FREDERICK, Maryland—Obtaining financing for new-build projects has reached a level of difficulty that can only be described as “a little too rigorous” in some U.S. cities, according to Liam Brown, COO of select-service and extended-stay lodging of the Americas for Marriott International.
Also, within the last 12 months to 18 months, most new-build developments have been done with a big brand name attached to the project, Brown said. “It’s all bigger brands that have really been able to get (financing).”
But there are ways to stand out to lenders and investors in today’s financing environment, he said.
Preference is often given to sustainable and Leadership in Energy and Environmental Design certified properties, he added.
Investors know that sustainability sells in today’s marketplace, Brown said. “You can argue both sides of the issue, whether climate change is real or not real. That’s not the point. The point is that it’s very good business.”
Jefferson Thomas, senior design manager at Marriott, said investors are aware that more and more Fortune 500 companies—Bank of America, IBM and Intel, for example—that send travelers on the road are asking about sustainability before making decisions.
And that’s something to which owners can respond easily, Thomas said.
Upfront costs
Developing a property with the U.S. Green Building Council’s LEED certification seems like a no-brainer to most owners because of the paybacks, said Loren Nalewanski, VP and global brand manager of TownePlace Suites and Marriott Executive Apartments.
However, the intimidation factor that comes with learning about the various approvals and additional investments required can turn owners off of LEED, he said.
But developers should keep in mind that they will end up saving money in the long run, said Pete Plamondon Jr., co-president of Plamondon Hospitality Partners, and owner of the recently opened LEED-certified TownePlace Suites Frederick in Maryland.
For the first several months of the development process, the 120-room TownePlace Suites was not set to be a LEED-certified hotel.
After a discussion with Marriott about costs, Plamondon executives thought the numbers to convert the project to LEED made sense.
To undergo the LEED certification process, Plamondon learned there would be a premium on the cost of construction, but because the concept itself was new for the TownePlace Suites team at Marriott, the premium given to Plamondon Hospitality was an estimate of the actual costs.
Marriott executives “thought that whatever the cost of construction was without us being LEED certified, we’d pay 3% of that (in addition) to be LEED certified,” Plamondon said.
As the company usually finds itself with overages when developing, Plamondon said executives thought, “We can be careful not to spend the extra dollars (in other areas) … and just put it toward the LEED component. Then, we should have enough money in the budget.”
The final additional costs the company had to pay to convert the TownePlace into a LEED-certified project was approximately 3% as Marriott executives originally estimated, he said.
Still, the developers had to reach out to their lender. “It was not a difficult conversation to have,” Plamondon said. “We were able to convince our bank (that) ‘Yes, we’re going to spend the extra money, but we’re going to do it for all the right reasons.’”
The lender knew there would be a payback in lending the additional capital, he said. Energy savings and environmental concerns were a compelling reason to increase the financing for the property.
Plamondon declined to comment on the total cost of construction and specific details about the bank loan.
Because LEED is still relatively new within the hotel industry, some smaller banks still don’t understand the financial paybacks, so it is important to educate them on the return on investment, he said.
Marriott’s Brown agreed: “You have to be able to demonstrate to a lender and to investors that you have a valid (and) really good project, so you’ve really got to do your homework.”
Return on investment
By not building sustainably, owners are setting themselves up for future risks, Thomas said. Energy costs, among others, are expected to increase in coming years.
By building green, “you’re actually building a safeguard in your building for the future,” he said.
And the opportunity to offset higher building costs won’t just come back to the owner in the form of saved energy costs, Thomas said. Federal, state and local agencies provide tax credits for owners who build sustainable properties.
“Even the insurance companies will actually give you a discount (if you obtain) LEED certification,” he said.
At the end of the day, when developers and investors are making decisions, they should keep in mind that sustainability is not a fad, Nalewanski said.
“It’s going to be a requirement very soon. It’s not just about what your return is, it’s about being responsible and green,” he said.
Editor’s note: Marriott International provided airfare and hotel accommodations for one night. Complete editorial control was at the discretion of the HotelNewsNow.com editorial team; Marriott had no influence of the coverage provided.
