Public hotel companies have ridden a wave of stock-market optimism since Donald Trump's election to the U.S. presidency, but some in the industry worry that a trade war or a too-strong U.S. dollar could hurt their business.
Hotel REITs and operating companies have outperformed benchmarks in the broader market rally since Trump was elected, in part because of expectations that Americans, more flush with cash as a result of tax cuts, will spend more on travel. In turn, hoteliers have shed some of their pre-election defensiveness and are giving greater consideration to raising capital and pursuing mergers and acquisitions, investment bankers said at the Americas Lodging Investment Summit in Los Angeles.
Still, Trump's policies, and his ability to implement them, are a major uncertainty, industry figures said.
"The question we get asked frequently is, how do we position ourselves, and that's really tough advice to give right now, because none of us actually know what's going to happen," Lawrence Kwon, a managing director at Moelis & Co., said in a panel appearance. While the current moment represents a "good window," he added, "we'll see how long it lasts."
In particular, some observers fretted about protectionist rhetoric from Trump and his administration.
KSL Capital Partners Chairman Mike Shannon criticized the Obama administration in a panel appearance for depressing morale in the finance industry after the last decade's economic crisis, and extolled what he described as a renewed feeling of corporate optimism, which he said will lead to increased travel and conference bookings.
Later, though, Shannon expressed caution about the possibility of a trade war. His comments, on Jan. 25, came a day before Trump and his spokesman said they might fund a wall on the U.S.-Mexico border by levying a 20% tariff on imports from Mexico.
"There are a lot of unintended consequences when you say, 'America first,'" Shannon said. Protectionist policies could hurt seasonal resort owners who rely on labor from overseas, or Silicon Valley companies that seek visas for immigrant technology workers, he added.
"Imagine a world where there was a tax of $20 on your ticket every time you went to Mexico, to pay for a wall," Shannon said. "I'm particularly concerned about China, because China's been exporting its low cost of capital and its manufacturing prowess to the U.S. and we've been buying it in droves. But imagine a world where the government basically tells Walmart, 'You need to have 20% or more of your toys made in the US.'"
Such policies increase the potential for military conflict or retaliatory trade policies, "and no one in this room is sharp enough to figure out all the unintended consequences and what that can mean in the world," Shannon said.
Political rhetoric against China could increase scrutiny of cross-border M&A deals, and could dampen the flow of funds from Chinese companies, which have been among the leading international investors in U.S. hotels, Mark Reudelhuber, managing director at Hodges Ward Elliott, said on a panel.
Suzanne Mellen, senior managing director at the consulting firm HVS, echoed that sentiment, citing mixed emotions in the international community. While the U.S. will likely continue to be viewed as a safe haven for investments, she said, the administration's words and actions could "turn off the spigot" for Chinese capital.
Jan Freitag, senior vice president of the data firm STR Inc., worried that global uncertainty could drive up the U.S. dollar as the go-to currency, depressing international travel to the East and West Coasts of the U.S.
"I think there are real implications if it's going to be more expensive to get to the United States," Freitag said. "I'm not even talking about this idea of building a wall or a fence or whatever it may be. Not even that part, but just about the signal that it sends to members of the European Union: Is the U.S. open for business?"