Three experienced developers talk about what they are
developing and where in 2026.
Note: Read Part 1 of this feature with discussion about challenges and opportunities such as macro noise and costs surrounding the 2026 development outlook.
NATIONAL REPORT – Ground-up hotel development isn’t quite as
challenging for experienced developers who know how to choose the right product
and location – sometimes based on macro conditions and trends. As a result,
while there is a fair amount of trepidation surrounding new development, some
seasoned developers look at 2026 with great optimism.
We asked Mary Beth Cutshall of Vision Hospitality Group, Ben
Pierson of Rockbridge and Kathleen Hollis of First Hospitality where they are
looking for new development and what types of hotel products they find most
appealing in the current environment.
“Ground up development continues, but only for the strongest
projects,” said Cutshall. “So, it’s prime locations, proven sponsorship and
realistic underwriting because when you are raising debt or raising capital,
the deals are vetted even more so. So, you have to be very realistic and
conservative.”
It’s prime locations, proven sponsorship and realistic underwriting because when you are raising debt or raising capital, the deals are vetted even more so. So, you have to be very realistic and conservative.
Mary Beth Cutshall
Cutshall said Vision hasn’t done a lot of conversions in
adaptive reuse but thinks those are increasingly favored because they reduce
basis, speed to market and financial risk. “That’s something that we’ve been
hearing a lot about the past couple quarters,” she said.
She continued by suggesting extended-stay and select-service
dominate new starts right now, reflecting lender preferences for stable cash
flows and labor efficient models.
For Vision, Cutshall said limited- and select-service
remains their bread and butter. “We also have a couple of Autographs and some
lifestyle boutique. So, compact full-service would be our other sweet spot.”
Cutshall added that brands and lenders are more risk adverse.
“So, they’re placing greater emphasis on the sponsor, track record, operating
expertise and execution certainty,” she said. “The bottom line is development hasn’t
stopped, but it’s reserved for groups that reduce risk across the entire life
cycle.”
Manhattan v Manhattan
From First Hospitality’s perspective, Hollis said the most
compelling ground-up development opportunities are located on exceptional sites
in high RevPAR markets. “Hard costs are essentially the same if you’re building
in Manhattan, New York, or Manhattan, Kansas,” she said “And clearly, the RevPAR
that you can drive in New York City is a lot higher that you can drive in more
suburban, tertiary markets.”
[First Hospitality CEO] David Duncan likes to say that buying an under-loved building at a steep discount to replacement costs, and then being able to pull the levers of new brand, new management, renovation, etc. – that’s the new development play.
Kathleen Hollis
So, First is most interested irreplaceable real estate and Top
10-like markets from a ground-up perspective.
That being said, Hollis added that there are other ways that
developers can uniquely add value. “[First Hospitality CEO] David Duncan likes
to say that buying an under-loved building at a steep discount to replacement
costs, and then being able to pull the levers of new brand, new management,
renovation, etc. – that’s the new development play... That, oftentimes, is what
we’re finding to be a bit more compelling than just pure ground-up.”
Hollis said First Hospitality also likes historic adaptive reuse plays and has
done six or seven of those in the last few years. “Right now, especially in
some cities where office isn’t really coming back, there’s been some exciting
opportunities to take an office building or an old historic building and
convert that to a hotel in a quicker, more efficient way than you would be able
to do from a ground-up perspective,” she said. “What we like about an adaptive
reuse or historic conversion is you just get it open and operating and
generating cash flow more quickly, and you’re able to replace expensive
construction financing with more permanent financing.”
First has also spent time outside of Top 10 markets,
especially if there is an Opportunity Zone incentive or an historic tax credit
incentive. Hollis said they are looking at a ground-up project right now being
partially funded by a large corporation who wants a headquarters hotel outside
of their office that they can feel really proud of.
“You just have to uncover a lot of stones,” Hollis
concluded.
Luxury lifestyle mindset
At Rockbridge, development strategy surrounds luxury
lifestyle – a differentiated product that can outperform its peers and comp
set, as well as outperform the broader market and create a customer base and a
demand profile that can perform relatively better, according to Pierson.
If you are hoping that the tide will lift your boat, that is not a great strategy in the next couple years. You have to be strategic and have a platform that’s built to perform over time.
Ben Pierson
To that end, Pierson said Rockbridge has spent the last 15
years building a vertically integrated platform that can produce products and
that guests will pay for.
“If you aren’t differentiated, it’s hard to beat the market,”
he said. “And in the broader market today, the forecast for RevPAR growth is
not exciting if you don’t have a better mousetrap.
“If you are hoping that the tide will lift your boat, that
is not a great strategy in the next
couple years. You have to be strategic and have a platform that’s built to
perform over time.”
Pierson said Rockbridge looks at real estate and locations
that are conducive to the places that people want to be and are willing to pay
for. “The luxury lifestyle product we’ve seen that perform in really great
hospitality markets in Charleston, Nashville, Savannah, Dallas and Denver, for
example. We’ll continue to look at those,” he said.
Pierson added that they have seen a mix other types of real
estate and mixed-use developments, in particular, where the convergence around
hospitality and hospitality experiences drives real estate value for all
product types.
“You’re seeing cities, universities, mixed-use
developers that are looking for really distinctive luxury lifestyle product to
help drive and be the heartbeat of the overall development,” he said. “So, we’re
seeing that as a as a big opportunity set and an opportunity to leverage the
platform that we built.”