By Dennis Nessler
The ongoing COVID-19 pandemic has had a profound impact on all aspects of the lodging industry and construction is no exception. However, there are still plenty of projects throughout the U.S. that are moving forward despite a challenging environment.
Among some of the top challenges developers face as a result of the pandemic include financing issues and having to accommodate social distancing requirements on the job, according to Bill Wilhelm, president, R.D. Olson Construction, an Irvine, CA-based contractor for a number of sectors, including hospitality.
Nevertheless, Wilhelm pointed out “construction activities have continued forward” for the company, which has a full array of hotel projects in California and Hawaii. The company has two projects—the Glendale Marriott Residence Inn and the Inn at the Mission in San Juan Capistrano, CA, a boutique hotel that will be part of Marriott’s Autograph Collection—both of which are poised to open this summer.
R.D. Olson’s roster of recent projects also includes the Nomad Hotel in downtown Los Angeles, a conversion of the historic Bank of Italy Building; Lido House, a 130-room upscale boutique hotel in Newport Beach; and the $120 million completion of the full-service Irvine Spectrum Marriott hotel.
Wilhelm acknowledged that R.D. Olson has been fortunate in that it has been able to pick up additional staffing as some contractors and builders weren’t prepared to continue to moving forward with the changing guidelines as a result of the pandemic.
However, he noted that additional staffing brings about some challenges as well. “With an increase in manpower we’re having to be very careful on not having too many guys to where you start to violate social distancing. We’ve also had to relook at product on the jobsite. We‘ve had to adapt to a degree strategically on how you place people within a job site, but from an organizational and safety perspective we’ve been very blessed and very fortunate to be ahead of that,” he commented.
Wilhelm detailed how some owners have actually taken advantage of the longer timeline and general lack of urgency for hotels to open right now to make additional changes. “What’s interesting is they are spending a little more money on their projects. A little bit might be to deal with COVID-19 going forward for their guests, but also some of it is to say ‘at the end of day we’re going to get through this and we’re seeing some cost opportunity. Let’s go ahead and add some higher-end type finishes in a lobby or an exterior environment now and we’ll work our way through it,’” he said.
Some of that cost opportunity is the direct result of more favorable pricing on the construction side as well, according to Wilhelm. “We’re seeing construction pricing starting to improve,” he said, adding that was attributed to both hard labor related costs and soft development costs as well. Wilhelm further any decline in construction costs could help offset less favorable lending terms and higher loan-to-value percentages that are now required. “There’s a little bit of lending institution confidence that we have to work through and that takes time,” he said.
Wilhelm acknowledged some of the stalled projects—whether due to lack of financing or owners who opted not to move forward in this environment—may ultimately help keep supply in check and change the way the industry approaches development. “I think what this is going to do is this is going to force the hand of [owners] to really understand the supply/demand side of where you want to develop. What are the right locations and the right destination locations that are relatively close to the collective audience that they are targeting,” he said.
While Wilhelm was optimistic about the company’s development prospects going forward he did acknowledge it is likely to be slow going for a while for the industry. “My gut tells me Q4 and Q1 are where we’re going to probably feel the greatest pain in the hospitality industry on the construction side and I think by then the confidence is going have to work its way out. I don’t see us getting back to levels we were prior to March 1 until at least 2024. What I mean is property values getting back to where they were at a stable value. We may never get back to the amount of development that there was, but to be back at a clip that is relatively strong, we have a few years to get back to that point,” he concluded.