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.