Prolific Developer Discusses How To Achieve Success In Hotels
New hotel development is enjoying a renaissance, particularly in SoCal, where thousands of new hotel rooms have been recently completed or are in the works. Bisnow caught up with R.D. Olson Development founder and CEO Bob Olson, one of the region’s most prolific and successful hotel developers, to discuss his development strategy and latest projects. Bob is part of our all-star cast of hospitality professionals presenting at Bisnow’s Lodging and Innovation Series on April 28 at the Sheraton Downtown Los Angeles.
Bob recently received Marriott’s highest honor, the Marriott International Partnership Circle Award (he's giving his acceptance speech above after receiving the award at Marriott's 2015 Connect Conference).
In selecting new hotel locations, he tells us there are two primary considerations. “We want to know the demand is there to support a new hotel,” he tells us. “So, we look for markets where the hotel market has picked up due to expansion of demand generators. We also look for pockets where we’re the only builder, and no new hotels have been built over the last two cycles.”
R.D. Olson Development and general contractor R.D. Olson Construction recently broke ground on the $120M, 271-room full-service Irvine Spectrum Marriott (above, or you can check out the webcam view here). While no new full-service hotels have been built in Irvine in 10 years, Bob says this is one of the best-performing markets in Orange County and continues to attract both business and leisure travelers.
Bob says Irvine Co has done a phenomenal job building the Irvine Spectrum into a place people want to be. During the week, the new hotel’s primary customers will be business executives visiting local offices and looking for an elevated 4-star hotel experience. Demand also will come from tourists, due to the vast array of restaurants and shops at Irvine Spectrum Center and central location between Disneyland and Orange County’s beach communities. Locals will take advantage of its premier rooftop event space.
Bob’s company will this quarter break ground on the luxury Lido House Hotel (above) in Newport Beach, another popular Orange County travel destination with no new hotel development on Newport Beach’s Balboa Peninsula area in 50 years. “This is a market we want to be in, but building in coastal communities is not for the faint of heart,” Bob stresses. “It’s difficult and expensive to get entitlements." He says it took nine years to entitle the Paséa Hotel & Spa (below) in Huntington Beach and nearly four years for Lido House. Depending on the length of the process, entitlement costs $10k/room to $25k/room.
Coastal communities expect a lot from hotel developers, unless it’s a low-cost product, Bob says. High-end hotels, in general, are harder to build than in the last cycle. “There’s been a lot of new construction, and lenders recognize that and are being more careful. Money market standards are more stringent, loans are both harder to get done and more expensive, so you need a strong sponsor,” he tells us.
Pictured is R.D. Olson Development's Residence Inn by Marriott Wailea in Hawaii.
With all the time and expense involved in the gestation period, hotel developers must be confident the capital will be available and know who will sponsor them in advance, Bob says. “We develop to the market, and we’re happy with what we’ve done so far, but we are being cautious right now. Every deal is different, but we never overleverage. We stick to 60% to 65%, because we want to own the hotel long term." He says 85% financing can be a recipe for disaster.
Hear more from Robert and our national panel of hospitality experts at Bisnow’s Lodging and Innovation Series on April 28, beginning at 8am with breakfast and networking at the Sheraton Downtown Los Angeles. Sign up here!