Development continues Primarily in Select Service Hotels

REPORT FROM THE U.S.—There’s plenty of speculation about where the hotel industry is in the cycle, but whether the industry is approaching, past, or at its peak, it’s an interesting time for developers and owners who recently started a new-build hotel project.

While executives of companies with new-construction projects are feeling some of the pressure from the environment, they spoke optimistically about the future performance of their properties once they’re completed.

Promising futures
For hotel development in the Washington, D.C., area, B.F. Saul Company Hospitality Group takes the long view, said President Mark Carrier. Earlier in the cycle, people might have been in the position to build and look for faster exit strategies, selling within three to five years, but he said his company prefers to look long term.

B.F. Saul Company broke ground 1 June on the 168-room Homewood Suites by Hilton Dallas-Arlington. The development process actually began five years ago, Carrier said, but the company purposefully took nearly a 30-month hiatus on the project after receiving zoning approval because of the budget sequester and government shutdown.

“It didn’t seem prudent to proceed immediately at that point,” Carrier said. “Stability returned, and then we geared back up and now we’re starting.”

The Washington, D.C., region is highly dependent upon government travel and travel associated with the businesses and contractors serving the federal government, Carrier said. He added that the demand generators are there now for B.F. Saul Company to feel confident enough in the market to proceed.

Marcus Hotels & Resorts will open the 333-room Marriott Capitol District Hotel in Omaha, Nebraska, in late 2017. When the company took on this project, it could see where the market was going, said Andrea Foster, SVP of development for Marcus Hotels.

“Last year was record-breaking for occupancy for the sixth year in a row for the overall lodging market,” Foster said.

The property is located in the middle of downtown Omaha, which places it near demand drivers like local businesses as well as the CenturyLink Arena & Convention Center and TD Ameritrade Park. The building was closed for about 20 years, Foster said, and now Marcus Hotels is redeveloping it to help reinvigorate the community.

“We’re very pleased where we are,” she said.

Making the right pick
The industry continues to be a street-corner market, said David Storm, president and CEO of Providence Hospitality Partners, so a new build’s success depends on the market it’s entering and the product it offers guests.

For Providence’s DoubleTree by Hilton Greeley project in Colorado, it’s the right project with a good location and good sponsors, Storm said, and the venture received incentives from the local community. The property will accommodate the needs in the market that aren’t otherwise being addressed, he said. For the same reasons, Storm said he feels confident about a different Providence project in the central business district of New Orleans.

“I’m not concerned at all about the Colorado or New Orleans projects at this point in the cycle,” he said.

While areas like New York City have a lot of product coming in, Storm said, the forecasts show that for the rest of 2016 and into 2017, demand growth will still outpace supply 1.4% to 2%. Deals will continue to be made, he said, if not through national banks then through regional ones.

“The sky isn’t falling,” Storm said. “It’s just going to take a little more time to get the deals done, maybe with a little more skin in the game as far as equity goes.”

There are a lot of young adults who have graduated with degrees and are traveling with their jobs, said Lee Shuman, director of project management at Peachtree Hotel Group. With travel becoming so mainstream, he said, it’s not likely to slow down anytime soon.

With Peachtree having several hotels under various stages of development, Shuman said he has no concerns about their future performance. The properties will open in markets that have been populated with a number of brands, and he said he feels safe about his expectations over the next several years.

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