As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS asked IHG Hotels & Resorts' Senior Vice President, Development and Transactions & Asset Management, Julienne Smith, 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.
What one word best describes the current hotel development landscape, and why do you use that word?
Strategic. We are in a hotel development environment where new-construction capital is limited, and short-term market performance is projected to continue to be contracted. This environment is primarily conducive for long-term investors who are well-capitalized and currently under levered.
The opportunities for repositioning existing real estate are abundant as hotel owners evaluate the highest and best use for their assets and perhaps plan to trade up from their current brand. The opportunities to develop new midscale and extended stay hotels in small suburban and tertiary markets remain active as this segment was, in general, the least impacted of all by the COVID-19 pandemic.
Luxury and Upscale properties in drive-to markets have generally performed well during the last few months as leisure travelers have been actively seeking getaways. What are one or two rules of thumb when it comes to asset managing these types of properties in the current environment?
Revenue, labor, and lender management are all more important than ever to pay particular attention to today.
As travel trends for transient leisure and business travelers continue to include last-minute bookings and cancellations, making sure the rate is positioned accurately in real-time will have a tremendous impact.
As the availability of labor is scarce, for several different reasons, taking care of your associates to ensure they stay on board is more impactful now than ever.
Maintaining a strong relationship with your lender is also paramount so that you can take advantage of deferrals or refinancing that might put you in a more secure position to weather the continuation of the effects of the current pandemic.
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?
Construction costs remain high, while the availability of labor and materials at competitive prices is at a tremendous low. The lead times associated with receiving FF&E (furniture, fixtures, and equipment) have been severely impacted by port delays which have been a direct result of the pandemic.
What challenges and opportunities will emerge on the hotel development front during the next 12 months from a development standpoint?
Supply reabsorption, labor, and capital markets. The reabsorption of hotel supply in the most impacted markets will take time. Once markets are fully reopened, it remains to be seen when corporate and group travel will return. If the prediction that we have tremendous pent-up demand is accurate, then these markets should rebound relatively quickly. If that happens, then the need for more hotels or repositioning of existing hotels will continue as it did pre-pandemic.
The shortage of labor may continue, which has had a serious impact on hotel development and our entire industry. Continuing to encourage young people, recent college graduates or those looking to make a career change to join the hotel industry is important for all of us to keep at the forefront.
Finally, while we hope the worst is behind us, we could see the continuation of lenders favoring existing assets over new construction.
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?
As corporate business returns, the large-scale lenders will likely return. The smaller or relationship lenders will continue as they have but selectively, as they should. The lending community was severely impacted by the mortgage crisis in 2008/2009, so even though this downturn is much more severe in many respects, the conservative approach to lending was already in place.
What do you see in terms of transactions and investments in the hotel industry during the next 12 months?
We will continue to see owners reposition their assets. We will likely continue to see note sales, and perhaps we will see distress. No one in our industry anticipated the pandemic to have had such a long-lasting impact as it has had over the past year, so we shall see how it unfolds over the next year. If investors remain patient, we should come out of this more efficient and determined to stay the course.
What’s the most valuable business lesson you’ve learned as a result of having to navigate a global pandemic?
The hotel industry is cyclical, which I personally experienced upon joining right after 9/11 as the effects of that horrific event continued to impact travel. I further felt the impact during the 2008/09 mortgage crisis and now the COVID-19 pandemic.
After each of those previous events, normal travel habits resumed. As restrictions lift, we’ve seen this during this time period as well. History tells us travel will return. The hotel industry continues to be a business where we must have a long-term view – the industry growth drivers that we saw before the pandemic are still there.
As long as we continue to create desired experiences for our guests, fulfillment for our associates, and value for our owners and shareholders, we will continue to be a viable business.
What’s the one takeaway people should know about Julienne Smith?
I am relationship driven. The best outcomes are mutually beneficial either in the short-term or long-term, depending upon the issues. I have always worked for a brand and learned 20 years ago that my role is to bridge the gap between franchisor and owner. If I can help an owner strike a great deal while helping the company I work for grow thoughtfully, then I’ve done my job. All of this gets done with a focus on relationships. I look forward to seeing everyone at ALIS!