Tuesday, January 6, 2009

Hotel Spas in the U.S.: Will Revenue and Profit Growth Continue in 2009?

LOS ANGELES, CA, Jan. 6, 2009 – Spas continued to contribute to the top and bottom lines of U.S. hotels in 2007.

Total spa department revenue increased 5.0 percent from 2006 to 2007, while spa department profits grew 5.8 percent.

These are among the findings reported in PKF Consulting’s (PKF-C) recently released 2008 edition of Trends in the Hotel Spa Industry, a report that examines the revenue, expenses, and profits of hotel-operated spas in the United States.

“Lodging industry owners and operators fully realize that a well-run spa operation can benefit a hotel in many ways,” said Bruce Baltin,(top right photo) senior vice president in the Los Angeles office of PKF Consulting.

“In addition to the monetary contribution, a spa can help define the market position of a hotel, provide a competitive asset that is attractive to multiple demand segments, and diversify a hotel’s revenue stream. It is this type of product differentiation that managers hope will provide a competitive advantage in 2009.”

During challenging times like these, the spa industry has the potential to be buoyant. However, it is not invincible.

“The dynamics of the spa industry enable it to persevere longer than other industries for several reasons,” Baltin noted. “A large portion of its consumers are affluent, an increase in stress can further emphasize the importance of staying healthy, and in difficult times people tend to seek out experiences rather than material objects.

" All that being said, hotel spa usage will likely decrease due to expected declines in occupancy rates and guest counts for the lodging industry in general.” In its December 2008 Hotel HorizonsSM report, PKF Hospitality Research (PKF-HR) is forecasting that the typical U.S. hotel will experience a 5.3 percent drop in occupancy in 2009.

The 2008 Trends in the Hotel Spa Industry report analyzes the 2007 financial performance of 116 spas operated by hotels located throughout the United States.

In aggregate, the 116 hotels that voluntarily submitted their data for the survey averaged 405 guest rooms in size and achieved an occupancy of 70.8 percent and average daily room rate of $257.14 in 2007.

Both urban and resort hotel spas were included in the research, while day spas, medical spas, destination spas, and hotel spas that independently lease space were excluded. For the purposes of this research, departmental profits are calculated before deductions for undistributed expenses and fixed charges.

Spa Revenues

Since the number of occupied rooms for the survey sample remained relatively flat (0.2 percent decline), the 5.0 percent rise in spa revenue was likely due to an increase in the price for spa services, increase in number of services utilized per hotel guest, or a stronger mix of local patronage.

“Recent research has shown that although consumers are tightening their belts, they are still traveling albeit with a different mindset and expectation of services.

"People increasingly are requiring greater value and a heightened level of experience. Hotels with spas can meet those needs by providing promotional packages, special offers, and discounts,” observed Gabrielle Lerner, associate in the Los Angeles office of PKF-C.

For the hotel spas that participated in the survey, department sales represented 3.9 percent of total hotel revenue in 2007. Within the spa department, massage continued to be the greatest source of revenue (55.6 percent), followed by skin care and body work (18.8 percent) and salon services (10.7 percent).

Spa Expenses

Overall, spa department expenses increased 4.7 percent from 2006 to 2007, driven mainly by a 6.6 percent increase in labor costs. Like all departments within a hotel, labor-related costs are the biggest operating expense for spas, representing 57.2 percent of department revenue. “Labor costs in urban hotel spas tend to be somewhat higher than in resort spas. Urban hotel spas have lower revenues and inconsistent demand for services making scheduling more complicated,” Lerner said.

Spa Profits

The average departmental profit margin for the spas in the survey sample was 24.1 percent. For comparison purposes, the average profit margin for all other operated departments in PKF’s Trends in the Hotel Industry survey was 29.4 percent.

From 2006 to 2007, hotel spa department profits grew 5.8 percent. Profit growth was greater for urban spas (12.3 percent) versus resort spas (4.6 percent).

“While 5.8 percent is a healthy rise over the previous year, it was less than the 6.7 growth rate for total hotel operated department income, which demonstrates the evolving spa industry still has room to improve,” Baltin noted.

Hotel Spas In 2009

“As U.S. hotels are forecast to struggle with declines in occupancy, ADR, and revenue, we believe there is an opportunity for spa operators to capitalize on operational and competitive advantages,” Baltin said.

“Hotel spas are an important amenity to all market segments and should be leveraged with regards to meetings, conventions, and other special events. Innovative marketing can also be created to promote the spa as a ‘staycation,’ thereby providing a refuge for local residents.”

PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in Boston, New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Bozeman, Sacramento, Seattle, Los Angeles, and San Francisco.


Bruce Baltin, Senior Vice President, PKF Consulting, 865 South Figueroa Street, Suite 3500, Los Angeles, CA 90017. (213) 680-0900, ext 3309.

Chris Daly or Jerry Daly, Daly Gray Public Relations, 620 Herndon Parkway, Suite 115, Herndon, VA 20170. (703) 435-6293.

Davidson Hotel Co. Signs Management Contract for The Wynfrey Hotel in Birmingham, AL

MEMPHIS, TN, Jan. 6, 2009—Davidson Hotel Company, one of the nation’s largest independent hotel management companies, today announced that it has signed an agreement to operate the 329-room Wynfrey Hotel (top right photo) in Birmingham, Ala.

The hotel is owned by Jim Wilson & Associates, a Montgomery-based real estate ownership group.

“The Wynfrey Hotel has long been considered one of the Southeast’s finest hotels and has successfully catered to Birmingham’s corporate and social needs for more than two decades,” said John A. Belden, (middle left photo) Davidson’s president and chief executive officer.

“We are honored to have the opportunity to manage this classic hotel and build on the great foundation laid by Jim Wilson and his team. We look forward to implementing our proprietary management and sales systems to further enhance the guest experience and overall financial performance for ownership.”

“This is our first new management contract in 2009, and we look forward to building on our momentum of 2008 when we added 10 new management contracts to our portfolio,” said Steven A. Margol, (bottom right photo) Davidson’s executive vice president.

“We have always focused on growing our management portfolio selectively, working for well-respected owners with institutional quality assets, where we can bring our management expertise to the property and create additional value for ownership. In this instance, working with Jim Wilson and Associates on the renowned Wynfrey Hotel fits perfectly within our criteria.”

Located at 1000 Riverchase Galleria, the elegant Four Diamond hotel is connected to the Riverchase Galleria, the state’s largest enclosed shopping mall, which features more than 250 well-regarded, upscale stores and boutiques.

Additionally, the hotel is situated within walking distance of numerous restaurants, theaters, offices and additional shopping. The hotel is in close proximity to the Birmingham International Airport, downtown Birmingham, Hoover Metroplex, Birmingham Jefferson Convention Complex, Talladega Motorsports Park and many other local attractions.


Cyndi Norwood, Davidson Hotel Company, (901) 821-4155, cnorwood@davidsonhotels.com

Jerry Daly, Chris Daly (media), Daly Gray Public Relations, (703) 435 6293, jerry@dalygray.com

Meridian Capital Group Arranges Over $4M in Financing for Office Condo in Miami, FL

MIAMI, FL - Meridian Capital Group has arranged a loan in the amount of $4,359,500 for the refinancing of a 14-story office condo on Biscayne Blvd. The borrower was looking to secure an inventory loan for the remaining office condos with release clauses for each of the remaining units.

Noam Kaminetzky (top right photo) of Meridian’s Florida office successfully negotiated on behalf of the borrower to secure a rate of 6.75% over a 9-year term.

Contact: Dani Sabesan: 212 612-0109, dsabesan@meridiancapital.com

Marcus & Millichap Sells $15.85M Single-Tenant Office Building in Hunstville, AL

HUNTSVILLE, AL – Marcus & Millichap Real Estate Investment Services, the nation’s largest real estate investment services firm, has arranged the sale of a 99,197 square-foot single-tenant office building occupied by Science Applications International Corp. (top right photo) in Huntsville.

The sales price of $15.85 million represents $159.78 a square foot.

Joshua Volen, an associate vice president investments, and Andrew Slade, an associate in the San Diego office, represented the buyer, HPC Properties. Edwin Greenhalgh, the firm’s broker of record for the state of Alabama, assisted in closing this transaction.

“The biggest hurdle to closing this deal was obtaining financing, but Mark One saved the deal after 13 other banks had quoted nearly 200 basis points higher on the rate,” Volen shares.

Chad O’Connor, associate director of Mark One Capital in San Diego, assisted in providing $8.9million in financing to the borrower.

“The buyer had completed a 1031 exchange with this acquisition, and we achieved a 154 percent increased return from his original investments, or $360,000 on an annualized net basis.”

Located at 6725 Odessey Drive, this 99,197 square-foot high-quality office building is triple-net leased by Science Applications International Corp., a publicly traded Fortune 500 company with offices in more than 150 countries worldwide.

The property has excellent frontage along Odessey Drive. Constructed in 2007, the 6.7-acre property includes well-maintained landscaping and an attractive building design.

The property is located near Cummings Research Park, (middle left photo) the second-largest research park in the United States, and Interstate 565, as well as other main traffic arteries in the city.

In the submarket surrounding 6725 Odessey Drive, there are a number of large technology, communications and manufacturing companies, including Redstone Arsenal, Space and Rocket Center, Lockheed Martin Information Systems, Quadrum Telecommunications and Bevilacqua Research Corp.

SAIC revenue increased 11 percent from $8.3 billion in FYE 2007 to $8.9 billion.

Press Contact: Stacey Corso,Communications Department, (925) 953-1716

HFF closes sale of four-property industrial portfolio in North Dallas, TX

DALLAS, TX – The Dallas office of HFF (Holliday Fenoglio Fowler, L.P.) has closed the sale of a four-property, 248,279-square-foot industrial portfolio in the north Dallas, Texas suburbs of Carrollton and Richardson.

HFF director Jud Clements (top right photo) and associate director Robby Rieke led the investment sales team on behalf of the seller, RREEF. A Dallas-based investment partnership purchased the portfolio free and clear of debt for an undisclosed amount.

“The Carrollton buildings (Venture Court and Trend Drive) benefit from their strategic location in North Dallas that is close to the Dallas North Tollway, Interstate 635 (I-635) and Interstate 35E (I-35E),” said Clements.

“The Industrial Drive buildings are centrally located in North Dallas allowing for easy access to North Central Expressway (US-75), President George Bush Turnpike (SH-190) and I-635.”

Individual property details are listed below:

Property Size (SF) Land Area
1101 Venture Court 46,310 SF 2.2 Acres
Carrollton, TX

1030 Trend Drive 61,998 SF 2.5 Acres
Carrollton, TX

400 Industrial Drive (South) 77,790 SF 3.8 Acres
Richardson, TX

400 Industrial Drive (North) 62,181 SF 3.0 Acres
Richardson, TX

RREEF Real Estate acquires and manages investments in commercial and residential property, and real estate securities on behalf of its institutional and private clients worldwide. Its product offering is global and comprehensive, including core, value-enhanced and high yield property investments as well as investments in publicly traded real estate securities.

RREEF Real Estate has more than $52.6 billion in assets under management worldwide as of September 30, 2008.


JUDSON M. CLEMENTS, HFF Director, (214) 265-0880, jclements@hfflp.com
KRISTEN M. MURPHY, HFF Associate Director, Marketing, (713) 852-3500, krmurphy@hfflp.com

Grubb & Ellis Predicts a Challenging 2009 for Commercial Real Estate as Economy Weathers Recession

SANTA ANA, CA – Grubb & Ellis Company (NYSE: GBE), a leading real estate services and investment firm, has released its 2009 Global Real Estate Forecast, which indicates that 2009 will be a challenging year for commercial real estate with the economy starting the year 13 months into what may become the longest recession since the 1930s.

“The economy will struggle in 2009, which will dampen demand for all product types, resulting in negative absorption and increased vacancy,” said Robert Bach, (top right photo) senior vice president, chief economist of Grubb & Ellis.
“We expect total payroll job losses in the range of 1 to 2 million in 2009 on top of the 2+ million in 2008. GDP is likely to shrink by 1 percent in 2009, compared with growth of 1.3 percent and 2 percent in 2008 and 2007, respectively.”

The investment market, which saw transaction volume plummet in 2008 as the financial markets collapsed and the credit markets froze, is expected to see a 15 percent increase in sales volume in 2009 as distressed properties are brought to market, particularly those acquired in the past couple of years with floating rate debt.
Loan delinquencies and foreclosures will increase with more properties returning to lenders, who will be anxious to sell them.

(Colby Abbott Building, Milwaukee, WI, top left photo)

Debt capital will remain expensive and tight in 2009, but more of it will be available than in 2008, and there will be a slow increase in equity capital flowing into the market from private, institutional and offshore investors waiting on the sidelines.

The coming year should be more active as the gap between buyers and sellers gradually narrows, with sellers making up most of that difference.

Debt will be the hot investment type in 2009. Investments could be made in CMBS, collateralized debt obligations or funds investing in these assets. Or debt investments could be made at the property level with owners seeking to refinance their properties.

(Downtown Richmond, VA office building, middle right photo)

More equity investments will be made as well in 2009 as investors holding an estimated $300 to $400 billion in institutional, private and offshore equity begin to deploy their capital in response to falling prices.

The outlook is equally challenging for global markets, both developed and emerging. The previous contention that emerging markets would largely escape the financial crises in North America and Europe looks to be overly optimistic.

(Downtown Los Angeles office buildings, middle left photo)

This will not be an ordinary downturn, but rather a structural correction in global capital markets that will impact every sector of the economy and real estate market.
One benefit of the global market correction has been the rapid evaporation of inflationary pressures in most key economies. The decline in inflation has left governments less reticent in using interest rates as a weapon in the battle to stave off sharp economic and commercial decline.

Office Tenants Will Have the Upper Hand in 2009

The office construction pipeline contained 90 million square feet at year-end 2008, the lion’s share of which will be delivered in 2009. This combined with a projected 45 million square feet of negative absorption, including a big jump in sublease space, will push vacancy up by two percentage points to end 2009 at 16.5 percent.

(Bell Atlantic Tower, Philadelphia, PA, middle right photo)

Tenants will have greater negotiating leverage in 2009 with concession packages becoming more generous as the year progresses. The growing inventory of sublease space will put downward pressure on asking rental rates for direct lease space, which are expected to decline in the range of 4 to 5 percent for both Class A and B space by year-end.

“Employment growth drives demand for office space and the labor market will be shrinking in 2009,” said Bach. “Government and health care will be among the few sectors with growing demand for office space.”

In this difficult market, Washington, D.C., should be at the top of office investors’ buy list, according to Grubb & Ellis’ Investment Opportunity Monitor, a proprietary market ranking in which Grubb & Ellis annually measures 60 office, 53 retail, 56 apartment and 55 industrial markets against 13 to 17 criteria important to the performance of real estate investments. Washington, D.C., is the one market that will benefit from the credit crisis as the government expands to implement its economic recovery plan.

(IDS Center, Minneapolis, MN, bottom left photo)

Following Washington, D.C., on the top 10 list are Portland, Ore.; Los Angeles; San Francisco; Austin, Texas; Dallas-Fort Worth; Houston; Raleigh-Durham, N.C.; Boston; and Oakland, Calif. The Texas markets offer strong population growth, while the others offer strong population growth as well as natural barriers to entry.

Industrial Users Strive to Reduce Costs

Businesses look at industrial space as a productivity enhancer, an integral part of their supply chain strategies. Their relentless quest for cost-saving efficiencies should sustain demand for industrial space in 2009, despite the weak economy.

However, supply is expected to outpace demand with absorption dipping into the red and the vacancy rate rising by 60 basis points to end the year at 9.4 percent as the construction pipeline delivers space still underway.

“The industrial market will recover more quickly than the office market because the construction pipeline is set to thin out sooner,” said Bach.

(Comcast Center, Philadelphia, PA, bottom right photo)

For the third consecutive year, the logistics business is driving demand for space in Grubb & Ellis’ Investment Opportunity Monitor’s 2009 rankings. Los Angeles retained the top spot on the list, with its proximity to the busiest ports in the U.S., negligible vacant space and little developable land.

Also making the list were other cities with nearby port facilities including Houston (No. 2), Oakland, Calif., and Seattle (tied for No. 4), Miami (No. 8), Portland, Ore., (No. 9) and New Jersey (No. 10). Inland distributions hubs Atlanta (No. 3), Dallas (No. 6), and Chicago (No. 7) rounded out the list.

Will Consumer Spending Rebound in 2009?

Consumer spending hit a 28-year low in 2008 with retailers in the crosshairs of the downturn. Grocery store-anchored centers in mature trade areas will hold their ground in 2009, while centers on the urban fringe, where housing construction has stalled will suffer.

(Wells-Fargo Center, Minneapolis, MN, bottom left photo)

Retailers will be even more conservative with their expansion plans in 2009, with more store closings and fewer openings. Expect higher vacancies and softer rental rates by year-end.

“Value retailers are garnering the majority of consumers’ dollars in this challenging economic climate,” said Bach. “Even the luxury retailers, which are usually immune to downturns, are feeling the pain.”

According to Grubb & Ellis’ Investment Opportunity Monitor, no retail market will escape the effects of the recession entirely, but some offer more protection due to factors such as strong population growth, a high median income and/or limited land for further development.

Los Angeles topped the list for retail investment followed by Washington, D.C. California had an additional three cities in the top 10 with Orange County (No. 6), San Francisco (No. 7) and San Diego (No. 9). Texas appeared three times with Houston (No. 3), Dallas (No. 4) and Austin, Texas (No. 8). Also making the list were Atlanta (No. 5) and Portland, Ore. (No. 10).

(Capella Tower, Minneapolis, MN, bottom right photo)

Multi Housing Will See Vacancy Rising as Well

The housing slump and recession have produced countervailing forces that will both help and hurt the multifamily market in 2009. Apartments are seeing some new renters who have lost their homes to foreclosure, while landlords are able to maintain existing renters who are waiting for prices and mortgage rates to fall further.
However, new graduates who can’t find jobs are doubling up with a roommate or moving in with a relative to conserve cash.

At the same time, the apartment market faces competition from an increasing supply of unsold condos and foreclosed homes returning to the market as rentals. The negative forces are expected to have a slight edge in 2009 resulting in slowly rising vacancies for the multi housing market this year.

Of the top 10 apartment markets in Grubb & Ellis’ Investment Opportunity Monitor, seven are on the West Coast and three are on the East Coast. All offer barriers to entry, good economic prospects and high home prices. Los Angeles ranks first followed by San Francisco; Orange County and Oakland, Calif.; Washington D.C.; San Diego; New York City; San Jose, Calif.; Long Island, N.Y.; and Portland, Ore.

Editor’s Note: The complete Grubb & Ellis Global Forecast and regional forecasts are available on the Grubb & Ellis Company Web site:

(6565 Sunset Blvd. Office Building, Los Angeles, bottom left photo)


U.S. Office Market Strength Forecast
Top 10 Markets 2009 – 2013*

United States Overall Score* Rank
Washington, D.C. 74.5-- 1
Portland, Ore. 68.4-- 2
Los Angeles County, Calif. 68.0-- 3
San Francisco 66.5-- 4
Austin, Texas 65.1-- 5
Dallas 63.4-- 6
Houston 62.2 --7
Raleigh-Durham, N.C. 61.5-- 8
Boston 59.9 --9
Oakland/East Bay, Calif. 57.1-- 10

*Markets were ranked from 0 to 100 against 13 property, economic and demographic variables.
(One Liberty Place, Philadelphia, PA, bottom right photo)

U.S. INDUSTRIAL Market Strength Forecast
Top 10 Markets 2009 – 2013*

United States Overall Score* Rank
Los Angeles 78.7-- 1
Houston 75.7-- 2
Atlanta 67.1-- 3
Oakland/East Bay, Calif. 65.8-- 4 (tie)
Seattle 65.8 --4 (tie)
Dallas 62.6 --6
Chicago 60.1-- 7
Miami 56.7-- 8
Portland, Ore. 54.9 --9
New Jersey, No. and Central 54.2-- 10

*Markets were ranked from 0 to 100 against 14 property, economic and demographic variables.

U.S. RETAIL Market Strength Forecast
Top 10 Markets 2009– 2013*

United States Overall Score* Rank
Los Angeles County, Calif. 73.8 --1
Washington, D.C 72.7 --2
Houston 69.7-- 3
Dallas 66.0-- 4
Atlanta 63.9-- 5
Orange County, Calif. 61.2-- 6
San Francisco 61.1-- 7
Austin, Texas 59.2-- 8
San Diego 57.5-- 9
Portland, Ore. 56.1-- 10

*Markets were ranked from 0 to 100 against 17 property, economic and demographic variables.

U.S. Multi housing Market Strength Forecast
Top 10 Markets 2009 – 2013*

United States Overall Score* Rank
Los Angeles 63.9-- 1
San Francisco 61.2-- 2
Orange County, Calif. 57.9-- 3
Oakland/East Bay, Calif. 55.9-- 4
Washington, D.C. 55.7-- 5
San Diego 55.1-- 6
New York City 53.3-- 7
San Jose, Calif. 51.8-- 8
Long Island, N.Y. 49.5-- 9 (tie)
Portland, Ore. 49.5-- 9 (tie)

*Markets were ranked from 0 to 100 against 15 property, economic and demographic variables.

Contact: Janice McDill, Phone: 312.698.6707.