Choice CDO talks upscale at ALIS

Choice Hotels is looking upscale. That was the story top-of-mind for Chief Development Officer David Pepper at ALIS last week, stating the Radisson brand has a pipeline of 25 hotels as of 4Q24 after adding three in 2024. He added that Choice and opened more than one hotel a week last year under its upscale soft brand, Ascend Hotel Collection.

The growth numbers for Radisson have a way to go, but Pepper said Choice has finished the brand integration process, which includes Country Inn & Suites, and after joining the Choice reservation platform Radisson ended the year with 7% RevPAR growth. He added that Radisson witnessed a 40% increase in proprietary contribution through the Choice website, “exactly what we said to the investors, exactly what we said to the owners, and it’s really coming through.” Plus, Pepper said owners’ cost went down as well, primarily through lower OTA commission fees.

He said the focus right now continues to be on stabilizing the Radisson and Country brands with a relaunch of the Park Inn and Park Plaza brands to follow. Pepper added that the loyalty program refresh is done, including dynamic pricing and increased redemption payback to owners, to help drive more business to those new Choice owners.

Pepper was also boastful about Choice’s extended-stay pipeline when he sat down last week with Hotel Investment Today during ALIS, stating WoodSpring Suites has 250 properties and Everhome Suites has 65 hotels in various stages of development as of 4Q24.

Hotel Investment Today (HIT): What’s your take on pipeline growth, in general?

David Pepper: New construction is still pretty muted. It’s still tough to get a project built and financed and underwritten. What you’re starting to see, though, is hotels are finally starting to trade hands, and with transactions you need to have a value-add story. So, we’re making a name for ourselves in upscale.

As a lot of developers are looking at acquisitions, they know they have to put some money in because nobody’s done a PIP in a long time, especially for some of these big, full-service urban hotels. So, they’re looking for a different brand – something to tell their lenders and investors.

Then, also, let’s face it, some of our competitors kind of flooded some of these markets with some of their brands. So, we have kind or a clean palette in a lot of these urban markets, and a lot of demand that’s looking to go somewhere with it. We just don’t have enough product. So, people are looking at Radisson.

We have a clean balance sheet over here at Choice. So, when appropriate, we will put our balance sheet to use. And owners know for good projects, we will be there for them.

HIT: How else has the Radisson impacted Choice’s business?

Pepper: Radisson has helped our other brands in upscale. Ascend opened more than one hotel a week last year. So, I think people see Choice has invested into the upscale value proposition. We’re investing a lot of money to drive more business during the midweek and more business customer, and people are starting to recognize us with our success with Cambria, and now our success with Radisson. So, we’re seeing it as well with the Ascend soft brand, as well.

HIT: Talk about your extended-stay pipeline.

Pepper: Last year, we had a record year in openings of new construction Woodspring Suites and Everhome Suites – 25 Woodsprings and seven Everhomes, which were all new construction projects.

Woodspring has three things any developer is looking for: a proven prototype, a proven operating model that generates 60% margins on average, and it has a proven exit. Woodsprings have traded at very attractive cap rates. Those are three things any developer would want to look at, and Woodspring has all three. We’ve proven it, and now you’re starting to see it with Everhome, which is already hitting 60% margins.

HIT: What’s the biggest challenges you're facing for development?

Pepper: It’s a muted environment for new construction. We’re all kind of waiting to see if tariffs happen and if that’s going to drive up construction costs.

We were feeling pretty good towards the end of the year with the cost cuts, with the interest rate cuts. I think people are still pricing a bit of cuts, as well, for this year. But look, we just haven’t seen it in pricing on financing – just a little bit of a dip.

What we are seeing now, because there has been so little new construction, and not just in our industry, is labor construction cost drops. We’re seeing, on average, about a 5% to 10% drop.

If we can keep the interest rates dropping a little bit, you’ll see new construction come back. From a development standpoint, you’re going to still see this year a lot of focus on conversions. You are also going to see some transactions happen more in the upscale space and full-service spaces. So, I think you’ll see some opportunities there.

HIT: What’s Choice’s message right now?

Pepper: Our theme this year is we’re back. We’re focused on the franchisee. That’s what we want to do – really focused on being in front of our customers, being in front of our franchisees, being in front of guests. We want to show that Choice is there to drive your top line and also drive your bottom line… We’re out there talking to everybody.

By Jeffrey Weinstein