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 22nd
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.