The hotel property type in CRE is one of the most operational intensive, customer driven, risky, and competitive real estate investments. Unlike office buildings and retail centers, hotels have to be constantly on its A-game as leases are just 24 hours. As a result, new product innovations in data, analytics, and automation have played a critical role in operational and investment decision-making. All other property types should take note.

I just came back from my family’s spring break vacation this past week. We stayed at the Royalton Splash Cancun. It’s a new hotel that opened in December 2022 so I was expecting there would be a few kinks in the operation. But, the kinks were outright flaws that could be quickly corrected with the use of data / analytics and product changes. I was amazed at the lack of automation, customer focus, and misallocation of resources that I expect is hurting the hotel’s net operating income (NOI) materially. By way of background, I use to manage two large scale hotels in New York (Intercontinental Times Square and West Times Square) and thus I am blessed AND cursed with the knowledge of hotels and their operations.

When I first started overseeing hotels as an investment (this was back in 2010), I was shocked by the amount of data being generated and the level of grandular analysis. This was before Big Data was a thing! The amount of information at my figure tips was light years ahead of the other property types. I would say hotel’s are “differentiating by design” in reference to Dr. Dan Brown’s presentation on New Product Development for Entrepreneurs. Hotels are are constantly strategically seeking, conceiving, and creating competitive advantages. They are in constant motion of moving through Dr. Brown’s CAM model of moving from the practice cycle to design cycle to the competition cycle and back. This is the inspiring aspect of hotels in the CRE industry – they are rapidly evolving and constantly in product cycle development. They cannot afford to lag for an extended period of time in innovation unlike other property types.

As an aside, I like Dr. Brown’s CAM model as it breaks down problem solving into practice and design cycles. I always seem to think that practice and design cycles were the same, but the key difference is that the design cycle is working to create something from 0 to 1 as in Peter Thiel’s book. You are seeing a problem from existing structures (practice cycle) and seeing a white space opening (design cycle). In solving this problem, one is creating new value and designs. While not too surprising, the movement from the design cycle to a competition cycle is unique and logical. Once there is a new paradigm, the competition cycle works to make the new knowledge the standard to eventually move to the practice cycle that begins to iterate on the new (now older) knowledge until another white space opening occurs. As I look through all the cycles, CRE’s hotel property type is a great example of the CAM model. One only needs to look at what hotels are doing with innovations to see where CRE’s future is heading.

So what are the areas new products are helping hotels currently and what should we expect in the future? Since hotels are more of an operating business, there are so many areas of exposure. I will focus on a few that investors focus on:

1. Personalized Guest Experiences

Historically, this has been a focus of many hotels, particularly in the luxury and ultra luxury segments. Using data collected from guest interactions, hotels can tailor services and amenities to individual guests’ preferences. For example, if a guest has a history of ordering room service on a particular time each day, the hotel can proactively offer the service at that time to anticipate need. Additionally, many hotels already offer AI chatbot concierges, but with ChatGPT, I think this service will be taken to the next level. These AI concierges will be used to check-in guests, order room service, and answer questions 24/7. No more heading down to the concierge desk and waiting in line. The Radisson Blue Edwardian in London uses this type of technology already. I expect that AI chatbots will be widely adopted to improve experiences and also save significant operational costs.

2. Revenue Management

Predictive price and occupancy analytics have been a bedrock of revenue management for many years. By analyzing data on everything from occupancy rates to seasonal trends, hotels can use AI to optimize pricing and maximize revenue. AI-powered revenue management tools can adjust prices in real-time, taking into account a range of factors, including demand, competition, and customer behavior. Additionally, AI powered tools will be able to decipher ‘unstructured data’ that includes scanning hotel reviews for consumer sentiment or determining appealing rooms based on social media and provide hyper-dynamic pricing for rooms similar to airline seats.

3. Predictive Maintenance

Capital Expenses are a big money drain for hotels as the rooms, facilities, and common areas are highly trafficked. Hotel’s will be first movers into technologies that can expand the useful life of everything in the building. AI-powered sensors can monitor equipment and systems so that operations can detect issues before they become major problems. Additionally, AI sensors can help to monitor energy, water, and waste-monitoring systems to improvement the property’s ESG rating (a major focus for many institutional investors). This type of technology is being deployed across many property types, but I expect wide adoption in the hotel industry.

New products and tools are continuing to transform the hotel industry providing new innovations to streamline operations, personalize guest experiences, and optimize revenue. From chatbots to dynamic pricing, analytics and AI tools will pay major dividends to investors in terms of cash flow and investment returns. Other property types should take note as the pioneers are blazing the away for the rest of the CRE industry.

I do hope Royalton Splash takes note of its flaws before they are relegated to the bottom of its competitive set. There is so much low hanging fruit to capture, particularly in guest experiences. Unfortunately, the damage was already done for my future business.