ALIS Boardroom Outlook Hotel development guides shifts in travel patternsBy Mary Scoviak | March 2, 2023Share Smart dealmaking uses deep industry and market knowledge to draw guests to the brand’s properties rather than guessing at the next hot spot. LOS ANGELES -- The simplest way to predict where travelers want to go is to tell them. Speaking on a “Boardroom Outlook” session at the Americas Lodging Investment Summit (ALIS) in January, leaders shared their insights on how to turn development and CRM expertise into pipelines that shape travel patterns.James Bermingham, CEO, Virgin Hotels; Larry Cuculic, president and CEO; BWH Hotel Group; Warren Fields, CEO, Pyramid Global; John Murray, president and CEO, Sonesta International Hotels; and Jeff Wagoner, CEO, Outrigger Hospitality Group joined moderator John Fareed, global chairman, Horwath HTL, said there is not cheat sheet to make that happen, but Cuculic said there is a list of factors that influence what he’d like to add Best Western’s pipeline.We’ve all learned that being involved in government is part of our day job.”Jeff WagonerShare this quoteFor macro factors, the development appetite of hoteliers, interest from investors and regional partners, an economy that supports growth (low interest rates or the backside of high interest rates), little impact of territorial aggression and the ability to get cash out of the country were all issues on Cuculic’s list.Tried and tested destinations and must-sees such as the Eiffel Tower, the Coliseum, the Northern Lights, the south of France or the Taj Mahal are top of mind demand drivers that put potential deals on Cuculic's radar. Digging deeper, he delves into the export market. “Why do you go to China? To export product,” Cuculic said. Governmental considerations fall into two spheres of influence: “Do we want to be there” and “do they want us to go there?”The answer can be one of development’s clear “whys.” “The Australian Open could easily last four or five days," Cuculic added. "But, it lasts a month because the government wants to drive tourism.” On the flip side, he looks at U.S. government travel advisories to double-check that a potential deal is in a country Best Western wants to be in.Larry CuculicWagoner also delivered a reminder that “government” doesn’t just mean national and international ruling bodies. “In Hawaii, one of the things that we figured out is the need for involvement in local government and even local municipalities. They’re critical to our success. We’ve all learned that being involved in government is part of our day job,” he said.Doing a deep drill-down on all the implications of tax structures and other local regulations also provides guidance on the go/no go development decision, Murray said. “On some Caribbean islands, tourism is pretty much the only industry. So if you go there, you’re required to hire a certain percentage of local employees and you need to be aware that you can’t necessarily bring a whole team over from the U.S. or elsewhere.” Avoid getting stuck in gatewaysComparing the hotel industry in 2023 to pre-pandemic is, for the most part, a tired exercise in looking at apples and oranges. There’s no way to measure the lifestyle, business and infrastructure shifts as year-over-year metrics.Case in point: hoteliers are site shopping beyond what were formerly foolproof global destinations. Virgin is close to a term sheet in Spain. Bermingham cited interest in the Spanish, Greek, Portuguese and Irish resort markets and better cost of capital than in the U.S. as drivers for the current development plan. From a management perspective, Fields sees opportunities throughout the European resort market.The same is true in North America. “Prior to the pandemic, we were focused on the top 25 travel markets in the United States,” Fields said. “Now I’m not so sure San Francisco, Chicago, Los Angeles, New York or Boston are as rock-solid as they were. I’m not discounting them, but you have to be opportunistic and think about where you can add value. Branded, full-service major market hotels started to come back at the end of 2021, but during the pandemic, independent luxury lifestyle in drive-to markets, such as those in Benchmark’s portfolio [Pyramid and Benchmark merged in 2021] cranked really well. Right now, we’re figuring it out on a case-by-case basis.”Cuculic added that he translated some of his thinking about risk from a national level when looking at international development to a city one when considering projects in the U.S. “You do have to ask yourself, ‘What’s the risk factor of doing business here?’” he noted.Appetites whetted for feeder marketsThe last three years forced a new sensitivity to the vulnerability of destinations with a couple or handful of major feeder markets. “You need to think about access, about visas, about government stability for any international deal, but you also have to think about what happens if feeder markets get cut off. Our properties in Thailand, whose main feeder markets are Russia and China haven’t yet rebounded,” Wagoner said. “There are little pockets like that throughout Asia where we see a lot of opportunity [as Chinese travel returns]. In the Maldives, even though tourism was typically driven by China pre-pandemic, Russia, India and the Middle East became important feeder markets and those properties performed well during that time.”Jeff WagonerDon’t always try to DIYAt home in the U.S. Sonesta has support from its mostly-AAHOA-member franchisees and high-net-worth individuals. That’s helped fuel rapid growth over the last few years, including the acquisition of The James lifestyle brand and the purchase of Red Lion, with its robust franchise platform.That doesn’t mean Murray doesn’t have broader reach for Red Lion on his mind, but it suggests that’s going to require more thought. “We’ve had inbound inquiries about franchising in China,” Murray said. “I’m a bit of a deal junkie and I want to say ‘Yes, let’s do it.’ Then I realize I can’t do it right if I do it now. We’re a growing company, but we don’t yet have the infrastructure to manage franchisees in China or monitor development in India. That’s on the horizon, but we need to make sure our business has scaled correctly so that we can manage the growth that we have.John MurrayWagoner concurs, but for him it’s less a question of focusing the pipeline than leaning on the expertise of brokers to deliver the detailed local knowledge that’s key to success. He relies on the knowledge of major law firms regarding the actual and possible pitfalls and challenges in each market.All of these factors taken together draw a picture of a much more proactive than reactive approach to development patterns. While the number of flags on the map still matters in distribution terms, every destination will have to justify its potential across opportunities from moving the corporate revenue needle to being a local community money-maker before deals get done.