PHOENIX—“Development: Up-and-Coming Markets” was another think tank session at the Lodging Conference held at the Arizona Biltmore last week. The session moderator was Michael Desiato, vice president and group publisher, ALM/Real Estate Media Group. Panelists were Adi Bhoopathy, principal and executive vice president of Noble Investment Group, Daniel P. Hansen, president and CEO of Summit Hotel Properties, Tim Muir, vice president of development with Choice Hotels International,

Brian Quinn, senior vice president and chief franchise officer of RLHC, Kyle Stevenson, managing director, Berkadia Hotels and Hospitality, and Jim Wiseman, president of development, Margaritaville Resorts.

While some gateway markets are recording increased supply and barriers to entry, many smart developers are focusing on booming secondary and tertiary markets. This discussion focused on demand drivers, development costs and current hotbeds of new development.

The discussion began with the definitions of markets and whether or not secondary markets are subject to macroeconomics. More important, Wiseman said, are the right markets. Stevenson said markets are driven more by job growth. He cited Charlotte and Tampa as up and coming markets. Bhoopathy offered that Austin is a good market because of more resilient demand, whereas Chapel Hill, NC and Fort Lauderdale, FL have longevity. Muir said Brooklyn and Houston are overbuilt but college towns are stable with consistent RevPARs.

Hansen said it all comes down to pure underwriting but “as New York goes, so goes the market,” he said.

“Pricing, brand, market type…there's always opportunity,” Hansen said. “However, we have a tendency to build when there is nothing there.”

Stevenson concurred, “if lenders will lend, developers will build.” But, the group agreed that in some of the hot markets, people are getting nervous and it's no longer a portfolio buying market.

“Our bet is that it is better to build than buy,” said Muir. “It is a seller's market right now.”

The discussion turned to year over year, have there been more deals turned down this year than last year? The majority responded in the affirmative, saying that parties are unrealistic and it is necessary to narrow down the funnel with good starting points. With construction loans, they pointed out, lenders look at whether there is too much real estate and refuse to lend on a project, which makes ground up harder.

Stevenson said half of Berkadia's projects have the lending obtained and the other half are shovel ready but can't go forward because of approvals or bankruptcies.

“We like those markets because once you're in, you're in,” he said.

Instant Insights /

Principals Caution Building When Nothing is “There”

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