Hoteliers Tout Better Development Conditions, Extended Stay

Slightly more favorable development conditions, the slow return of business travel, and explosive growth within the midscale, extended-stay segment were among the topics discussed during a general session to get The Lodging Conference started.

The panel—which took place before a standing-room-only audience—was entitled “Owners, Investors, and Operators: Opportunities, Challenges, and Trends.”

Asked about current construction trends, Mitch Patel, founder/CEO, Vision Hospitality Group, asserted that his company is “bullish” on development going forward.

“We feel strongly about this business on the demand side. Demand usually follows GDP [Gross Domestic Product] growth. Hopefully, we’ll have GDP growth and that will equate to 2 percent to 2 1/2 percent demand growth over the next five to seven years,” he said.

Patel added, “A lot of the experts are predicting 1 percent supply growth or less in the next 5 years. So we think that bodes really well for development in the next few years if you can get these deals done.”

In addition, Patel commented that construction costs have “stabilized somewhat” as well, a point which was underscored by Julie Richter, CFO, Concord Hospitality Enterprises.

“We’re seeing that same cost stabilization and the credit markets recently feel like they have loosened up a bit even for development deals, particularly for experienced developers. The other thing that we like is the new midscale or economy extended-stay projects, which are smaller projects that are much easier to get financed and so that’s really kept our development pipeline very full,” she noted.

Ben Rosenbaum, managing director, Starwood Capital Group, however, noted there are some market limitations when it comes to new development and deal activity.

“There aren’t a ton of markets right now from a RevPAR standpoint that can support the cost of new development. I do think a lot of the transaction volume that we’re expecting in the next 6, 12, or 18 months is going to be driven by lender issues and CapEx issues. I imagine that those owners are going to be selling well below development costs and replacement costs,” he noted.

Meanwhile, when it comes to the business travel recovery, the consensus was that while it has improved in recent years, it still hasn’t come all the way back to pre-COVID levels.

Dave Pollin, co-founder and president, The Buccini/Pollin Group, for his part, noted it might not ever return to those levels.

“The answer is ‘no’ in mind. I think that we’re stuck where we’re going to end up around 85 percent [of where we were],” he said.

Pollin further identified sustainability as one of the issues for business travel. “There are some corporations that look at travel as an easy way to cut carbon emissions,” he said.

Kate Henriksen, Co-CIO, RLJ Lodging Trust, was asked to address the shift of the workforce back to the office or “hybrid” employees and its impact on business travel.

“The traditional business travel nights of Tuesday and Wednesday are strong, at least in our portfolio. It’s the Wednesday and the Thursday night that you’re still not seeing quite the same level of demand. So even if incrementally the return to the office for a four- or five-day week can help those Thursday nights that would be great,” she said.

Henriksen did point out that “Thursday night check-ins from a leisure perspective have picked up from where they were pre-COVID so there’s a little bit of give and take.”

Finally, the panel was asked if there is enough demand in the extended-stay market— particularly at the economy level—to support the spate of new brands that have been launched in recent years.

According to Rosenbaum, “extended-stay product got a massive lift in 2020 to 2022 with people who are moving out of the city, traveling nurses and all of that type of demand.”

However, he noted that RevPAR has been down between 2 percent and 3 percent in recent months in the economy extended-stay segment as he offered his projection.

“I would say in the short term I don’t think the demand is necessarily there for all of this new supply, but I think long term it likely will be,” he noted

“The one thing that we can be sure of is that the brands are going to continue to announce new brands and different ways for them to increase their unit growth. Sometimes it impacts owners, but it does create opportunities as well when they’re able to find the right brand to hit a certain consumer segment,” noted Henriksen.

Richter underscored the point.

“There’s a lot of green space that’s out there and that’s supported by the brands and all of their announcements,” she said.

However, she added this caveat. “There is a place for new, fresh product to win, but certainly we have to be careful about the emergence of so many new brands that are generally in the same playground,” said Richter.