NEW YORK — With high construction costs and limited financing, it's not hard to see why it's a difficult time to be a hotel development executive.
But representatives of various hotel brands remain optimistic that deals can and will continue to get done even during an overall slowdown.
During the "Developments in Development" session at the 2023 NYU International Hospitality Industry Investment Conference, Noah Silverman, global development officer for U.S. and Canada at Marriott International, said some people are overstating the issue the industry faces.
"I think there's a perception out there that maybe nothing is happening right now, which is a bit of a misperception," he said. "We've obviously seen a slowdown in the speed with which projects are moving through the development pipeline."
Silverman said construction starts were tracking back closer to pre-pandemic levels until the U.S. Federal Reserve started pushing up interest rates. But even at depressed levels, deals are still on the table.
"There are still projects that are going under construction, and every month we are seeing them happen," he said. "So I think it's important to remind ourselves that while we're all behind where we'd like to be, it's not impossible. It's just more difficult to get things done in this environment."
Julienne Smith, chief development officer in the Americas for IHG Hotels & Resorts, said "everybody out here is eager to get deals done," but that can sometimes require a little extra push.
"We're here to do deals, but the banks and lenders aren't as friendly these days in terms of costs," she said. "So to help combat that, we've tried to fill the gaps, whether it's loan guarantees or additional incentives or whatever we can do for any particular deal depending on the strategic nature, the market and the owner."
Agnès Roquefort, global chief development officer for luxury and lifestyle at Accor, said continued revenue growth in the sector is driving investor interest, but construction issues remain an international problem. To combat that, she said Accor has pivoted to signing more conversions.
"Currently with our openings and signings, over 50% are conversions," she said. "So it's a really big funnel."
Panelists universally agreed their rate of conversions versus new-build signings are elevated compared to historical levels right now, although those numbers soften in the U.S. compared to most international markets.
Smith said part of the driver, beyond investor interest and the difficulty of new construction, is brands realizing the opportunity in the space and capitalizing on it.
"We launched two soft brands in the past few years, Voco and Vignette, so those are inherently conversions brands," Smith said. "But, you know, I don't believe any particular brand is exclusively new build. There's always something that you can convert from given the location and the build."
Bill Fortier, senior vice president of development in the Americas for Hilton, agreed, but added some conversion opportunities are taking hotel supply out of the market, particularly with aging extended-stay and suites brands as investors look to convert them to residential.
Smith added there's similar activity in the senior living space.
David Pepper, chief development officer for Choice Hotels International, said the big shift in the economy space is hotels in various states being taken over for homeless shelters.
Many investors are looking at difficulties in office spaces for opportunities to reuse some of that real estate as hotels, but both Pepper and Smith said those are more difficult to do because of how they are built differently.
"It's harder to convert those, and it depends on the footprint," Pepper said. "So there is some opportunity but not a lot."
Pepper said he's more eager to see what happens in the "tough markets" across the U.S. and whether issues for performance in cities such as Chicago, Portland, Seattle and San Francisco lead to more distressed trading and, in turn, conversion opportunities.
"Because of what's happened economically and socially in some of these markets ... you're going to see some very inexpensive property, so that will potentially create some opportunities," he said.