How Lenders View Hotel Construction Now
By Carrie Rossenfeld
IRVINE, CA—Just a few years ago, it was virtually impossible to find a hotel construction lender; that has completely changed, which is why so many more projects are getting built, Atlas Hospitality Group’s president Alan Reay tells GlobeSt.com. The firm recently released its 2016 Year-End California Hotel Development Survey, which showed that California is now experiencing a boom in new hotel supply as investors and developers continue to favor new hotel construction over purchasing existing older hotels. With the rapid increase in prices, we are now seeing that hotels in most markets are trading above replacement cost, which has made new development much more attractive to investors and lenders, according to the firm. We spoke with Reay about the main takeaways from the survey and how the lending community is viewing hotel development at this point in the cycle.
GlobeSt.com: What were the main takeaways from your hotel-development survey?
Reay: I think the main takeaway is how quickly new hotel construction has bounced back, with a huge pipeline of deals in planning or under construction.
GlobeSt.com: Was there anything in the survey that surprised you?
Reay: As I reviewed our previous surveys, it is amazing how closely 2016/2017 resembles what we saw back in 2007/2008 peak. In 2008, California had 151 hotels either open or under construction, with 22,347 rooms. In 2016, we had 150 hotels either open or under construction with 23,195 rooms.
GlobeSt.com: How is the lending community’s view on hotel development changing?
Reay: Just a few years ago, it was virtually impossible to find a hotel construction lender. That has completely changed, which is really the big reason we are seeing so many more projects getting built. A lot of lenders have rushed back in this space and are very bullish on new hotels.
GlobeSt.com: What else should our readers know about hotel development in 2017?
Reay: It is going to continue to grow, and we will see even more hotels opening up in 2017 and under construction. The pipeline is dominated by limited-service hotels, and within that category Marriott brands lead the way.