As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked Hyatt’s David Tarr seven 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.

Based on spending more than a quarter century as a senior executive in the hotel development space, what would you say has been the biggest change in the industry’s development process and/or strategy during that time?

There have been so many fundamental changes in hospitality and travel over the past 30 years. To me, the biggest change impacting development and how we approach it from the perspective of a global brand company has been the disaggregation of our industry. The separation of ownership, from management, and from brand has altered how each of these stakeholders approach growth and the factors that influence development strategy. At Hyatt, we have always believed that maintaining some level of ownership in the hotels that fly our flags is a crucial element of being a responsible brand steward. Although we have been intentional in selling down our real estate holdings over the last several years, maintaining our commitment to being an owner, operator, and franchisor has enabled us to remain even more connected to our hotel owners and continue to grow our company in a manner that is thoughtful and relevant to each of our stakeholders.

What are you seeing in terms of construction costs for new-build properties? How will the costs and availability of labor and materials affect overall hotel development during the next 18 months?

The challenges presented by the COVID-19 pandemic with respect to both labor and supply chain have significantly impacted construction cost across our brands. The impact going forward will continue to be a market-by-market question. The time to complete projects is being elongated currently and is expected to continue until the labor and logistics challenges ease. Moreover, the feasibility of new construction projects moving forward will continue to depend on the dynamics of their respective markets. Based on the recovery being exhibited in leisure travel, the markets that have a strong leisure demand element are more likely rebound quickly to the pace of growth we were seeing pre-COVID.

What challenges and opportunities will emerge on the hotel development front during the next 12 months from a development standpoint?

As a developer, I tend to be an optimist about what the future holds, but it will take at least the next 12 months for the operating fundamentals in many markets to return to a level that will make it easier for equity investors and lenders to back new projects. With respect to opportunities, there is no doubt that demand for travel and experiences has not waned because of the pandemic. Leisure destinations, both urban and resort, should continue to be a development focal point across all rate segments.

How do you see new construction vs. conversion activity taking shape during the next 12 months?

Conversions will remain even more of a growth priority than normal for hotel companies until new construction financing becomes more widely available. We had a strong development pipeline pre-COVID, and our intentional approach to growth has resulted in a high-quality pipeline with only minimal attrition during the past two years, resulting in pipeline strength and stability. We are confident in the travel industry’s recovery. Hyatt’s global reputation, coupled with strong owner relations and under-penetrated distribution, remain advantages for Hyatt in capitalizing on both new development and conversion opportunities. We continue to focus on growing with intent and expanding our brand footprint globally in locations that matter most to our guests, World of Hyatt loyalty members, customers, and owners.

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?

We are starting to see evidence of lending volume increasing after a period of dramatically reduced new loan originations that resulted from the intention of lenders to reduce hospitality asset exposure. As fundamentals are showing improvement, lenders are more willing to evaluate opportunities in the stronger and more resilient markets. Asset location and quality, as well as the experience and financial strength of the hotel owner or developer, will be even more important to lenders as they decide where to deploy the more limited capital available for hotel deals. Increased reserve requirements and more stringent underwriting metrics should continue to place the emphasis on an individual deal and sponsor quality in the months ahead. This is one of the reasons why we at Hyatt pay particular attention to carefully selecting hotel locations.

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?

There is an insatiable demand for travel. Based on Hyatt’s most recent earnings results, Leisure Transient remains the top performing segment, and we are confident that leisure travel demand is here to stay with strong demand extending through the rest of 2021 and into 2022. The data, coupled with our business results, indicate the resiliency of the hospitality industry and that we are on a path to a full recovery.

What’s the one takeaway people should know about David Tarr?

People who know me personally or professionally know me to be someone who places a premium on candor. Our development team at Hyatt views our role to be problem solvers – we want to find ways to help hotel owners and developers make the very most of their investments. Often that means there is a path to a transaction between us, and sometimes opportunities and objectives simply don’t line up. I always want to get to that answer with speed and honesty, and that is what creates the foundation of trust, which long-term relationships can be built in our business, irrespective of individual deal outcomes.
* Posted on December 14, 2021