Credit Crunch Forces Hotel Developers to Think Smaller

While many hospitality developments have been halted or postponed, projects like the new four-story aloft hotel in Bolingbrook, Ill., continue moving forward. McShane Construction Co. topped out the project this week for developer LTD Management Co.While that project is slated for a July completion as part of a mixed-use development featuring more than 1 million square feet of shopping, dining and entertainment in a pedestrian-friendly environment, other projects are moving forward, too, albeit scaled back to a certain degree.Hotel development is being challenged by today’s rigid credit markets, but projects that can be developed in the $10 million to $20 million range are getting financing, John Russell, CEO of NYLO Hotels, told CPN on Jan. 30. “It’s many larger projects that are having trouble,” Russell said. While NYLO originally planned to add 50 hotels by the end of 2010, they reduced that goal to 40. Concord Hospitality Enterprises recently secured a $13.4 million loan to build a 124-room Courtyard by Marriott in Pittsburgh, Concord president & CEO Mark Laport told CPN.Concord has 11 hotels under construction, and Laport said he believes this is an excellent time to develop. Interest rates are at rock-bottom levels, land prices have come down, and construction material prices have also moderated. In addition, architects are less busy than they were during the boom years, so design plans can be finished quickly. Also, contractors are now looking for work, and competing with each other on price, a good situation for a developer. Meanwhile, Carlson Hotels Worldwide added 89 new properties in 2008 and plans to debut 300 new properties between this year and 2013, according to a Jan. 27 CPN report. Carlson has plans 36 new Country Inns & Suites By Carlson to open this year. On Feb. 6, CPN reported that HEI Hotels & Resorts plans to shell out around a billion dollars this year on acquisitions and developments. HEI Hospitality Fund III L.P., a fund of HEI Hotels & Resorts, has approximately $500 million in equity and plans to purchase and build between $1.5 billion and $2 billion in hotels and resorts over the next two years.Steve Mendell, HEI’s executive vice president of acquisitions and development, pointed out that the firm is now in search of full service upscale hotels in areas with high barriers to new development. He also noted that “for the first time in about 16 months, we are beginning to see hotel prices come in line with market expectations as the expectation gap narrows between buyers and sellers.”