Why Hotel Conversions Need Transactions: Choice CDO Explains the Reset

Glenn: [00:00:00] Everybody. It’s your hospitality friend Glen here reporting from Choice Hotels annual convention. I’m excited today because I get to do my annual video podcast, the one and Only. David Pepper, Chief Development Officer. How are you doing today?

David: [00:00:13] Doing great yourself.

Glenn: [00:00:14] Well, you know, we were just talking. I’m sad. I’m depressed. I’m Mr. Giant negative boy over here right now. But I think I have found my way through because you are going to share with me all the bright spots that I may not have been considering.

David: [00:00:27] Has anyone ever seen Glen Housman depressed or not optimistic? It’s really it’s a little change.

Glenn: [00:00:33] That would be everyone in my personal life.

David: [00:00:36] At home. We’re going to bring optimism back to you. I love it back to Glen Housman. Yeah, but no, no, look, things are things are looking really good right now. Look, it’s been a tough couple years. New construction obviously been muted for the last couple of years. Really tough. Even conversions have been tough. Everyone talks about it. But what causes conversions is transactions, hotels, trading hands. And quite frankly there hasn’t been a lot of hotel trading hands. Because look, RevPAR has been negative in some ways in some markets flat. It’s kind of hard to tell an investor or tell a banker, hey, I got a great story for you. Right, right. But now what you’re finally seeing in the first quarter is we’ve now turned positive. The industry has turned positive. Choice has turned positive. And Reeve PA people are now on the sidelines now coming off and they’re buying hotels.

Glenn: [00:01:22] And that’s really the key right there. What you just said, the transaction part of it, because what we were sitting here last year, we were talking about the conversion market and how everything is going in that direction. But if the properties don’t trade hands, then you’re not converting anything, right?

David: [00:01:37] When when someone now sees Red PA, they see a market. Red PA is going up. They can look at a hotel there. Probably hasn’t done a Pip since Covid, right?

Glenn: [00:01:45] Yeah. No doubt.

David: [00:01:45] And says, I’m going to go to their investor and go to their banker and say, look, I’m going to buy this hotel. I’m going to put some money into it. I’m going to, I’m going to repurpose it or re make.

Glenn: [00:01:54] It move up a country inn and suites.

David: [00:01:55] Make it into a country Suites, which is up 50% this year. And congratulations sales, which is terrific for us and for our owners. And so now they have a story to go out. And so now you’re starting to see hotels transact for us. Even our choice hotels relicensing department, which is people are buying existing choice hotels and signed new franchise agreement. That’s up 50% already in the first quarter. Wow. So it’s really kind of the canary in the coal mine. People are buying hotels that’s going to cause more conversions. When that happens, then the prices of the valuations of these hotels go up. And then what happens next? People start building hotels, right?

Glenn: [00:02:28] And there is one bright spot in the new construction side. And of course that’s the extended stay business industry wide. Our friends over at Lodging Econometrics say it’s over over one third of all products being built right now. But I think that number is higher with you folks.

David: [00:02:40] With us, it’s 50% of all 50%.

Glenn: [00:02:43] We don’t want the hand wash to fall over.

David: [00:02:45] 50% of of all extended stay hotels are under construction right now are a choice hotel. No, either a woodspring or an ever home. Wow. So congratulations.

Glenn: [00:02:54] To.

David: [00:02:54] You guys. Yeah, it’s it’s doing great again. What every developer is looking for. They want a proven prototype, proven operating model and a proven exit. And Woodspring is.

Glenn: [00:03:06] Got it all. Speaking of that proven operating model, we all talk about the stress that we have keeping labor, getting labor, keeping them employed with fewer full time employees at these properties. It’s really skyrocketing in popularity. And I think combined with the customer sentiment that they just want to have their own space and a little bit more of it.

David: [00:03:24] Yeah. And so and look, and now what you’re seeing in what’s going on in the marketplace with traveling nurses, picking up with the AI construction, the data centers, everything else. People are staying long term, and that’s why the extended stay has done so well in this marketplace.

Glenn: [00:03:39] Yeah. And I’ve seen a couple of like your ever homes that are like appearing just as everything is being built around it, right? All these sprawling areas, particularly in the Sunbelt, in the southwest, that seems to be happening a lot. Is there anything else that I’m missing right now when it comes to this development story for you folks?

David: [00:03:55] Well, it’s 730 in the morning in Las Vegas. Yeah. So so yeah, no, look, it’s a it’s a good start to the year. I think it’s good for the industry. It’s good with choice hotels and we’re pretty excited about 2026 finally.

Glenn: [00:04:07] Well thank you. And I want to thank David personally for making me less crabby this morning. I like that positive good news. And I hope this information gives you some real deep understanding of what is possible out there. If you just start thinking about working with this guy over here. Anyway, I’m Glenn, he’s David.

David: [00:04:25] Yeah. And we’re optimistic.

Glenn: [00:04:26] Yeah. Good. I love that. All right. I’m finally back to being optimistic at least maybe until I hit that casino over there. We’ll see. See what happens. All right. Like share subscribe. See you later. Bye.