As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS asked Choice Hotels International Chief Development Officer David Pepper eight timely questions as we prepare for the 20th annual event July 26-28, 2021, at the JW Marriott/Ritz-Carlton Los Angeles L.A. LIVE. Following are his responses.
You have been with Choice for nearly 20 years. What has been the biggest change in hotel development during that time?
I will tell you what hasn’t changed … relationships! The hospitality business has always been based on relationships and it still continues today. The relationship between franchisor and franchisee has seen incredible progress. Franchisors truly understand today that the only way they can be successful is if the franchisee is successful.
What are you seeing in terms of construction costs for new-build properties? How do the costs and availability of labor and materials compare with the pre-COVID environment?
Labor and materials costs have been impacted by the pandemic and the availability of lending. Currently, costs for new construction are higher than normal in large part due to supply chain and labor disruptions, as well as travel-related impacts on demand. As we move through recovery, 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 the recently launched Comfort Rise & Shine prototype.
While hotel costs in general have risen over the years, 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?
The challenge and opportunity at the same time is the availability of lending. If an experienced developer has the ability to obtain financing, it can ultimately mute supply increases. Even amid challenges with labor, materials and lending, savvy developers can leverage this time to take a fresh look at their current portfolios. Are there new markets emerging based on pent-up demand and consumers’ return to travel? Can you take advantage of current occupancy rates to renovate your properties? There are market-specific insights that developers should make sure to examine over the coming year, and it is a topic where we’re making sure to guide our Choice Hotels franchisees.
Because consumer preferences have likely shifted permanently as it relates to travel, new developers can leverage those insights as they source land and construction opportunities.
How do you see new-construction vs. conversion activity taking shape during the next 12 months?
During the Great Recession, Choice grew at a faster pace than the overall industry supply through increased hotel conversions, which was especially true for our Ascend Hotel Collection brand. Since then, the brand has seen a 600% unit growth increase between 2010 and 2019, and it continues to see consistent growth today as independent and boutique hotel owners look to Choice to improve their reservation delivery, reduce customer-acquisition costs and improve their revenue management tools. I believe this is a trend that will continue amid the current lending environment.
What segment of industry has had the most success during the pandemic, and why was it so successful?
Our extended-stay brands – MainStay Suites, WoodSpring Suites and Suburban Extended Stay Hotel – stood out in many ways. At the height of the pandemic, essential travelers chose hotels that offered kitchens, onsite laundry and F&B options that met their extended stay needs, fueling high occupancy rates in the segment. In addition, our extended-stay brands enable owners to operate efficiently and maintain their margins, regardless of the economic climate. We're definitely optimistic about the growth potential of extended stay in both new construction and conversion markets. I’m hearing many developers say they want a Choice Hotels extended stay brand as part of their portfolio coming out of the pandemic.
Overall, Choice Hotels’ portfolio in upscale, midscale, economy and extended stay continue to outperform the competition, so it’s great to see our long-term strategy of growing the right brands, in the right segments in the right locations continue to pay off.
What do you think will be the mindset of lenders in general for the next 18 months? Will lenders’ purse strings loosen during that time?
It’s no secret that the lending and labor environment has posed challenges for the hospitality industry in 2020. Broad uncertainty remains regarding the pandemic and the ultimate economic impact on the consumer. While the peaks and troughs have been unprecedented, the cyclical nature of our industry is a known.
As confidence in travel returns, occupancies increase, and demand increases, we are optimistic that these economic shifts will stimulate development and lending activity.
What’s the most valuable business lesson you’ve learned as a result of having to navigate a global pandemic?
The dedication and resilience of our franchise owners, their staff, and Choice associates contributed greatly to the success of our company during the pandemic, and I admire their commitment.
In addition, it was more important than ever to be agile and flexible. We redeployed many of our teams at Choice Hotels to directly support our franchisees and connect them to revenue opportunities. Our global sales teams were able to shift their focus to essential travelers in fields such as healthcare, government, trucking, logistics and construction. Associates from across the company supported franchisee-facing teams in consulting with owners from every hotel in the system to help them keep their doors open and continue serving guests.
Our commitment to our franchisees not only allowed us to navigate through the worst weeks of the pandemic, but to outperform the competition during that time as well.
What’s the one takeaway people should know about David Pepper?
I truly want everyone to win – that is the optimist in me