Making Sure Projects Still Pencil Out
By Dennis Nessler | November 12, 2020
Many hotel projects continue to move forward, albeit at a slower pace and driven largely by new builds, in the wake of the Coronavirus pandemic and subsequent economic downturn, according to a trio of purchasing executives.
The executives provided an update on current conditions during a panel discussion entitled “Post-Pandemic Focus: Making Sure Projects Still Pencil Out,” which recently took place during BITAC Purchasing & Design West Virtual Connect 2020.
Jade Russell, procurement director, IHG, noted that renovations have slowed in part because the multi-branded franchise company has put a pause on requiring PIPs [property improvement plans] until Q1 or Q2 of 2021. Meanwhile, she noted that IHG had some 83 ground breakings last quarter, which represents a bit of a slowdown as well.
“We continue to just move forward. I don’t think things have necessarily stopped or been cancelled it has just been a pause and a slowdown,” said Russell.
She further emphasized the company’s “flexibility” in working with its franchisees. “What we’ve really focused on is conserving cash and we’ve advised owners to do the same. In any case that they need to do that it puts a pause on certain things and we support them in that,” noted Russell.
Ann Chipouras, president, Purchasing Dimensions, LLC, reinforced the point estimating that nearly half of the company’s projects have been delayed to some degree.
“It’s not so much cancelled it’s more delayed. A lot of that is because of the major brands doing the same as IHG and allowing the 12- to 18-month extensions on the PIPs, which have just put things off,” she said, pointing out that a number of the company’s clients have opted to move forward with projects as well.
Chipouras emphasized that new builds continue to progress in many cases, depending on the owner’s perspective. “If they were funded and they were moving forward they are still going. Then the others [owners] are being a little bit more conservative and kind of conserving the cash and waiting to see what the pandemic is going to do,” she noted.
Michael Kaye, partner, MK Design & Procure by Design, agreed with both executives. “What I’ve been seeing is all the new-build projects have been awarded already and budgeted so they’ve been going forward and construction is going on. It’s mostly renovations that are on hold right now,” he said.
Kaye later asserted that while product costs have remained relatively stable, availability of product, and specifically project timelines, have most definitely been impacted by the pandemic.
“What used to be 12 weeks is now 18 weeks. I’m not sure if manufacturing has lower capability right now with less people working, but that’s what’s happening,” he commented.
When it comes to manufacturing and supplying product, the panelists emphasized the importance of relationships and making sure that suppliers can be counted on for the long haul.
“At the beginning of the pandemic we looked at our supply base and we challenged them a lot. We asked for a lot, we really did. We came to them and said ‘can you provide discounts if they can order in X amount of time? Can you delay the order if needed at no charge?’ So I feel like we’ve created a much deeper relationship during this time because we really had to lean on each other. We did ask for much more transparency,” said Russell.
She further elaborated, “We’re continuing on a quarterly basis to check financial status and to continue to make sure that they’re still strong and that they’re making the right choices…We’ve taken a really deep view into our suppliers to ensure that they can be there to support us just like we want to be there for them as well.”
Chipouras noted that her company has employed a similar approach. “We’re also doing diligence on the financial side of things and looking for overall stability. What are there manufacturing capabilities at this point? Are they running with half staff or are they going full bore? What can they produce? All the manufacturers that we deal with have been extremely good and understanding about that,” she pointed out.
The panelists concluded by offering their take on what to expect in the year ahead.
Kaye noted the company is moving forward with a handful of new builds currently under construction, at least for the time being. “There have been no changes in schedules unless something really happens like the first three months of the Coronavirus. We might go back to that in the winter. That’s what the talk is about right now that there might be more shutdowns and quarantines, but in the meantime everybody’s looking forward to go full force on construction,” said Kaye.
Russell, meanwhile, noted that long-term there are varying viewpoints on when a full rebound will occur for the industry with some suggesting three years and others maintaining it could be as long as six years.
“As we think short-term and looking at 2021 we’re going to see a much heavier shift into renovations knowing that a new build will likely be more costly. In this market you’re not going to have the same occupancy levels and so there might not be as big of a need so really our focus is on making sure that we continue to support renovations,” she noted.
“We’re just going as lean as we can to reserve as much cash as we can to get through. Hopefully by fall of next year things will start to break a little bit in these renovations and obviously if the vaccine comes out, but it’s so unknown,” said Chipouras