Hotel developers look for guidance as brands go ‘AWOL’
Hotel developers look for guidance as brands go ‘AWOL’
23 JULY 2020 7:30 AM

Hotel developers are trying to figure out how to progress with their projects while waiting for brand guidance and working through new state and local regulations.

REPORT FROM THE U.S.—Hotel developers are finding themselves unsure how to move forward with projects in their pipeline.

Hoteliers speaking on the “Evolving development strategies” session of the ALIS Summer Update—Dallas online conference said the pandemic is changing how they move forward with projects and there are a number of obstacles making it difficult to know which way to go.

Current state of development
Hotel development is going to look different in the near term, and the question is what hotel development will look like in the future, said Chip Ohlsson, EVP and chief development officer at Wyndham Hotel Group. Will independents that have performed well continue to do well or will they need help with branding? Will developers continue with bigger projects or will development focus on more roadside and leisure travel for the foreseeable future?

“I think we’re all still trying to figure out what this looks like, but I know the boxes we’re building now are more efficient, and that we’re designing, I should say, are more efficient,” he said.

Wyndham is looking at the cost of development overall, whether that is building a new product or converting an existing building, he said.

InterMountain Management owner Dewey Weaver said his company is wrapping up what it has under development, with construction wrapping up by late 2021. He said the company has three projects on hold.

While InterMountain Management has the land, the company has aligned with an architectural group and is waiting on guidance from the brands on how a hotel will look going forward. Adapting hotels is expensive, so Weaver said he doesn’t want to make rash decisions about hotel design.

“We’re going try to figure this thing out on what it looks like in the future and what we can adapt to as things change, but I do think we're going to do business,” he said.

LodgeCap Chairman and CEO Billy Brown said his company opened one hotel a few weeks ago and expects to open two more by the end of the year. Although the company has another four properties in the pipeline, he expects to only start work on one of them, at best.

Brand guidance
The brands have been “pretty AWOL” for developers, Brown said.

While he said he understands the brands have had to react to a number of things, such as cleaning protocols, budgets and operational changes, they still aren’t providing feedback or guidance on development or construction management. Some of his company’s on-site inspections have been canceled last minute.

“It's been sort of patchy lately, and it has created some issues for us, so I'm trying to get answers as to what the brands would like for us to do, how they would like for us to adjust some of our projects that are in construction,” he said.

Weaver echoed several of Brown’s concerns, saying those who have developed over the years are on their own because they’ve worked with the brands for long enough. Many brand employees have been furloughed or they’re not willing to get on a plane, so their meetings are now through online video services. Developers are still waiting for guidance on a number of areas, such as food venues.

This is a time when developers need the brands more than any other time, Ohlsson said. Wyndham’s teams have been checking in on development projects to see how things are progressing.

From a brand perspective, guidance is one of the biggest challenges they’re facing now, he said. Everyone has built hotels over the past five to 10 years with the focus on getting people together and gathering in public spaces.

“Now we’re saying, ‘Wait a minute, is that dead?’” he said.

The brands don’t want to make a knee-jerk reaction and shut down a breakfast or take everyone out of the lobby, he said. They need to figure out first whether they want to have a common area or big public spaces.

One of the advantages brands have is they’re getting phone calls from developers who are asking questions and sharing opinions, Ohlsson said. They’re trying to compile everything that’s coming in and figure out a direction to get ahead.

“We don’t have answers today on everything, and you’re not going to have that because it evolves,” he said. “If you look at where we were 60 days ago of what we said about masks and everything else and where we are today, it’s evolved, it’s changed. We have more data.”

The brands will continue to take a careful approach and will provide some guidance, he said.

Development challenges
Developers are dealing with both states and counties making rules, and they can be all over the board, Weaver said. A county government shut down his company’s project in Sunnyvale, California, for six weeks.

“The interest doesn’t recognize that you’ve been shut down for six weeks,” he said. “I’m pretty sure our banks are going to want that six weeks in the interest.”

Hiring has been a challenge as his company must compete with the additional unemployment benefits, which means higher labor costs, he said. All of this comes together when the company’s average daily rates are down $30 compared to last year.

“That’s not why we built those hotels,” he said. “Our debt level is at a greater point than that $30. We’ve got a lot of things going against us that we’ve got to figure out here and in a pretty short period of time.”

Brown said his company is trying to meet the brand standards as set by the approved plans, but it’s running into issues with some cities it is building in. Some cities are coming forward with something that is in conflict with the brand-approved plans, and issue that is compounded by a lack of communication from the brands.

“All we can do in the absence of that is make our best guess,” he said.

Cities are also making development more difficult by having many of their employees working from home or being furloughed, making communications with government officials more difficult, he said.

The next several days are going to be crucial for the industry as Congress debates and potentially votes on a new stimulus package, said Biran Patel, chairman of the Asian American Hotel Owners Association. Not knowing how long the pandemic will last while forbearances and deferrals are coming to an end, hotel owners are going to need more relief. Many commercial mortgage-backed securities borrowers are going to go delinquent and need assistance.

AAHOA is lobbying for increased access to Economic Injury Disaster Loans and an adjustment to the mainstream lending facilities so hotels can benefit from it, he said. The organization is also working to prevent predatory litigation against small business owners.

“We still need our government to help us out, especially with hotel owners,” he said. “We're just trying over the next 10 days. They're listening to us. They can provide more relief for our industry.”

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