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Dive Brief:
- Marriott International, the Bethesda, Md.-based hospitality company, will prioritize conversion projects over new construction as part of its updated growth strategy, CEO Tony Capuano said Wednesday during the announcement of the company’s second quarter results.
- The change in strategy is in response to the high cost and complex financing involved in new construction, according to Leeny Oberg, chief financial officer and executive vice president.
- “The availability of construction debt is still relatively restricted to where we were in a pre-pandemic situation,” Capuano said during the call. “As a result, we’re not back to where we were before the pandemic in terms of shovels on the ground. The trends are going in the right direction, but we’re not quite back yet.”
Diving knowledge:
Problems with construction financing are pushing more hotel brands to focus on conversion work, as these types of projects can be a more cost-effective option in terms of cost and time than new construction. Most conversions in the industry involve the purchase and renovation of existing hotels and their incorporation into the company’s brand.
Last year, for example, British hospitality company IHG, which includes the Holiday Inn brand, also increased the growth of its conversion pipeline. almost 40% of company openings the first half of 2023 were through conversion, Kevin Schramm, IHG’s senior vice president of development, told Hotel Dive.
For Marriott, conversion activity accounted for 37% of openings and 32% of signings in the second quarter of this year, Capuano said on the call. He added that this extensive conversion activity has seen a variety of existing hotels transition to 23 different Marriott brands over the past year.
“Conversions, including multi-unit opportunities, remain an important driver of growth,” Capuano said on the call. “While we remain below 2019 levels, we are also pleased with the continued upward trend in monthly construction starts.”
The hotel company reported a 40% year-over-year increase in construction starts in the second quarter in the United States and Canada, according to its earnings report, including both new construction and conversions.
“We’re not quite ready to bet on a specific target for 2025, but we’re still seeing conversion volume over 30% of signings and openings,” Capuano said on the call. “Our momentum in conversions seems to be accelerating.”
In June, Marriott signed three major luxury hotel conversion deals in the US, according to the company. These conversion projects include The Resort at Pelican Hill in Newport Beach, California, The Luxury Collection Hotel in New York, and Turtle Bay Resort in Hawaii.
