HM on Location: Why the development market is so difficult right now

This is the most challenging time for hotel development Mitch Patel, president and CEO of Vision Hospitality Group, has seen in his more than 25 years in the industry. During the Main Street Talks session during the 35th Hunter Hotel Investment Conference this week in Atlanta, Mitch Patel; Al Patel, president of Baywood Hotels; Jimmy Merkel, CEO and co-founder of Rockbridge; and Greg Friedman, managing principal and CEO of Peachtree Group, discussed the challenges facing them in today's economic landscape. 

"Every industry has been disrupted and I would love for the construction industry to finally be disrupted," Mitch Patel said. "We've been talking about modular construction for 25 to 30 years but no one has quite been able to figure it out." 

He continued to say the benefits of implementing modular construction would be immense for industry, helping with the labor challenges. 

The interest rate environment has also created challenges in the market, as well as increased costs for FF&E and design. 

"We used to build hotels in 12 months. but now the same hotel is taking 18 months to two years," Mitch Patel said. "So you compound that with today's interest rate environment, it becomes very challenging." 

Developments are hard for many reasons, said Al Patel. "Obviously the lender partner first and foremost. A lot of the bigger banks or regional banks that we were used to dealing with have not merged with other lenders and our businesses have no use to them anymore. So now we're going to find smaller banks to work with." 

Al Patel said his team is mostly focused on debt. Now they can find sites and acquisition projects but can't find the debt, which is the opposite of what it was like five to seven years ago. 

An additional roadblock, Al Patel said, is that it is difficult to find contractors who will take the development work since they are so busy. Even if they find a good contractor, each project seems to be plagued with a bad subcontractor who needs to be replaced.