Shortly before 9/11, hospitality interior designer Kay Lang decided to leave the confines of Nadel Architects Inc. and venture out on her own.
It was a risk, but business was decent. And at the outset, Los Angeles-based Kay Lang + Associates had five hotel contracts and four employees to do the work.
Then, 9/11 came. The hospitality industry, already headed to a slowdown, tanked. Lang's hotel clients called to deliver the dreaded news: all her contracts were cancelled. "I went down to zero," she said, shuddering at the memory.
But Lang hung around and picked up jobs where she could. It was all about survival: she wasn't above spiffing up hotel carpets and stretching the available cash to create affordable classy looks. Today, Lang's perseverance is paying off. She's beefed up to 22 employees, who are assigned seven to 15 projects at any given moment; she's even fielded three offers from firms looking to buy Kay Lang.
"We are definitely in a growth period right now," Lang said. "I am glad I had the foresight not to give up at that time. You had a lot of good people in this industry that couldn't make it."
Travel has rebounded in a big way. Hotels are filling up and room prices are soaring. In the Los Angeles area, prices topped $141 a night in April, a 7 percent increase from just under $132 percent last year. Nationwide, room rates are expected to jump 15 percent this summer at high-end resorts, according to PricewaterhouseCoopers.
And with money flowing into their coffers, hotel companies have more to spend on retouching their facilities. In a market where hotels are vying with each other for a piece of the towering demand, top-notch accommodations are essential to attract discerning customers.
The effect on hospitality design firms of the reinvigorated hotel sector is undeniable. According to the latest data compiled by trade publication Interior Design, the top 65 hospitality interior design firms brought in $274 million in fees in 2004, compared to $176 million for the top 50 firms in 2003. That drove average earnings up 20 percent in 2004.
"It has been very strong, and all the forecasts state that it should continue," said Kathleen Dauber, a senior associate at Santa Monica-based Hirsch Bedner Associates Design Consultants, which ranked No. 1 on the Interior Design list for 2004 with hospitality fees of nearly $33 million. "It is cyclical, like any industry."
For local hospitality interior design firms, work is piling up on three fronts.
Robert Barry, president of Los Angeles interior design firm Barry Design Associates Inc., said many of his hotel projects involve renovating facilities that deteriorated when hotel companies reined in capital expenditures after 9/11.
The renovations can be, at least partially, attributed to a hot hotel real estate market. After buying properties, hotel companies regularly refashion them to fit with their particular take on design. For instance, the Blackstone Group bought the Wyndham International chain for more than $3.2 billion and combined select Wyndham properties with already acquired Boca Hospitality Collection and Prime Hospitality holdings into LXR Luxury Resorts.
Barry Design was hired to renovate the Edgewater Beach Hotel & Club in Naples, Fla., a new member of Blackstone's LXR Luxury Resorts. Blackstone, Barry said, likes to "push the envelope" on design and has budgeted about $15,000 to $30,000 per room to restyle the 155-suite property.
Brand new hotels are the second front. Hotel construction, although not as rampant as renovations, is creeping up more often with existing rooms failing to satisfy customers' hunger for hotel stays. PricewaterhouseCoopers forecasts that construction will begin on 119,000 U.S. hotel rooms in 2006, an increase of 45 percent over 2005.
Lastly, projects with residential and hotel components are a burgeoning part of the mix. For hotel companies, adding a residential component can make a project pencil out where a traditional hotel might not. In one version of this concept the hotel-condominium complex people purchase units upfront, but they can be put into a pool of hotel rooms when the tenants are out of town.
"The big trend is condo hotels. I must get 15 calls a week in regards to condo hotels," said Lang. "It is the only way to finance a five- or six-star property in today's environment."
The boom in design work has created some unwanted side effects. The humming hospitality industry has made it difficult for firms to pin down talented employees. Those who are on the job market frequently receive offers from multiple firms.
"It is really difficult to find people right now," said Barry. "The other problem that you have is that you have inexperienced people that want senior-level incomes. That is OK when the market is good, and you have a lot of money."
Starving for bodies, firms often search for employees in their rivals' offices. The lateral career moves of hotel interior designers further pushes up salaries, which have risen for principals to $125,000 annually in 2004 from $120,000 the prior year, according to Interior Design. Project managers got $80,000 in 2004, compared to $75,500 in 2003.
The salaries can sap profit margins on a project. Although there might be more work as a whole, Lang said, hotel companies' design budgets haven't climbed considerably for each property. That means that they aren't paying design firms substantially above what they did in the past, even though labor costs have risen.
Part of the reason that rates haven't risen higher is that the pool of firms bidding on a given project can be larger. With the market buzzing, more designers are choosing to go out on their own. To secure work for their untested firms, though, they are forced to undercut the rates of established competitors.
But the larger, established firms could have the last laugh. Hardy from outlasting the post-9/11 slump, they've learned how to maneuver their businesses to leverage the hot market, while sticking around during down times.
At Kay Lang, Lang said the trick is to hire multi-taskers who can easily shift gears if the market goes in a different direction. At Hirsch Bedner, building up an international business, specifically in the hotel happy Pacific Rim, is the key. And at Barry Design outsourcing when appropriate helps the firm not be tied to salaries it can't cover in a downturn.
"The business is volatile," said Barry. "You can be busy one year and the next year nothing, so it is kind of scary."
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