly from Narita into LAX. It's very timely. The March data just came out yesterday, so nine days after the month, and it's free. It's the Department of Commerce. Just Google I-92-APIS. Again, I didn't name this. It's a horrible name, but it's a super interesting data set.

Josiah: Incredible. I love your podcast. I love following you on LinkedIn. The Hotel Data Conference, I've been going for over 12 years. Incredible event. I'll link to all of this in the show notes. Thank you so much for taking the time to talk today.