Wyndham discusses financing newly announced deals

Wyndham Hotels & Resorts has announced 60 new hotels for its new-construction Echo Suites Extended Stay by Wyndham brand, growing grow the brand’s global pipeline to 265 hotels and approximately 33,000 rooms. slated to break ground in the months ahead. The company expects to have 100 hotels open over five years, with the brand’s first locations opening in 2024.

With a cost per key that starts around $93,000, excluding land, Wyndham did not reveal how many of the 60 hotels have financing. However, during Wyndham’s second quarter earnings call, both President and CEO Geoff Ballotti and CFO Michele Allen addressed developer’s ability to get financing for this lower-end extended stay concept. They added that a number of initial Echo Suites franchisees are experienced, multi-unit developers.

“Financing for well-established borrowers remains generally available, particularly at the community bank level where approximately 70% of our new project starts are financed,” Allen said in reference to all Wyndham brands. “Despite more than a 50% decline year over year in industry wide buy-sell transaction volumes, our teams not only opened 23% more rooms this quarter than they did last year, but they also executed 6% more rooms year over year and 7% more than 2019. We continue to monitor the situation, and although it has not had a meaningful impact on our business, we have a variety of programs ready to assist owners if necessary.”

He [an experienced developer] was able to get five-year paper at a 75% loan to cost at a fixed rate of 6.75%. So, if you’re just reading the headlines, you wouldn’t think that type of financing exists. But it’s very much available at a community bank level.

Michele Allen

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Allen went on to discuss a specific Echo Suites developer and their experience getting financing, suggesting that what really drives the difference between Wyndham’s new extended-stay product and some of their peers recently announced concept is the smaller loan size. “Those [smaller loan packages] have always been more akin to smaller community banks,” she said. “And in those banks, it’s all about relationships… and they’re typically made based on a holistic view of the borrower situation, not just one specific project and not just based on standardized criteria, which is more prevalent in larger banks that are servicing larger loan sizes.”

Specifically, Allen said one Echo Suites developer just a few weeks ago secured a loan from a community bank in Kansas – a bank that has lent to the developer multiple times in the past for different business ventures within and outside of the hotel space. “He was able to get five-year paper at a 75% loan to cost at a fixed rate of 6.75%,” she said. “So, if you’re just reading the headlines, you wouldn’t think that type of financing exists. But it’s very much available at a community bank level.”

Ballotti added that Wyndham is not afraid to offer assistance to developer when the ROI makes sense to both parties. “Our business is highly cash generative, and we’re always looking for ways to reinvest that cash back into the business. So, we're happy to put more money to work and can easily adapt in the current economic environment. We have a newly implemented program with reputable lender to source construction financing that provides a more programmatic approach to financing and obviously provides our franchisees very competitive terms.”

Ballotti also pointed to the fact that Echo is more of an economy extended-stay play with much smaller footprints and boxes, which increases operating costs, as well. “That’s the way we’re marketing it – with lower ongoing operating costs, higher gross operating profits,” Ballotti said. “They [developers] believe and we believe that the 1.8 million companies out there contracting for accommodations for their infrastructure workers are going to be seeking economy average daily rates, with average length of stays approaching over 30 nights… It’s a very large and underpenetrated segment with 15 times fewer hotels in the extended-stay space than transient hotels. We think there’s plenty of space for continued room growth there.”

To that end, Chip Ohlsson, chief development officer at Wyndham Hotels & Resorts told Hotel Investment Today that Echo Suites continues to exceed expectations, having more than doubled its initial goal to award 100 contracts by the end of last year. It had 205 contracts awarded by the end of the first quarter, followed more recently by another 60 contracts.

“These deals are with some of the most distinguished developers in the space, who are highly capitalized and have a history of success,” Ohlsson said. “To-date, we have multiple projects underway and in various stages of construction across Virginia, Texas and South Carolina, with over a dozen more slated to break ground in the months ahead.”