CHICAGO—“We’re expanding everywhere, especially the Midwest,” says Rajiv Trivedi, the executive vice president and chief development officer for LQ Management, LLC, which operates and provides franchise services to La Quinta Inns. Trivedi was speaking with GlobeSt.com about the growth prospects for La Quinta hotels and the North American hotel industry in general. The Irving, TX-based firm has over 800 limited-service hotels in the US, Canada and Mexico, and about 170 in the development pipeline. And Trivedi expects they will open 30 to 50 hotels in the Midwest over the next three years. “The last 36 months have been outstanding,” he adds, but he believes the hotel industry has even greater potential.
“We’re going to see robust or even exponential growth,” he contends, partly because banks recently decided, after years of caution, to once again finance hotel construction. “There was little financing just 12 months ago. We had a lot of projects that did not come to fruition; the openings were somewhat limited.” Two years ago, for example, the company was completing about 15 to 20 hotels per year. This year, however, Trivedi says La Quinta will put the finishing touches on 50 hotels.
“The valuation of hotels decreased dramatically” during the recession, but once the economy began to revive, and business travelers and tourists began booking rooms again, their financial position improved. “We believe this growth in demand will be steady over the next three to five years.”
As La Quinta goes forward with their expansion, they plan to focus on areas that attract a critical mass of business travelers. This includes high-end suburbs, submarkets with major airports and mid-sized downtowns that need more limited-service hotels. For example, St. Louis, Duluth, Milwaukee, the Chicago metropolitan area and the oil-producing boomtowns of western North Dakota have attracted a lot of interest from the La Quinta team.
Other observers share Trivedi’s sunny outlook. According to a recent Hospitality Research Quarterly Update from Marcus & Millichap, the rising economy has begun to buoy the hospitality sector and the nation’s hotels will see higher occupancy and room revenue the rest of this year. “Fresh indicators of a strengthening economy have emerged in 2013, lifting prospects for additional gains in room demand and room revenue in the months ahead,” the quarterly update says. “The planning pipeline has grown over the past year, and the number of rooms under construction rose more than 18% during that time. Occupancy for the [summer] season will rise 70 basis points to 70.1%, nearly equaling the high of 70.3% in 2007.”
Most importantly, bankers have noticed that hotels have begun trading for significantly more than their replacement costs. And the reputation of limited-service hotels such as La Quinta among lenders has greatly improved. “For us, that’s the silver lining of the recession,” says David Wilner, La Quinta’s senior vice president, development. “They’ve seen that we can weather downturns better than full-service hotels.”
Still, Trivedi says that the largest and most influential national lenders have yet to venture back into hotel finance. “Currently, we are in a transitional period where it’s the regional banks that are lending.” But he also says that by the end of this year, the hotel industry could be doing record business, and that would quickly get the bigger national lenders on board. By early 2014, he believes “we will have a wider spectrum of lenders compared to what we’ve seen; and as financing becomes available, new hotels will open.”
“These are all good things for us, the economy and our country,” Trivedi concludes. “It’s good to see things getting back to normal.”