Hotel & Motel Management - January 7, 2008 - (Page 26) 26 Special Report H&MM January 7, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition REAL-ESTATE DEVELOPMENT & INVESTMENT Development talks Continued from page 24 access, Baltin said. Russ Urban, senior v.p. of development at HEI Hotels & Resorts, noted the importance of seeing where the market is growing in a region. “You’d want to avoid [an area that] over the course of the future five to 10 years is located away from the migration of progress in a marketplace,” Urban said. “You want to be building where the market’s growing to, not away from.” In recent times, most of what has been developed has been limited- and select-service hotels in suburban, secondary and tertiary areas because that’s currently what construction costs allow, but there is room for full-service hotels in major development areas, Baltin said. Combating costs “The climate for development in terms of opportunity has been healthy,” Baltin said. “The challenge has been to be able to afford the construction.” Some construction costs have risen because of foreign demand. “Overseas markets like Asia, and even some domestic like Las Vegas, are sucking up the concrete, steel, window and glass in the world, so really supply and demand there is not at equilibrium,” Urban said. However, he expects an overall flattening of construction cost increases over the next two to three years, reflecting the slowing of construction costs in the residential sector. “Costs will stabilize over the next year or two, which, frankly, will allow everybody to feel more comfortable with where their costs are going,” Urban said. Construction costs remain one of the biggest challenges to the feasibility process, along with tion, costs are too high or the project doesn’t pencil. Baltin said the most common reason a project wouldn’t make it through the feasibility stage is because the project doesn’t pencil, meaning costs are out of balance with income, but he expects this to change soon. “The climate for development in terms of opportunity has been healthy. The challenge has been to be able to afford the construction.” –BRUCE BALTIN, SENIOR V.P., PKF CONSULTING finding a site at a reasonable cost, Baltin said. According to Urban, only about 10 percent of projects get through the feasibility stage because titles don’t come to frui- “Probably we’ll continue at a point where income is going to rise for a couple of years. I expect it’s going to rise faster than costs in the short term, so I think we’ll continue to find balanced opportunities,” Baltin said. The subprime mortgage lending crisis also has played a major role in slowing construction. Urban explained that the few existing lenders in the construction market now require heavyduty sponsorship and more enhanced collateral, and that loan-to-cost ratios are going down while spreads over LIBOR are increasing. With the convergence of these factors, development will slow down. “As we get into less certain times in economic development, so will go the future of hotel development,” Urban said. “Now the issue is going to be financing,” Baltin said. “Underwriting standards have just tightened, but properties will still get built over the next several years.” ehanna@questex.com CIRCLE NO. 120 CIRCLE NO. 131 http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition http://www.haventrustbank.com http://www.ihrco.com http://www.haventrustbank.com http://www.ihrco.com
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