A year ago I was appointed to the position of Executive Director of the Massachusetts Convention Center Authority. To say the least it has been an exciting and fulfilling year on many fronts. One area in particular has been the opportunity to analyze and understand the long term booking dynamics and strategies of the region. To delve into the numbers and leverage the power of the data.
Early in my tenure here I found it necessary to educate and reinforce, to non-hotel stake holders, the basics of room segmentation and the resulting gap between a robust transient prevailing rate and a good, but sober, base convention rate. There was little knowledge or understanding of the way blocks are built with commitable rooms that were booked far out over the horizon, or that these blocks are the foundation upon which we build a matrix of rates from many years in advance right up to the hour of arrival.
Convincing the development and regulatory community that all hotel rooms are not created equal was another challenge. Hotel development has changed in the past decade, owners favor small limited service properties that are quick and affordable per key to build, are light on operational labor costs and have leased out F&B (if any). These properties receive the benefit of hotel room rate compression generated by a major convention but are rarely if ever part of the block that secured the business. From their perspective they get the best of both worlds - skimming the cream of high priced compressed room rates during an event while avoiding long term bookings that could impede an exit strategy that is likely well before the commitment date we require for a room block. Their fiduciary responsibility may be in protecting their flexibility to flip the asset long before the convention in question comes to town. Also, consider the fact that the convention planners prefer fewer and bigger properties rather than cobbling together, and contracting with a wide array of small and mid-sized properties.
It was not just the lay audience that I needed to engage. My native hotel industry is currently enjoying the financial fruits at the top of a long uphill ADR run. Compression causes an intoxication that comes when all the right factors are in alignment and causes an irrational surge in last minute transient rate. I reminded my colleagues of the history of the last two cycles where the ‘over/under’ has played out in the past. When markets crash transient quickly cascades downhill and suddenly group rates look golden by comparison. In good times properties start to restrict their blocks, in great times they resent their blocks. However, as soon as there is a shudder in the market, there is capitulation and the phones start ringing and formerly wary partners are once again eager to increase their blocks. The problem is that we, at the Authority have such a long trigger time. The convention we do not have today is because four or five years ago we were unable to assemble an acceptable block for the client. Conversely, the proof of the decisions you make today about blocks will not be realized for years to come.
If it was a stock portfolio then room blocks and convention business are the bonds, lower yield but solid, while the transient are the more volatile stocks subject to quick and often severe volatility. As a market we need to true up our investments and re-calibrate our strategies on a regular basis to match short term rewards with long term stability to create a healthy, durable hotel marketplace.
Early in my tenure here I found it necessary to educate and reinforce, to non-hotel stake holders, the basics of room segmentation and the resulting gap between a robust transient prevailing rate and a good, but sober, base convention rate. There was little knowledge or understanding of the way blocks are built with commitable rooms that were booked far out over the horizon, or that these blocks are the foundation upon which we build a matrix of rates from many years in advance right up to the hour of arrival.
Convincing the development and regulatory community that all hotel rooms are not created equal was another challenge. Hotel development has changed in the past decade, owners favor small limited service properties that are quick and affordable per key to build, are light on operational labor costs and have leased out F&B (if any). These properties receive the benefit of hotel room rate compression generated by a major convention but are rarely if ever part of the block that secured the business. From their perspective they get the best of both worlds - skimming the cream of high priced compressed room rates during an event while avoiding long term bookings that could impede an exit strategy that is likely well before the commitment date we require for a room block. Their fiduciary responsibility may be in protecting their flexibility to flip the asset long before the convention in question comes to town. Also, consider the fact that the convention planners prefer fewer and bigger properties rather than cobbling together, and contracting with a wide array of small and mid-sized properties.
It was not just the lay audience that I needed to engage. My native hotel industry is currently enjoying the financial fruits at the top of a long uphill ADR run. Compression causes an intoxication that comes when all the right factors are in alignment and causes an irrational surge in last minute transient rate. I reminded my colleagues of the history of the last two cycles where the ‘over/under’ has played out in the past. When markets crash transient quickly cascades downhill and suddenly group rates look golden by comparison. In good times properties start to restrict their blocks, in great times they resent their blocks. However, as soon as there is a shudder in the market, there is capitulation and the phones start ringing and formerly wary partners are once again eager to increase their blocks. The problem is that we, at the Authority have such a long trigger time. The convention we do not have today is because four or five years ago we were unable to assemble an acceptable block for the client. Conversely, the proof of the decisions you make today about blocks will not be realized for years to come.
If it was a stock portfolio then room blocks and convention business are the bonds, lower yield but solid, while the transient are the more volatile stocks subject to quick and often severe volatility. As a market we need to true up our investments and re-calibrate our strategies on a regular basis to match short term rewards with long term stability to create a healthy, durable hotel marketplace.
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