BRAND DEVELOPMENT
FINDING GROWTH
WHEN THIRD- PARTY CAPITAL STOPS PRODUCING ENOUGH NEW HOTELS, BRANDS MUST TURN TO ALTERNATIVES.
By TARA LOBO, FOUNDER & STRATEGIC ADVISOR, LOBO
For decades, public hotel companies have grown their brands on an assetlight model fueled by outside capital. Owners and developers bought, built and funded the real estate. Brands supplied distribution systems, reservations and loyalty platforms, collecting fees without carrying physical assets on their balance sheets.
As development capital gets harder to secure, the cost of continued growth has risen. According to SEC filings across Marriott International, Hilton, Hyatt Hotels Corp. and IHG Hotels & Resorts, combined contract acquisition costs rose from $ 325 million in 2019 to $ 1.41 billion in 2025, a 334 % increase. Over the same period, average net unit growth( NUG) declined 0.4 percentage points.
At the same time, ground-up development has slowed under elevated interest rates, high construction costs and tight commercial credit, which have conspired to make conversions a preferred method of growth. Across the four major brand families, conversions grew from 12 % to 22 % of new room openings in 2019 to 36 % to 52 % by 2025.
When the music quiets, here are three ways to make sure the tune isn’ t silenced.
➊ INCENTIVIZE TO CLOSE Key money and fee waivers have traditionally helped secure trophy assets. As ground-up development slows, brands are increasingly using these incentives to offset PIP obligations, improve debt service coverage or bridge funding gaps that would otherwise prevent a deal from closing.
Zach Demuth is head of strategic growth and asset management at Eight Form, an owner-operator and developer of branded hotels across the U. S. He previously headed global hotel research at LLL. A brand, he notes, can be the difference between obtaining financing or not.“ If you don’ t have a massive institutional track record, rates go up without a brand, easily by 300 to 400 basis points,” he said. This makes even relatively unproven brands within a larger brand family preferable to no brand at all.“ The [ parent ] brand will push new brands as much as possible and offer much higher incentives,” he continued.“ It’ s hard to say
48 hotelsmag. com Oct / Nov 2026