Mr. Belmonte

Executive Leadership

Wake Up and Smell the Next Downturn Brewing

By Steven Belmonte, CEO, Vimana Franchise Systems LLC

I've been working in the hospitality industry since I was a teenager, so I've had a lot of time to observe it and figure out how to succeed in it-and how not to. Over the years I've identified an ever-present barrier to success that always seems to keep us from maximizing our profits. It's a part of the human condition that affects us all, but we never seem to realize it until after the fact.

This barrier is our tendency to have short memories.

It's said that we have no memory for pain, and I suppose it's true. How else, for example, could women give birth more than once? How else could we survive the painful task of uprooting our family and moving them from a place we call home to some other place, many of us several times? A short memory might be a plus in instances like these-but it's always a negative when it comes to the hotel business.

You read the trades, talk to fellow hoteliers, make the conference circuit and hear all the good news. Times are good right now. Rates are up, occupancy is up, RevPAR is up, it's all turned around from the doldrums of recent years and everybody's happy: Your creditors are happy, your lender is happy, and best of all, you're happy. You're making more money, you're playing more golf and you're taking bigger and better vacations.

Life is good-and if you listen to most industry pundits, it's going to get even better. It won't be long before you'll be able to do the things you've been putting off . . . like trading up to that Lexus, building your dream house, maybe even buying or building your next hotel. Talk about Heaven on earth, right? And isn't it about time?

Actually, it's about time to wake up from that dream.

Think about the down years of 2001, '02 and '03, and to remember how quickly we forgot the previous down cycle in the early 1990s. It's time to remember that we tend to forget pain.

Everything comes up roses now and then, but it never lasts. You'd better believe that sooner or later a downturn is coming, but the time to start preparing for it isn't sooner or later-it's now. Not next month, not next week, not tomorrow.

Cut Costs NOW!

You should start by cutting costs. There are four expense areas that need your immediate attention: insurance, energy, real-estate taxes and your telephone system. Let's take them one by one.

Insurance-You don't need me to tell you that this is a big number on your profit-and-loss sheet or that insurance is getting costlier every year. But guess what? You could reduce that cost by 20 percent or get 50 percent more coverage for your current premium costs by taking the time to shop around. Make a few calls. Read two or three proposals. That's all it takes.

Energy-Saving costs in this area involves pretty much the same steps as with insurance: Take the time to make a few calls and do a little research. You know energy costs aren't ever going back down, but do you know what's available in new, more energy-efficient technology? What would it cost to install? What's the return on investment? Start thinking about it today, because you know you'll be thinking about it when your occupancies and revenues go south and you're panicking your way through the profit-and-loss statement, looking for ways to save money. By then, of course, it will be too late.

Real-estate taxes-This one is a no-brainer. There's no research, no proposal-reading involved. Just make one easy phone call to a real estate attorney. He or she will work on a contingency basis so there won't be any scary hourly fees, and you'll wind up with a lower assessment and real dollars saved on your real-estate-tax bill.

Telephone system-There probably won't be as many dollars to save in this area as in the others, but you definitely can increase your revenues with a new system. It will pay off to purchase today's new phone-system technology. And speaking of phones, pick yours up and make a few calls to check out the new technology is and how much it will save you compared to what you have now. You may well be surprised.

Tax Credits a No Brainer

While you may have to cut corners here and there, there are ways to put cash in your hands -and in the hands of your employees--immediately for doing nothing at all.

Participating in business development tax-credit programs through Hospitality Tax Credit and Benefit Solutions LLC can bring tens of thousands of dollars to hotels each year in the form of Employer Tax Credits, regardless of size or franchise affiliation. You also can put money directly into the hands of your employees in the form of Employee Tax Credits through the IRS Earned Income Credit Laws. In most cases, hotels are able to increase an employee's take home pay by as much as $130 per month, with no cost to the hotel.

In addition, Voluntary Benefits program are available for lower paid hotel employees who often live paycheck to paycheck and can't normally afford insurance benefits. Hospitality Tax Credit and Benefit Solutions LLC can assist hotels in providing more benefits choices to all their employees affordably. You now can offer Disability/Accident Insurance, Critical Illness Insurance and Life Insurance without impacting your benefits budget.

Refinance, Invest and Don't Build

Here are three more things for you to remember:

Refinance your loan-Interest rates are getting higher now; maybe you can lock in something permanent or reduce the points you pay over prime. Don't play golf today-take your banker out to lunch or call a mortgage broker.

Invest in your hotel property-Instead of committing your extra dollars to a new Lexus, invest them in a furniture, fixtures and equipment replacement fund. Start upgrading, start replacing, start fixing that leaky roof or remodeling your lobby. In our business, if you stand still you're falling behind. You better have a sharp-looking property to compete with all the new-builds in 2007 or 2008 or whenever the cycle dips, because outdated, outmoded, poorly maintained properties will be the first to fall in the downturn.

Put off building or buying for now-The time to buy or build another hotel was two years ago, and unless you had the foresight to do it then, you missed your chance. You know what the term "patient money" means-well, now is the time for patience. Yes, interest rates may go higher, real-estate valuations may continue to increase and climb to the sky, and yes, there are some good deals out there-fixer-uppers-that pencil out. But be cautious. Don't run with the herd and wind up going over the cliff. Don't mortgage the farm to buy or build another property. Accumulate some capital. Have some cash on hand when the market turns.

Here's one more thing worth remembering: Do you know why Asian-Americans own so many hotels? Well, in the middle to late 1980s there was a total breakdown of the boundaries between developer and lender (thanks largely to savings-and-loans executives). In those awful days, lenders failed to carefully analyze deals in terms of whether they made any economic sense. Hoteliers could look at their P&L and figured they could refinance and service a million-dollar-plus mortgage. And the so called "bankers" would say, "Sure, I'll loan you a couple million."

A lot of people who should have known better took that money and bought bigger houses and more expensive cars and flew first-class to Las Vegas or Hawaii, or even better-or worse, as it turned out-chartered a plane and invited their friends to go along. And guess what? Those borrowers don't own hotels anymore. Those borrowers went broke.

And who didn't play that game? The Asian-American hotel community.

After everyone went bust-developers, owners, savings and loans-and the Federal Government's Resolution Trust Corp. started holding gigantic hotel fire sales, it was largely Asian-American hoteliers who had the cash and credit to take advantage of the bargains. It's a perfect lesson from the not-so-perfect past.

Let's learn from our past mistakes and prepare for the next downturn. More than a century ago, philosopher/poet George Santayana wrote, "Those who cannot learn from history are doomed to repeat it."

That's a lesson worth remembering.

Vimana Franchise Systems LLC is a hotel franchise company owned by CEO Steve Belmonte, President Neal Jackson and Vice President Cory Jackson Jr. In May 2011, Vimana Franchise Systems launched the Centerstone brand as a three-segment franchise designed to create a fair and cost effective model for the hospitality industry. In November 2011, Key West Inns was re-launched under the Vimana Franchise ownership umbrella as a fun and uniquely themed leisure brand. For more information on Vimana Franchise Systems LLC, contact Steve Belmonte at (407) 654-5540 steve@vimanafs.com. Visit Vimana Franchise Systems online at www.VimanaFS.com. Visit Centerstone online at www.centerstonehotels.com, on Twitter at @Centerstonehtls, or on Facebook at www.facebook.com/Centerstonehotels. Visit Key West Inns online at www.staykeywesthotels.com, on Twitter at @StayKeyWest, or on Facebook at http://www.facebook.com/staykeywest. Mr. Belmonte can be contacted at 407-654-5540 or steve@centerstonehotels.com Extended Bio...

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