NEW YORK CITY—Tyler Morse isn’t a fan of dentists, but not for the reasons most people aren’t fond of dentists. Yes, they can cause him pain, but the pain is from a shovel breaking ground on an ill-placed hotel development and not from a drill.
During an interview with Hotel News Now at the 37th annual NYU International Hospitality Industry Investment Conference, Morse, the CEO of MCR Development, said he is pleased that discipline still appears to reign during this part of the hotel cycle.
“You saw new supply in 2006 and 2007 and the industry was growing wildly because of cheap and easy financing,” Morse said. “That brought a lot of dentists into the business. A lot of dentists were building hotels.
“The problem with dentists is they build hotels in the wrong places. The traditional builders? They’re going to build in the right places,” he said.
What’s keeping the dentists at bay this time around? Morse pointed to loan-to-cost ratios for development financing that are hovering at around 60% or 65%.
“That’s keeping the amateurs on the sidelines,” he said. “They’re very reasonable terms. They keep new supply somewhat in check.”
Morse seemed unimpressed by talk of supply wrecking his business. He said supply growth numbers can be skewed by markets such as New York City, where a lot of development has occurred.
“The segment has a lot of years to go if (interest) rates stay low,” he said. “It would take two, three, four years to go before supply becomes an issue.
“I think it’s square in the middle of the cycle,” he said. “There’s quite (a lot of) room to run in the cycle. We’re not seeing debt financing at the levels of 2006 and 2007. And we are seeing nice operating results, and we are growing the business.”
Doing a little of everything
MCR has 91 select-service hotels comprising more than 10,000 rooms in its stable. The company intends to add five or six hotels to its portfolio this year.
“Not a huge number,” he said. “2016 will be a little bigger.”
Still, Morse said his goal for the remainder of the year is to grow the company’s footprint, even if it is by a baby step. “We want to have a lot of fun,” he said.
As for where MCR wants to develop, Morse said the company is “market-agnostic.” As for the type of deal MCR would go after, he said the company is happy with big portfolio transactions as well as smaller one- or two-off deals.
“I think we’re very opportunistic,” he said. “We’re doing a little bit of building and buying; recycling some capital.”
When is the right time to sell?
“I think you can’t be greedy,” he said. “You have to sell when you get a nice return and investors are happy. Nobody has a crystal ball. But I think when you’re recycling investments to do new investments, it creates a nice flow.”
Morse said he isn’t overly concerned with other companies that might have the same thoughts he does as it relates to development.
“We watch supply very carefully,” he said. “The nice thing about the hotel business is you can see the supply coming. You have a perfect view on supply for a two- to three-year window.
“So, we’re watching it and it’s not that substantial of a concern.”
While supply is not a worry, there are some things that keep Morse awake at night. He said it is the black swan events that he worries over most. For example, he cited the dollar strengthening against the euro.
“This will hurt inbound travel,” he said. “(European travelers) are high-dollar travelers. That can hurt the market.”