Midscale Growth Splits Along F&B Lines

NEW YORK— As expected, the Janus-like existence of the midscale segment continues, its singular concept facing in opposite directions when defined by having or not having food and beverage operations. It remains as equally opposite when it comes to development. Midscale without f&b continues to substantially outpace its counterpart with f&b in terms of room-supply growth, keeping the status quo of the last several years. According to Lodging Econometrics, the fourth-quarter 2000 development pipeline showed 96 projects representing 9,877 rooms for midscale with f&b against 554 projects representing 49,827 rooms for midscale without f&b. This year, the total segment— as all others— is faced with a slowing economy, which is expected to squeeze the development pipeline. According to Bobby Bowers, vp of Smith Travel Research, “Development in general is going to continue on the downward pitch. I would think midscale without f&b is going to slow down some.” Bowers maintains, however, if interest rates continue to go down, there’s opportunity to get money at a cheaper rate, so such projects will remain the “easiest to finance and not as risky.” Good news for developers is that financing rates for permanent loans are more attractive today than they have been over the past 12 months, with current rates ranging from 8.25% to 9.0%, said Brown Kessler, vp/franchise sales, Bass Hotels & Resorts. “However, these attractive rates are based on a strong, quality brand association, good sites and solid franchisees,” he said, terming the midscale segment “a stable one.” In 2000, BH&R brought 25 Holiday Inns and 139 Holiday Inn Express products online. “We have activity across the country, but the strongest areas are California and New England,” said Kessler. Express will remain mostly new-builds, with distribution-dominant HI continuing with conversions, adding some new-builds as well. “Overall, the midscale with f&b segment is basically stabilized in regards to room supply and demand. However, midscale without f&b reflects bullish growth,” he said. While brand pipelines are strong, said Kessler, “We are seeing some slowing in new applications as people weigh the possibility of recession and the availability of financing.” Financing has “definitely tightened. However, good projects are still being financed and built [with]most lenders now asking for 35% equity in new development. The development process has been lengthened by zoning, permitting and plan approvals. It now takes the average developer longer to develop than a year ago,” he added. With four midscale brands— Ramada, Wingate Inn, Howard Johnson, and AmeriHost— Eric Pfeffer, chairman/CEO-hotel division, Cendant Corp., said he sees “a lot of loyalty” to particular brands by developers. Pfeffer said Cendant’s structure of having competitive sister brands precludes it from pushing one brand over another. However, he noted, “everyone is pushing from a profitability perspective. Obviously the higher-rated products with which we have a percentage relationship with royalties tend to give us more income. But at the end of the day it’s the developer who drives his or her preference as to what fits their vision of the product.” Domestically, last year Wingate opened 21 properties, with 45 under construction and 190-plus in the pipeline. Howard Johnson opened 48, with 75 in the pipeline at the end of 2000. Ramada opened 81 hotels, with 93 in the pipeline. In addition, 37 new franchise agreements have been signed since December following Cendant’s acquisition of franchising rights to Amerihost Inn and AmeriHost Inn & Suites. “Overall, development has been slow and the construction pipeline for midscale with f&b has been very limited. It’s maintaining itself at around 5% to 10% of the total pipeline being built. That’s not changing,” said Pfeffer. “Those are opportunistic areas with a need for midscale with f&b.” He added the slowing economy “doesn’t affect us as much because of the