Three of Luxury Frontiers’ very own — Luca Franco, CEO, JamieRose Briones, Director of Strategy & Development, and Aaron Gjellstad, Director of Operations— were among the 3,000 attendees at last week’s 2019 Americas Lodging Investment Summit (ALIS), in Los Angeles. We caught up with JamieRose to get an inside look at the industry event, and learn the reason why top hotel investors and brands are investing in alternative lodging and “smart” construction methods.
Tell me about the conference.
ALIS is an investment summit, so there’s a lot of focus on what’s going on in the marketplace and the investors who are backing the projects that are propelling the industry forward. The conference is comprised of forums and various panel discussions. It was an exciting conference to attend, as the event drew the biggest, most diverse turnout in ALIS’s history, with 22% women and even 15% millennials in attendance.
What were some of the hot topics that were covered at this year’s event?
There were panel discussions on subjects ranging from the rise of boutique and lifestyle lodgings to the trend of co-working spaces in hotels and the rebirth of full-service hotels. But one of the more thought-provoking events was on “smart” construction methods.
What is a “smart” construction method?
The talk was focused on modular construction — that is, when hotel rooms are prefabricated in a factory, transported to a site, and then installed on location. Obviously, this type of building method is a complete departure from the way hotels with global brands are typically constructed, so it’s really cool to see the likes of Marriott and AccorHotels playing in the field. Speaking of which, AccorHotels has this really groundbreaking concept called the Flying Nest, a mobile project built from shipping containers. Last summer, the hotel made an appearance at a photography festival in Arles, where it was situated on a beach alongside a DJ booth and food truck, but it now sits at the Avoriaz ski resort in France. Because it’s nomadic, it could easily move to another site at the end of the ski season.
Why are big brands turning to modular construction?
For one, traditional brands want to tap into new market segments and explore faster and more affordable building solutions. Another reason is that these alternative building methods generally have a lighter environmental impact and support the eco-conscious movement travelers care about today. But from what was said at the ALIS panel, one of the biggest appeals is the flexibility you get in terms of quality control. For instance, investors and brands like the ability to inspect the design and construction of a prototype still in the factory so that changes can be made quickly before other units are produced. Going one step further, Luxury Frontiers has brought prototype rooms to the site so that we can see how it responds to local weather conditions, and then we made tweaks to its design or materiality back at the factory. Having that level of quality control over a project is obviously very desirable. We have actually just received prototype tents at one of our client’s project sites in Phuket, Thailand.
Are there any limitations associated with this type of building method?
One of the audience members asked a great question regarding whether hotels run into issues with local unions as the result of constructing off-site. The answer is that local labor is always required, even when the units are produced in factories. In Luxury Frontiers’ case, even if you construct a tent at a factory in South Africa, you still need local construction teams to put in all the electric and pumping and build features like platforms and outdoor decks on site.
Any other challenges?
Panelists explained that the permitting process can be a bit different when it comes to prefabricated projects, as local governments and municipalities aren’t always used to this type of construction. This is why close collaboration with local authorities is imperative. However, the great thing with the lightweight structures that Luxury Frontiers usually designs is that they tend to have easier and shorter permitting processes since they are not technically permanent structures.
What type of economic portrait did the conference paint of the hotel industry?
On the one hand, the mood at the conference’s opening may have been swayed by the cautionary tone of the World Economic Forum in Davos, Switzerland, during which speakers warned of an upcoming economic downturn. Other factors that are contributing to a possible depressed outlook in the U.S. are the tighter labor markets, increased labor costs, and geopolitical issues. But on the other hand, there was a lot of optimism in the room, especially considering that the U.S. hotel market isn’t expected to decline. If anything, perhaps growth will slow down, but the market is expected to grow nonetheless. It seems many investors are comforted by certain market factors, such as hotel debt markets are still expected to remain strong throughout 2019 and “a solid amount” of equity capital is sitting ready to be invested. As Evan Hurd at RobertDouglas said, “lenders are approaching the market with what we would call ‘optimistic caution'”, and as Hotel Business summarized, “there’s still plenty of capital available for properties in strong markets“.
How can owners and investors ensure strong returns in 2019 and 2020?
The biggest way is by being strategic about investments, and turning to smarter, more creative development methods. The traveler appetite for experiences is higher than ever, so if hotels can invest in projects that uniquely foster experiential, transformational travel, they’ll thrive in any economic climate. Another way is by investing in the luxury hotel market, which is expected by some to reach as high as $241.8 billion by the end of 2025, with a CAGR of 4.4% during 2019-2025.