REPORT FROM THE U.S.—As the U.S. pipeline continues to taper off throughout 2009 and into 2010, hoteliers are being forced to adapt their approaches to development.
At InterContinental Hotels Group, the hotel company is adopting a multifaceted approach that stresses flexibility and patience, according to
 |
|
Jim Anhut
|
Jim Anhut, senior VP of franchise development for the Americas.
That begins first and foremost with a continued emphasis on the group’s current pipeline. But from there, it also means working with owners to help them position their stalled projects to start construction when the financing faucet turns back on.
“What we’re experiencing more than anything else is people are not abandoning projects,” Anhut said. “What people are doing is requesting more time to get those projects financed.”
Additionally, IHG has begun to investigate more conversion opportunities.
“People who have independent (hotels) or opportunities to reflag projects see this as an opportunity to connect with the world’s largest hotel company and the attractive and powerful revenue delivery systems we have,” Anhut said.
At R.D. Olson Construction, an Irvine, California-based hotel construction company, the name of the game is renovation.
“Hotels are starting to, and will most likely continue to, sell below replacement costs,” said Robert Olson, the company’s president and CEO. “As long as that’s the case, there will be no new construction on a limited basis.”
Rooms in the U.S. pipeline and year-over-year percent change
| |
Rooms |
% change |
| In Construction |
149,166 |
-27.2% |
| Final Planning |
66,700 |
-38.5% |
| Planning |
285,610 |
-18.6% |
| Total Active Pipeline |
501,476 |
-24.5% |
| Existing Supply |
4,757,328 |
+3.2% |
Source: June 2009 STR/TWR/Dodge Construction Pipeline Report
Investors who are looking to bolster their existing assets are beginning to do so through renovations, he said. Not only are costs down 30 percent to do so, but with record-low occupancy in some markets, there’s less logistical maneuvering required to accommodate guests.
That’s not to say every investor has cooled off to the idea of adding to his portfolio. On the contrary, many hoteliers are lining up capital to acquire distressed assets as opposed to beginning ground-up construction.
Concord Hospitality is in the early phases of creating a fund to do just that, according to Mark Laport, president and CEO of the hotel owner and developer.
With a goal of US$300 million, the fund will open the doors to a more stable development route for at least the near future.
“Underwriting with an expectation of good returns (on a new build) is daunting, to say the least,” Laport said. “Will that improve in the next two years? I’m thinking more like three.”
Read the related story, "Global pipeline tapering off in second half of year."
