LA QUINTA, CA— In expressing reservations about just how long the lodging industry’s current prosperity will last, owners and developers from various parts of the U.S. and Canada cited a range of challenges they believe could trigger a downturn recently. The end of the cycle, they said, could result from a crisis in the larger economy, a precipitous shift in the hotel supply and demand equation or even as a result of energy prices spiraling out-of-control, among other causes. Yet a downturn hardly appears imminent, added the owners, who gathered here last month for Hilton Hotels Corp.’s select-service conference. “I’d have to cite potential oversupply as our major concern, particularly in such huge growth areas as Phoenix, Las Vegas and various Florida markets. New communities seem to spring up overnight, entire new submarkets,” said Beechwood Development, LLC’s Thomas Arnot. “For developers looking to build in those markets, getting all the necessary approvals can become a drawn out, highly political process.” New development, more than ever before, has become a market-by-market concern. “Take the Northeast, where the barriers to entry are so high. It can take two years to get a project done,” confirmed New Castle Hotels & Resorts’ president and COO, Gerald Chase. “Meanwhile, other markets such as the Southeast continue to grow rapidly.” Among Southeast markets, Florida— while booming— is in a class by itself. “The approaching retirement of the Baby Boom generation continues to have an impact there,” noted Graham Bennett, president of Quality Oil Co., LLC, which owns a portfolio of eight hotels as well as a heating and cooling business. The explosion of new brands in the past few years, which has been most prevalent in the mid-market tier, has fueled concerns about overbuilding. But the new brands remain largely untested. “As developers, we don’t see ourselves as pioneers. Too many of the new brands blur the line between, say, mid-market and full-service. The brand promise just isn’t clear. When they have a significant number of properties up and running, that’s when we’ll take a look at them,” said Chartwell Hospitality’s managing partner, Robert Schaedle. Rising construction costs have been an impediment to new building for the past few years, but the situation started to stabilize somewhat toward the end of 2006. “There’s been a flattening out in the past three months, though prices haven’t been going down,” noted Bennett, who’s based in Winston-Salem, NC. However, costs can also vary with the market. “Construction prices have stabilized even in Florida because work on a number of residential condominium projects has stopped, increasing the supply of labor and materials,” Bennett explained. In the Midwest, Good Hospitality Services’ president, Jeffrey Good, has seen construction prices fall 15% to 16% in that same recent three-month window. “We’ve got residential contractors ringing us up again,” he joked, adding, “Hope is coming down the road.” Controlling costs When construction costs were still escalating rapidly, Good said his biggest concern was that the high cost was going to cause the rate of RevPAR growth to slow down. “Time is money, so the way we dealt with increasing costs was to make sure the timing and logistics were as tight as possible,” Good said. To expedite construction, Good and Beechwood’s Arnot recommend working with an architect who already knows the selected hotel brand’s prototype. “Use the brand’s internal design resources so that once you have the local architect on board, you’re ready to go,” Good recommended. Another factor affecting construction in the Florida market has been the steep increases in premiums for wind insurance. “Insurance costs have gone up so much that it’s changed the type of construction people are doing,” said Schaedle, who’s based in Brentwood, TN. “We’re seeing much more interest in block-and-plank construction, for example, which withstands high winds s
