Ask many of the lawyers or brokers that help buy and sell hotels in the Boston area who is most attuned to the local hospitality industry, and more often than not they tell you to call Pinnacle Advisory Group.

Rachel Roginsky started the firm in Boston 20 years ago, and has worked on feasibility studies, asset management and litigation for a multitude of hotel operators and investors. Then, 11 years ago, she realized that instead of pointing clients to other brokers, she might as well start her own brokerage, so she started Pinnacle Realty Investments. That company is headed by Denny Meikleham, a former executive vice president for development at Summerfield Hotel Corp.

Denny Meikleham

Title: Managing Director, Pinnacle Advisory Group; Boston

Age: 57

Experience: 35 years

Rachel Roginsky

Title: Owner, Pinnacle Advisory Group; Boston

Age: 53

Experience: 32 years

You’ve both been in the industry quite some time. How has the hotel industry changed in that time, and what have you been forced to do in the current recession?

Roginsky: The hotel industry is always changing, but in a sense it also isn’t. People still check in and pay for their room, there’s still someone cleaning the room. There are different designs and standards, but it’s still the same industry. What has changed today is that it’s more expensive than it ever has been to build a hotel, so the financial feasibility of building hotels is very difficult to justify today. It’s a very cyclical industry. The costs to operate a hotel continue to increase, the costs to build a hotel continue to increase, and yet we’re paying the same room rate today that we paid 11 years ago. So the financial metrics don’t work. It can be very challenging for an owner to make money.

Meikleham: Operating expenses really went up dramatically prior to the recession – healthcare benefits, hourly wages – while average room rates didn’t really go up. Then you have to cut services to improve your bottom line. If you were an owner with fixed-rate financing and then the recession hits and you have a drop in occupancy, those are the owners that really got hurt. Their operating margins really took a hit and they had some big losses. Until the recession came, there was a lot of capital out there chasing deals and people were paying really high prices for hotels. There was a lack of financing and the bottom line profitability wasn’t there to justify the prices. You had distressed owners that just had to sell and get out. But anybody that survived the recession and has a nice asset in a great market like New England, where the barriers to entry are very high, they want to sell for a price that reflected pre-recession pricing. So there’s an imbalance where some people want to buy as bottom-feeders, and some are looking at buying good assets because they know they can get a pretty good price. A hotel in the suburbs today, you can probably buy it for less than you can build it for.

Rachel, you mentioned before that room rates are about the same as they were 10 years ago. Can you explain the reasoning behind that cycle?

Roginsky: Ten years ago you might have been paying $150 for a room. Then five years ago you probably paid $100, depending on if it was the bottom of the recession. So you look back and say, I’m paying more than I paid last year, but if you went further back to 2008 or 2009, it was probably a lot less than you are paying today. The rates are very cyclical. The question is, when rates come back up, can they actually exceed the prices at the last upturn? In Boston, they are beginning to exceed their peak. Next year is supposed to be a good year, so we’ll see if we break the 2008 rates. But eventually rates will go back down due to another recession or something else. But we don’t have an oversupply like some other markets, so we don’t have to compete by lowering room rates.

Meikleham: Factor in a lack of products for sale on the market, the fact the market’s coming back, and there’s a lot of equity in the market trying to find a home and they can’t find one, so developers will start to get back into development. But it’s expensive, so you’re kind of forced to that four-star level to justify a high room rate in order to make the numbers work. There’s really a lack of limited-service, lower-priced hotels in the Boston market.

Roginsky: Well, there are a lot of people looking to build, but there’s nothing with financing or that has a brand tied up right now. I’m on the [Massachusetts Convention Center Authority] consulting consortium, and a new convention center headquarters hotel is being studied now – how it’s going to be financed, who’s going to build it. We’re also putting together a strategic plan to determine how to get select mid-priced hotels built, like a Marriott Courtyard or a Hampton Inn, something in a different price range than a Renaissance or Seaport hotel. We don’t have that option here. Meeting planners love Boston, but not all their travelers can afford to stay at a Westin. The MCCA would really like to come up with a viable plan of how to bring developers down there. There’s a lot that want to build there, but can’t afford to build there.

Meikleham: That’s because you have a site, and you want to maximize that site, so what do you put there? Do you put a limited service hotel there because the city needs it? You know you can get a higher rate with a different brand. It’s a tough situation because the construction costs don’t change.

Roginsky and Meikleham’s Top Five Factors For Hotel Project Success:

• Location
• Management
• Ability of income to pay for debt
• Maintain quality
• Offer value for the price