PHILADELPHIA—When it comes to development, opinions from the participants at the 2008 HOTEL BUSINESS® Owners and Developers Roundtable were as wide ranging as their companies’ projects. For some, the current environment offers perfect timing to get a project under way. Others, while interested, find markets lacking that could support their projects. “I’m bullish about development,” said Michael George, president and CEO of Crescent Hotels & Resorts. His company does “everything” through a development partner. Crescent this year opened four hotels, has nine in development and is “diligently working on additional pipelines that will probably come,” he said. Also positive is Hersha Hospitality Trust’s CEO, Jay Shah. “If you can get it financed, it’s a great time to be developing,“ he said. Looking at the typical 18- to 36-month development cycle, Shah felt recovery could be under way within that time frame. “I think going into the recovery the supply and demand dynamics are going to be extremely attractive, particularly for those holding real estate and those opening newly developed real estate. This is probably one of the first cycles where supply growth didn’t intersect demand prior to demand hitting its peak,” said Shah. Similarly, HEI Hotels & Resorts’ chief investment officer, Clark Hanrattie, said he’s seeing no shortage of distress situations from a development standpoint. “What we like is that it’s 24 to 36 months before many of these projects are going to come online,” he said. “However, the challenge is really getting a decent leverage return. We closed on a $250-million, mixed-use construction loan in 2007 and we probably had 12 different options as far as where we could do that. Next week we’re closing on roughly an $80-million construction loan that’s a fraction of the size and that’s for a full-service hotel in the Pacific Northwest—a Marriott—and the options were extremely limited.” Partners can also delay development, the panel noted. For example, Dave Weymer, managing principal of Noble Investment Group, is in situations “where we’re ready to go on the hotel side—we’ve got our money, we’ve got our debt—and because they’re mixed use, our development partners, who maybe control the real estate, aren’t ready to go. Ultimately, we’ll get them built, but it delays our pipeline a little bit. You’d rather be in the ground today opening something 12 to 15 months from now.”
