As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked Choice’s David Pepper eight timely questions as we prepare for the 21st annual event January 24-26, 2022, at the JW Marriott/Ritz-Carlton Los Angeles L.A. LIVE. Following are his responses.
What is the most common question franchisees/owners are asking you during your conversations with them—and what is your response to the question?
Our franchisees are eager to hear what the future holds. They are concerned about the labor shortage, and their inability to hire enough employees to clean their hotel. Travel has changed and continues to evolve as more and more people define what going back to work, going to school, to sporting events, as well as travel for leisure and business looks like. They want to know what it means for their hotels and investments, and in what are ways they can capitalize and position their investments to help drive future performance.
How do you see the hotel industry’s expansion in the Americas taking shape through 2022, and specifically what is Choice’s plan to grow its footprint during that time?
We’ve continued to evolve our value proposition and drive owner profitability which continues to attract new franchisees to our brand, including major investments in technology such as ChoiceMAX, our new proprietary revenue management tool, and operational investments that improve the unit economics for our franchisees. We also revisit our brand positioning to address the changing needs of today’s consumers and anticipate the expectations of the guest of tomorrow.
We recently launched a new development option for our upscale Cambria Hotels brand designed for over 300+ secondary and leisure markets. This will be a future growth opportunity for Cambria, as we expect this prototype will allow developers the flexibility to build at a reduced cost, expanding the markets available for growth while retaining a design-forward experience.
With our WoodSpring Suites extended stay brand, which recently celebrated its 300th opening, we have plans to expand into Canada in the near future as we’re seeing strong interest from that market.
Choice launched Everhome Suites, a mid-scale extended-stay brand, during ALIS in January 2020. Then the pandemic hit. However, the extended-stay segment outperformed every other industry segment during the pandemic. How has the Everhome portfolio grown since its launch, and why is Choice so bullish about the segment?
Our newest brand, Everhome Suites, is a 100% all-new-construction brand designed to compete in the heart of midscale, with customizable, apartment-style accommodations that enable guests to adapt their environment to the way they live and work.
It launched with high interest from multi-unit developers backed by institutional capital, and despite pandemic impacts, continues to attract developer demand due to our proven proprietary operating model that helps drive consistently high margins, occupancy rates, and predictable returns in practically any economic environment.
The extended-stay segment is seen as cycle resistant and a smart investment, and our growth is proof of hidden demand for long-term stay options in both business and leisure markets.
The Everhome Suites brand already has nearly 20 hotels in the pipeline, and the first hotel is expected to open next year.
How are increasing costs—from raw materials to shipping to labor—affecting the overall industry development pipeline, and how long do you expect those higher costs to remain an issue?
Currently, costs for new construction are higher than normal in large part due to supply chain, labor disruptions, travel-related impacts on demand, among many other factors. Our owners tell us that wages at their hotels are up around 25%.
As we move through recovery long term, we expect costs to decrease as lending and labor become more readily available to support a healthier new construction environment. At Choice, we are offering construction incentives to support construction across several of our brands, including for our new Comfort® Rise & Shine™ prototype.
While hotel costs in general have risen over the years, and they may persist in the short-term, right now developers have the unique advantage of scale, allowing them to lower costs as they build more product, resulting in significant savings.
What challenges and opportunities will emerge on the hotel development front during the next 12 months from a development standpoint?
We continue to observe a greater share of revenue coming from longer stays compared to 2019. We’ve seen a significant increase in developers’ interest in extended stay projects overall. Just this past quarter, we executed two dozen extended-stay domestic franchise agreements, an 85% increase compared to 2020 and a 20% increase compared to 2019 levels.
Across our resilient, outperforming portfolio, extended-stay remains a top segment, and in many ways resembles the multifamily housing model versus the transient hotel model.
The pandemic drove demand in secondary and leisure markets, with developers and guests looking for our Cambria brand in suburban destinations. While we continue to expand the brand in urban markets, there remains a significant opportunity for growth in leisure and secondary markets driven by where Cambria guests want to stay and where developers want to invest.
We expect lending to become more available as the economy continues to stabilize, in spite of a rising cost environment.
What’s the one word best describes the current hotel lending environment in the U.S., and why did you choose that word?
Lending in the current pandemic environment has posed challenges for the hospitality industry, but as confidence in travel returns, occupancies increase, and demand increases, we are optimistic that these economic shifts will stimulate development and lending activity.
How will the evolution of brand standards and amenities combined with consumer expectations affect developers and investors—is that evolution a silver lining from the pandemic?
It is absolutely a silver lining. The pandemic accelerated certain consumer trends that were already emerging, from Americans rediscovering domestic destinations and the continued rise of road trips and drive-to destinations, workers retiring earlier, and the trend of work-from-anywhere, which affords Americans flexibility in where and when they travel for leisure. This all contributes to an environment where developers can explore new markets based on pent-up demand or even take advantage of occupancy rates to renovate properties.
What’s the most relevant bit of business advice that you would give to hotel developers as they look to continue along the path to recovery?
Luck favors the prepared. Savvy developers can strategically leverage post-pandemic trends that favor leisure travel, limited-service hotels and longer stays to strengthen their development investments long-term.
* As of December 20, 2021