ALIS Executive Suite Q&A: Noah Silverman, Global Development Officer, Marriott International

As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked Marriott’s Noah Silverman eight timely questions as we prepare for the 22^nd annual event January 23-25, 2023, at the JW Marriott/Ritz-Carlton Los Angeles L.A. LIVE. Following are his responses.

ALIS: How has inflation and the threat of a recession affected the U.S. hotel franchising and development segments?

 

SILVERMAN: We are certainly keeping a close eye on inflation and consumer and macroeconomic indicators, but so far, we have seen no signs of a lodging slowdown. A potential recession over the next few years could be unlike any prior downturns, with low unemployment, relatively high savings rates, the benefit of significant pent up travel demand, and evolving consumer preferences and trends. We’re encouraged that our business is showing such resiliency and remarkable rate recovery that is unlike prior downturns. We are still on the upswing of a major recovery from the worst downturn in the history of lodging, with business transient and international travel, in particular, still not fully recovered.

Typically, inflationary environments reflect strong levels of consumer demand, which then translate into higher rooms rates, and owners can see beyond higher construction costs to opening in a good rate environment. We remain focused on working closely with our owners and franchisees to deliver superior customer service while also containing operating costs and managing inflationary cost pressures.

ALIS: Most forecasts show supply growth checking in at about 1% each year for the next two or three years. How do you see it playing out based on Marriott’s pipeline?

 

SILVERMAN: We are confident that we will see meaningful rooms growth over the next several years given the improving lodging business environment, the attractiveness of our brands, our increasing development activity, our momentum around conversions, and our strong pipeline. The number of deals presented at our monthly development committee deal approval meetings continues to accelerate and first half global signings reached a new record. The exact timing of when we as an enterprise will again see mid‐single digits room growth is difficult to predict and will depend on a host of factors, but a primary driver is a pickup in new construction starts, which have been well below 2019 levels for around two years now.

ALIS: What’s the message to hotel owners, investors, and developers from the lending community in general as 2023 approaches?

 

SILVERMAN: The largest impact on construction starts has been from financing. Banks are engaging in development deals, but they are slower to complete their financing packages in a somewhat uncertain environment. We are encouraged to see that our overall luxury and full-service portfolio is continuing to gain in both occupancy and rate. And it's particularly encouraging to see our premium brands, for example Marriott Hotels, Sheraton, and Renaissance Hotels, across all markets recovering now more meaningfully in the second quarter than they were in the first quarter. We're seeing demand across all segments continuing to strengthen which should engender growing confidence among lenders in hotel financing.

ALIS: Based on your portfolio and what you’re seeing throughout the industry, what segments are the most sought after for development and franchising opportunities? Why?

 

SILVERMAN: We continue to be bullish on the trajectory of conversions for a few reasons. First, unlike in prior, more conventional downturns when we saw a lot of asset distress, the impact to the lodging business more recently was so severe that lenders became far more creative and accommodating with owners. As a result, we didn't see a flood of distressed assets changing hands in the market coming out of the pandemic. As demand and performance have recovered, there is the potential for more assets to become available for conversion. Second, the portfolio of conversion‐friendly brands we have, particularly our soft brands, Tribute Portfolio, Autograph Collection, and The Luxury Collection, is more robust than ever giving owners more attractive options even in a recessionary environment. And, of course, our highly attractive and strong-performing portfolio of select-service and extended-stay brands – segments that were impacted far less by the travel disruptions of the pandemic – also continue to be in high demand.

 

ALIS: How has the labor shortage affected the hotel development process? Is it something that the industry will deal with long term?

SILVERMAN: Like our industry peers, we’ve had some labor challenges where there has been a fast rebound in demand. While the labor environment is slowly improving, we’re keeping a close eye on wage and benefit inflation. We’re optimistic that our cost reduction efforts will help to counteract inflation in future years. We currently have around 8,200 open positions in the US and Canada (management and non-management) – for context, just over 6,300 U.S. jobs were posted in 2019 prior to the pandemic. What the industry has been through in terms of furloughs and job eliminations has been the single hardest aspect of the pandemic. In many respects the reputation of the industry as a safe place to build a career was shaken by the pandemic, so we have to rebuild confidence. We continue to communicate the benefits of careers in hospitality, and Marriott is focused on offering more flexibility in scheduling at our hotels and looking to hire more part-time associates.

 

ALIS: What’s the status of the shortage of materials and the supply-chain issues and their effect on development? How much time have these issues added to the development process?

 

SILVERMAN: The supply chain certainly remains a challenge, causing some delays in projects globally. While supply chain dynamics have pushed some openings out a few months, we are not seeing projects fall out of our pipeline at a higher than usual rate.

Owners have been dealing with the rising costs of raw materials, labor availability and supply chain challenges over the last several years. They are accustomed to fluctuation, and most do not try to time the market based on their understanding that hotels are long-lived assets. We are grateful that, like us, most of our owners choose to take a long-term view, and those that have are now reaping some rewards from the meaningfully improved RevPAR environment.

ALIS: What’s the most under-estimated challenge the hotel industry faces, and why?

 

SILVERMAN: There’s a significant challenge and opportunity for hotel companies to invest in the technology needed to reach and engage with customers in new ways to build convenience, efficiency and preference. Marriott is making significant multi-year investments in our IT infrastructure that will create operating efficiencies that will benefit our guests, associates and owners and franchisees. When fully deployed, we’ll be able to better personalize the guest experience especially for our Marriott Bonvoy members creating even greater loyalty and repeat business. New systems will simplify tasks that our associates perform every day on multiple platforms which will enable them to devote more resources to serving our guests. For owners and franchisees, the result of our investment in technology will create operating efficiencies, reducing costs and generating additional revenue by better monetizing our assets such as upselling rooms and marketing ancillary products.

ALIS: What’s the most under-estimated opportunity for the hotel industry, and why?

 

SILVERMAN: Ensuring that our industry is an inclusive environment not only for our associates, but also for our customers, suppliers, and owners is a paramount goal. Prioritizing diversity, equity and inclusion (DE&I) helps us attract and retain talent so they can welcome customers from all over the world with all different backgrounds—giving our associates and guests a sense of belonging that we think differentiates Marriott. Nearly two decades ago, we established an Inclusion and Social Impact Committee, which is a Board of Directors-level committee focused on advancing inclusive opportunities with accountability metrics at the highest levels of our company. In early June we announced Marriott’s Bridging the Gap, a multi-year, $50 million development program that aims to address the barriers to entry that historically underrepresented groups (Women, Black, Native American/First Nation, Hispanic/Latino) face in owning and developing hotels in the United States and Canada. Recognizing that access to capital constitutes a critical barrier to market entry, Marriott is now offering financial and other incentives to qualified owners and franchisees that have a controlling equity interest in hotel projects. Marriott’s Bridging the Gap is just one aspect of a more robust approach to increasing diverse hotel ownership at Marriott and in the industry more broadly.