Dive Brief:
- Marriott International, the Bethesda, Maryland-based hospitality company, will prioritize conversion projects over new construction as part of its updated growth strategy, CEO Tony Capuano said Wednesday during the company’s second quarter earnings call.
- The strategy shift is in response to the high cost and complex financing involved in new builds, according to Leeny Oberg, CFO and executive vice president.
- “The availability of construction debt is still relatively constricted to where we were in a pre-pandemic situation,” said Capuano during the call. “As a result, we’re not back to where we were pre-pandemic in terms of shovels in the ground. Trends are going the right direction, but we’re just not all the way back yet.”
Dive Insight:
Issues with construction financing are pushing more hotel brands to focus on conversion work, as these types of projects can be a more cost- and time-effective option than new construction. Most conversions in the sector involve buying and renovating existing hotels and bringing them under the company’s brand.
Last year, for example, British hospitality company IHG — which includes the Holiday Inn brand — also increased growth in its conversion pipeline. Nearly 40% of the company’s openings in the first half of 2023 were via conversion, Kevin Schramm, senior vice president of development at IHG, told Hotel Dive.
For Marriott, conversion activity accounted for 37% of openings and 32% of signings in the second quarter this year, Capuano said during the call. He added this broad-based conversion activity has seen a variety of existing hotels transition into 23 different Marriott brands over the past year.
“Conversions, including multi-unit opportunities, remain a significant driver of growth,” said Capuano during the call. “While still below 2019 levels, we’re 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 U.S. and Canada, according to its earnings report, including both new builds and conversions.
“We’re not quite ready to put a stake in the ground on specific guidance for 2025, but we continue to see conversion volume at plus 30% of both signings and openings,” said Capuano during the call. “It feels like our momentum in conversions is accelerating.”
In June, Marriott signed three marquee luxury hotel conversion deals in the U.S., according to the company. These conversion projects include The Resort at Pelican Hill in Newport Beach, California, The Luxury Collection Hotel in New York City and the Turtle Bay Resort in Hawaii.