Choice Hotels and LODGING Host a Roundtable With Owners and Experts
This yr’s Lodging Conference created a dynamic setting for attendees to share concepts by way of shows, panels, interviews, and loads of casual gatherings. LODGING was happy to accomplice with Choice Hotels International to stage a roundtable for 4 specialists in finance, improvement, administration, design, and different areas of the hospitality business. Participants included Mark Crisci, principal & chief funding officer, Azul Hospitality; Malcolm Davies, founder & senior managing accomplice, Way Capital; Rachel Nyman, managing member – regional supervisor, Lincoln Asset Management; and Harry Wheeler, principal, Group One Architecture.
George A. Seli, Managing Editor, LODGING; Janis Cannon, Senior Vice President, Upscale Brands, Choice Hotels; Mark Shalala, Senior Vice President, Upscale Development, Choice Hotels
Mark Crisci, Prinicipal & Chief Investment Officer, Azul Hospitality; Malcolm Davies, Founder & Senior Managing Partner, Way Capital; Harry Wheeler, Principal, Group One Architecture; Rachel Nyman, Managing Member – Regional Manager, Lincoln Asset Management
Moderated by LODGING Managing Editor George A. Seli and hosted by Choice Hotels’ Janis Cannon, SVP Upscale Brands, and Mark Shalala, SVP Upscale Development, the dialogue was wealthy with insights on the tendencies, finest practices, alternatives, and challenges within the post-COVID resort business. Following is a recap of a number of the key takeaways.
Investment and Financing Climate
Underwriting land and vertical improvement prices is at present one of many main challenges to resort improvement. “The reality is that we’ve seen a significant escalation in costs with the hyperinflation that’s going on around the country,” Davies noticed. Thus, the query turns into, “Is there a big enough spread between the yield on cost and cap rate to make [the project] feasible in today’s environment?” Essential to maximizing yield, Davies stated, is a website that’s “within really well-located drivers from business group travel and transient leisure.”
Obtaining financing can also be facilitated by displaying banks and lenders a observe document of excellent efficiency, particularly throughout the market in query. “We are growing our current assets [and] we’re able to show that this market is doing well. So as long as you have that reputation and you’ve invested in your own properties, it’s not really that horrible of a challenge to get capital,” Nyman maintained.
And whereas prices have been rising, “investment sale activity has actually been quite positive,” Davies added. There has been a give attention to “forward projections and valuing the assets that way, and we see that as a benefit.” Overall, “you’re seeing massive growth of capital flowing from other types of investments into commercial real estate,” he famous.
Davies noticed a transfer away from allowances on the development undertaking GMP (assured most worth). “We have to have a real GMP that we can really believe in. At the moment that we put the shovel in the ground, it used to be that there were allowances in the GMPs. And that’s kind of going away, which means that we have to work much more closely with our contractors to actually make sure that we can deliver all the cool things we’re adding into the hotels,” he defined. Wheeler additionally attested to a extra stringent approval course of: “Projects would normally start and you could get your financing locked in on the GMP with allowances at a design development level. Now it’s ‘Nope, get the permit, I want to know the project is going to happen. … Bid out to five people, show me the data, and then we’ll make a decision.’ So it’s taking an extra six to nine months to get across the finish line.” As a end result, expectations as to the timeline of the method have to be adjusted.
“Everybody’s trying to work more closely aligned with each other,” Davies concluded. “The good news is we’ve got a great customer coming in, spending a lot of money on our assets. So, let’s solve the problems” concerned in finishing the undertaking.
Although the idea of worth engineering has change into extra outstanding in a time of rising development prices, Wheeler feels the strategy is extra of a final resort than a finest observe. “It’s kind of our motto in our office that if we get to a point where we have to value engineer, we haven’t done our job right with our client,” he stated. “We have set our schedules and our delivery methods in our review periods with budget check-ins and budget exercises. So, if it’s a $50 million project, we know at every phase, if it’s going to be $49 million or if it’s going to be $52 million. We have that conversation. And before we have to value engineer, we can make smarter decisions.” Collaboration is thus vital to avoiding recourse to cheaper design parts that won’t align with model requirements. “It’s very important that early on in the project, ownership, management, and the designer be on the same page,” Crisci added.
The well-known actual property mantra regarding “location” is extra related than ever in resort improvement. As Davies defined, a promising location helps to attract financiers. And what makes a location promising is that it meets present traveler preferences, resembling walkability to eating places, bars, procuring, and different native websites of curiosity. “With today’s guests looking for more of an experiential stay, they want to have some of those local amenities surrounding them,” Shalala stated. “So, the closer we can locate our hotel [to those sites], the more success we’ll have.”
Properties in drive-to locations have proven specific attraction for builders and financiers. “The financing market for [hotels in] drive-to destinations is much bigger than it has been in the past,” Davies famous. For Wheeler, resort tasks in secondary markets are a large focus proper now. “We’re spending a lot on those types of development projects—50-, 60-, 70-room motels that we normally drive by that have excess land for parking. … They’re a great development opportunity,” he says.
Nyman noticed that many builders wouldn’t usually think about secondary markets, however that’s altering. “You think about those being lower-power markets, and that’s simply not the case anymore. Because as people have changed their travel behavior … it’s not always going to be ‘I’m going to the city center of the destination,’ [but rather] ‘I want something off the beaten path and I’m willing to pay for that experience.’ We have a lot of issues, as we all know, with airline travel, [and so travelers] want to be able to drive, and they want an experience.” Accordingly, she has discovered that motels in secondary and even tertiary markets are demonstrating nice RevPAR.
Secondary markets additionally current many alternatives for mushy branding, Wheeler added, as the price to develop a former motel is “not even close to a new-build price, and there is developable land attached to it.”
On the subject of sentimental manufacturers, Wheeler shared his ideas on the explanations for the recognition of this kind of settlement: “The main advantage of soft branding is the flexibility and ability for a project team to develop a true one-of-a-kind experience that is curated for the specific location and provide an authentic experience or a crafted story. The affiliation with the parent company provides that additional support and strength to allow this to happen.”
By approach of instance, Nyman associated, “We fell in love with the Ascend Collection [a Choice Hotels soft brand] because we were able to create our story, we were able to create this identity. We’ve been able to be very creative with architecture and the artwork, reuse of construction materials, and even within our family history. We named one [property] after our CEO’s grandmother, and we have her picture in the lobby.”
The flexibility also needs to lengthen to the operation of the soft-branded property. “Operationally, the property must meet the parent company’s expectations and requirements, but have flexibility in how those standards are delivered,” Wheeler defined. “For instance, the level of service and culture that the staff provides must meet the standards, but the uniforms may be adjusted to be in line with the brand strategy.”
Hotel Design and Narrative
Travelers’ desire for indigenous experiences has influenced hoteliers to imbue their properties with extra native aptitude. While doing so was once a matter of merely including native artwork to the foyer and guestrooms, “it’s gone far beyond that—guests are becoming much more sophisticated,” Wheeler noticed. “We really immerse ourselves in that market to try to figure out … two or three things that the neighborhood is known for. And [we consider], how can we tie [the property design and amenities] to local communities, local restaurants, local food and beverage?”
The result’s that visitors really feel as in the event that they’ve skilled the vacation spot even when they didn’t get a likelihood to actually discover the locale, as is commonly the case with enterprise vacationers or assembly attendees.
While a connection to the native tradition is vital, the apparent must be prevented when it comes to design parts. For instance, “everybody knows Austin is [about music] so don’t do music. You’ll have live music in the hotel and on the rooftop and so on, but don’t have hanging musical notes; it’s too much,” Cannon suggested. Instead, a give attention to the resort’s distinctive story—together with the title alternative, the design strategy, and so on.—is extra compelling to as we speak’s visitors. Wheeler observes that, more and more, his workforce has been requested by house owners and builders to offer a narrative on their design decisions (e.g., shade and materials choice) that employees can be taught and convey to visitors. Indeed, all resort employees—from the entrance desk to the valets to housekeepers—can doubtlessly function ambassadors of a specific property and know one thing about its historical past and design. Telling that story to visitors as a part of casual conversations makes a memorable impression.
“To be successful in capitalizing, particularly soft brands or new brands, it is incredibly important that you can tell the story,” Davies affirmed. Hoteliers that may accomplish that present an understanding of the individuality of the product they’re bringing to market, and invariably have a robust perception within the undertaking. “We really focus on [whether] they believe it and know it’s going to happen. That subjectivity is [part of] why we do deals—because somebody believes it,” he added.
Part of a property’s narrative can actually be its give attention to sustainability, however actually dwelling as much as that core worth requires extra than simply eco-friendly design options. “Sustainability initiatives only work when the operational team is in lock step with the program,” says Wheeler. “It is one thing to say the building was designed with sustainable initiatives, but the ongoing operations are the key to success with water, energy, and resource consumption. Using the right cleaning products and operational efficiencies [is important], and also championing this so the guests know what is going on. Creating the buzz of how the property is working to help the environment is key to success.”
In a time when the hospitality business is present process employees attraction and retention challenges, practices that make workers really feel appreciated and promote camaraderie are invaluable. On the reward and recognition entrance, Nyman associated that resort employees inside Lincoln Asset Management’s portfolio get pleasure from occasions resembling disco events and particular meals, which helps to boost worker engagement.
Participants additionally harassed the significance of worker mobility as a technique of attracting extra individuals to hospitality careers. Crisci famous, “Our industry is one of the few industries where you can get in at an entry level and move up a ladder very, very quickly, to a point where it’s unbelievable what we pay some of our managerial positions.”
He concluded, “There are so many great case studies of young people that have gone through the industry to change their lives, and we should be telling that story.”