In the wake of the storm
Monday, December 27, 2010
Navigating the rough terrain of the recession has been a formidable challenge for leaders at many of the companies in The Post 200, but charting the course for recovery may prove just as difficult.
While deep cost-cutting measures, such as layoffs and pay freezes, may no longer be necessary, does that mean it's time to start hiring? Dislocation in the market has created a stream of opportunities, but which ones are worth the risk? And given the temperamental nature of this recovery, does it even make sense at this point to move out of survival mode?
For some local leaders, the answers to these and other questions posed by the current market transition can be found in lessons learned from the downturn.
Take Michael D. Barnello, president and chief executive of LaSalle Hotel Properties in Bethesda.
When he took the helm at the lodging real estate investment trust in September 2009, the company had not bought a hotel since 2006. But suddenly acquisition opportunities began to materialize in force, just as the company was struggling, with funds from operations -- a key operating measure -- down 22 percent from the prior year.
Yet Barnello kept an eye out for deals, all the while forging ahead with cost-containment measures -- much like the company continues to do.
"We had to make sure we managed the balance sheet appropriately," Barnello said.
The right time to buy turned out to be before the close of 2009, when LaSalle announced the pending acquisition of the 237-key Sofitel Washington, DC Lafayette Square in the District for $95 million. LaSalle was among the first in its peer group of hotel firms to start buying. Since then, hotels have had a resurgence in room revenue and rates, underscoring a rebound in sales volume that stands to rival pre-recessionary levels.
"We believe we are going to see dramatic revenue growth over the next three to five years . . . so we've been fairly active," he said, adding that the company has tucked six hotels into its portfolio this year. "We are feeling bullish and we are more likely to buy, if we find things that make sense."
Recent surveys have found that business leaders in the Washington area are generally optimistic about revenue expectations, the economy and intentions to spend in 2011. Yet analysts anticipate decision-makers will be conservative in their growth strategies, with memories of paltry sales and fickle financing fresh in their minds.
Respondents to the Greater Washington Board of Trade's Business Outlook 2011 survey in November, for instance, were more hesitant to take a risk on a new idea than those surveyed back in April.
Anirban Basu, chairman and chief executive of Sage Policy Group, an economic and policy consulting firm in Baltimore, suspects many local leaders will shy away from bold moves until the fog of market uncertainty clears further.