PHOENIX—JMJ Development has been focused on other sectors for a while, but the company is making its return to the hotel sector.
David Messersmith, director of hospitality at JMJ, was brought on board to lead development in the luxury and upper-upscale spaces of the hotel industry in September, which was a role created specifically for him. Messersmith has 12 years of experience in the industry, and before joining JMJ, he worked in development at Gatehouse
Hotel News Now met up with Messersmith at the 2018 Lodging Conference to talk about his new role.
Read through the Q&A for his insights on the industry.
Q: What has the transition from Gatehouse Capital to JMJ Development been like?
“I think what I’m most excited about with JMJ is … our philosophy is we can buy the right site, we can create value by bringing in the right hotels, and that generates a better return for our investors, and so from a transition standpoint, (Tim Barton, chief executive, JMJ) is not bashful about (spending money) a little earlier than most developers.
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“(He will get) the architects engaged, he’ll get the design team engaged, he’ll bring on the consultants. He does that a little earlier in the process than some, and that’s a big (credit) to him because he’s not risk-adverse. When he believes in a project, he’ll stick his neck out and his wallet on the line. For every deal that comes across my desk, we might only pursue 10% of them, but the 10% that we look at and say, ‘Hey, this looks pretty interesting, it’s worth going further,’ Tim is pretty unique in that when he believes in something, he’s not afraid to start spending a little earlier than most developers would, and that helps expedite the process; it makes it go a little faster.”
Q: Some have said now isn’t the best time for hotel development—how are you navigating that?
“Generally speaking, especially in the luxury and upper-upscale segments … the dollar value of those projects, these are big money (projects); these are $100-million plus projects, some more than that, a lot of risk, right? And so it is all about getting the right site and the right product.
“There’s some brands maybe further downstream where you can have an OK brand and an OK site and you can kind of do OK. When you’re talking about investing $100 million to $200 million in something, you’ve got to have the right site. That’s why I said for every deal that comes across my desk, for every 10 that comes across my desk … in this market where everything is getting so competitive, and the markets that get so saturated, especially the top 25 markets that we’re going after, you have got to have the killer site. That’s how we navigate that. If it’s not the best site in the city, we’re not interested.”
Q: How is the pace of deals right now with where we are in the cycle?
“I think what’s interesting is when you’re talking about some of the large projects that we do, the money is a little more readily available for some of those, which is interesting on the finance side. I think the real challenge for developers is these projects could take two to four years before you open the doors*.
“Being able to predict what your construction costs will be over the next couple of years (with) the cost of steel going up, the cost of everything going up, the new tariffs … labor has been the biggest question mark in a lot of these markets. It is tough to get construction labor, because they’re so busy doing other things. The construction in lots of sectors is very robust right now; just about everything but* retail right now is growing, and it’s just really hard to get construction labor…”
Q: You’re working on some new projects—when do you think those will come online?
“You’ve got to go through, without getting into all the details of the development process, you’ve got to secure the site. If the site’s not already entitled for a hotel, you have to go through all the zoning and entitlement issues, and so that takes time. That could take six months to a year, depending on what city you are in, and then once you’re finally able to break ground, on this scale of projects, those are usually 24 months from the time you break ground, and so that’s typically what that two-to-three-and-a-half year timespan looks like for us.
“Obviously you want to expedite that as much as possible, because once you start borrowing money, the interest is accumulating, so as good developers, you want to get going as quickly as possible, but there’s some things that are out of your control, like the zoning. You can only move the cities along so fast.”
Q: Is there anything else you would like to add?
“I think it is an exciting time in the industry … it’s interesting to hear everybody’s perspective on what the industry’s outlook looks like for the next two years. Everybody keeps saying, ‘Where is the ceiling? When are we going to find that ceiling?’
“I don’t think we’re going to see another 2008, nothing drastic like that, and I’ve got the same question: ‘Where is that ceiling?’ because travel continues to increase. I think the travelers are becoming much more savvy and much more desiring an experience versus just a hotel accommodation, and so as developers you have to be very savvy there and make sure you’re creating that value for the guest, but transient travel continues to expand. Individual travel, families are taking more trips … where’s the ceiling? It’s got to be out there somewhere, but I’m not sure what that is.”
Since the ceiling is out there somewhere, Messersmith added that JMJ puts an emphasis on developing the right product in the right location*.
*Correction, 16 October 2018: This story has been updated to correct two quotes.
*Clarification, 18 October 2018: This story has been updated to clarify a quote.