Experts from hotel companies shared their thoughts on a few factors affecting the current pipeline.
NASHVILLE, Tennessee—A growing pipeline and a changing industry landscape are just the surface of what’s affecting hotel development at this point in the cycle.
On a panel titled “The current pipeline: Building Momentum or developing a problem?” at the 2017 Hotel Data Conference, experts from hotel companies shared their thoughts on what’s driving that change.
Financing is changing, but money’s still available
It’s easier to find financing today than it was 15 or 20 years ago, but it might not be as easy as it was two or three years ago, said Eric Lewis, executive managing director of hospitality and gaming at commercial real estate firm Cushman & Wakefield.
“Hotels have become one of the major food groups now among the institutional lending community, which has certainly helped,” he said. “If you’re looking back a couple of years ago or when the cycle was a good bit younger, lenders were a little bit more aggressive. I think things have tightened up a good bit since then, but by-and-large … (if you have) the right project, the right sponsor, the right (brand) and the right location, the money’s there. It’s not abundant, but it’s available.”
Ryan McNamara, director of real estate and development at Hyatt Hotels Corporation, said hoteliers have to be more creative with their lending approach, which might mean straying from typical lending sources.
“One of the challenges we’re seeing is using a lot more of (local banks) … and those groups are very well equipped to take on a project, but the challenge is that they cap out,” he said. “They can only do so many hotel projects before they can’t do anymore, and as a result, you can’t typically rely on those existing relationships as much (as you once did). … The groups we’re working with have had to get more creative with their network for lending.”
With new brands like Tru by Hilton and Moxy by Marriott, sources said they see continued growth in the midscale segment and with select-service properties.
Lewis said it’ll be interesting to see how those two brands perform in the markets they’re being developed in.
“(The) midscale, economy segments have tended to be catch basins for properties that are just falling down on the chain scale ladder,” he said. “And to the extent of product that can be introduced into those markets that’s fresh, it’s a place people want to stay. It’s new; it’s not something, like I said, that’s fallen down the chain scales.”
McNamara said concepts such as select service and extended-stay are starting to branch outside of the United States, which Hyatt sees as a huge growth opportunity in the right market.
“You might build a Hyatt Place, but one out of 10 of our Hyatt Places is prototype, everything else we do is highly, highly customized (in markets),” he said. “Select-service is absolutely (a growth opportunity) because it seems to be that nice middle ground of everything you’re looking for from a return standpoint to a (risk) profile.”
Have new brands caused saturation in some markets?
There are many brands in many markets, which can sometimes lead to over saturation.
Lynne Roberts, SVP of development and capital markets at Aimbridge Hospitality, said people have to understand the market to decide what product fits in that market.
“I’m seeing actually a little bit more of a sophistication of clients coming to us to say, ‘OK, this is our study’ or ‘this is what we’re thinking,’ and they’re also … coming to the management company to say, ‘do you agree or disagree? Are there different brands we should be looking at?’” she said.
She added that savvy developers know what they’re doing and often have a relationship with a particular brand.