Capuano Likes His Position
Marriott’s new head of development says pipeline solid, brand strength will get him through downturn.
By Jeff Weinstein, Editor in Chief -- Hotels, 11/30/2008 11:00:00 PM
While some might think being named an executive vice president of lodging development in today’s environment would not be the most enviable position to undertake, Tony Capuano does not come across as though he is leaping out of the frying pan and right into the fire. The new head of development for Marriott International, effective the first quarter of 2009, says close to 100% of the 30,000 to 35,000 room openings for 2009 are signed and financed, as well as almost two-thirds of the planned 2010 openings. Based on market conditions, make your own judgment as to whether adding 30,000 rooms to the inventory is a great idea, but as head of development, he is certainly doing his job.
Capuano, until now responsible for full-service hotel development across North America, the Caribbean and Latin America, replaces Jim Sullivan, who will retire April 1 after 25 years with Marriott. For the better part of a decade, Capuano headed Marriott’s full-service hotel development in the Western United States and Canada. He began his career with the company in 1995 in the market planning and feasibility area.
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Tony Capuano |
“If there is a silver lining in today’s market, it is that we are a data-intensive company, and since the early '90s, we have not had better understanding on the status of our pipeline,” Capuano says. “We have scrubbed through every deal, and I am comfortable with the status of 2009 openings. As we scrub through 2010 deals, 75% are in the can. Generally, we have good news over the next 24 months on openings.”
Capuano is not too naïve to understand there will be a serious slowdown in global development activity going forward and predicts it will be even worse in the United States, especially in the full-service tier. At the same time, he says he is not going to wait for the sun to come out to make new deals. “If you look at the previous downturn, the mix shifts from new builds toward conversions. I expect it to happen again and am already seeing it,” he says.
What is different about this downturn, Capuano says, is that when looking at the big drop in transaction volume, the number of buyers looking to convert to a new brand will be meaningfully less. However, he expects Marriott to pick up the slack with owners who rose with the tide during the upcycle but now are looking for more optimal branding during a downturn.
World Tour
Looking around the world, while Asia is not immune to the global liquidity challenge and Capuano sees slowing in China and even more in India, he expects good deal flow in the region and anticipates deal volume at or slightly below 2008. He cites an uptick in Thailand, despite political issues, and also likes Vietnam. “We have a lot around Bangkok with Ritz-Carlton, Edition and our core brands, and see continued interest in established resort destinations,” he says.
Capuano isn’t as bullish about Europe, with the pipeline paralleling the slowdown in North America. He even points to the hot Russia market as one that might cool due to weak oil and currency prices.
In the Middle East, the deal flow for Marriott continues, with Capuano pleasantly surprised about the quality and depth of the pipeline in Saudi Arabia and Egypt, including a line of Courtyard by Marriott in secondary markets there.
Turning to Latin America, Capuano says the Caribbean “has fallen off a cliff.” He says raising debt for new luxury hotels there is “a daunting task, to say least,” and that the weak residential and fractional markets exacerbate the problem. The exception is Mexico, he says, as a strong source of deals in the mid-market.
While Capuano had high hopes for Brazil and still likes the long-term demographic trends, he says the devalued real and macro-economic challenges have forced him to temper his expectations in the short term.
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| Marriott is very excited about the pending opening of the LA Live development in down-town Los Angeles. |
As for the pipeline of Marriott’s new boutique Edition brand, Capuano says the volume of activity is as strong as a year ago. Domestically, he says there are a lot of developers interested, but, of course, they have liquidity challenges. Signed deals continue to advance through the design process, with owners patiently waiting to go back to market when it is more reasonable to find debt. The new brand appears to have better traction in international markets via adaptive reuse with deep-pocketed developers who will go forward with equity. Capuano points to Barcelona, Madrid, Istanbul and Bangkok, with letters of intent and two signed management agreements.
Good Timing?
So, who has the best timing here—Sullivan or Capuano? “We joke about that,” Capuano says. “But when you get beyond the joke you realize that when Jim took over global development in the late ’80s, Marriott Corp. was crushed under debt, which led to the spinoff of the lodging business. Compare and contrast the circumstances we both inherited and you can argue it is easier for me. We have a great balance sheet, brands, owners and franchisees. We have an extraordinary development team and a much better toolbox to work with going forward.”
While Capuano admits he is operating in a new environment with significant global liquidity challenges, he can focus on highlighting the strength of his brands, as well as point to historical data of improving RevPAR indicies in down markets. “January will be the telling month,” he adds. “If you call lenders today, the response is, 'gone fishing through the end of the year.’ When the new allocations are done at the banks, we will see if 2009 is as gloomy as forecast. It probably is, but we will see some debt come to the market.”
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