PHOENIX—When developers are building branded properties, the big hotel brands have some fairly strict standards to follow. R.D. Olson Development has found a way to go outside of the typical brand standards by upscaling the brand.

Bob Olson, president and CEO of R.D. Olson Development, said about 80% to 90% of what his company builds goes beyond brand standards. While that has become the norm for his company, that’s not how it started.

“Early on, it was hard to get the brands on board with what we were doing,” he said in an interview at the 2018 Lodging Conference. “But once they saw our success, they were incredibly supportive once they saw what we were doing.”

The first hotel it developed beyond brand standards was the Residence Inn by Marriott Irvine John Wayne Airport/Orange County in Irvine, California, which opened in 2001. The brand standard was a four-story, wooden stick-frame building, he said. The property was literally on Main Street in Irvine, but Olson said he wanted better curb appeal, and for it to emulate the look and feel of a full-service hotel in an extended-stay property.

His company developed the property as an eight-story concrete building, he said, and it brought in different artwork to give it more of a sense of leisure and sense of place.

“I probably spent about 30% more to do this concrete, eight-story building instead of a four-story wood-frame building,” he said, adding they did it because they felt they would get paid for it. “We still own that hotel today. It’s the market leader. It has been since the day it opened. That really was our test of really understanding what we could do in the right markets. That’s been sort of one of our company’s own brand standards, in terms of what we deliver to the market.”

Olson’s company also developed a Residence Inn in downtown Burbank, California, he said, making it look like a boutique hotel, including making the lobby celebrate all of the movie studios that shoot in the area.

“That hotel more so than in Irvine gave Marriott the confidence that you can actually go beyond and get paid for it,” he said.

Development direction
When his company goes beyond the brand standard, Olson said it’s about interpreting what the market wants, not simply what his company wants to deliver. That means determining what needs to be done in the gap that exists and seeing the opportunity.

“It’s hard to tell what the market wants,” he said. “A lot of it is just getting a sense of the market. What is the consumer willing to pay for the difference, if at all?”

His company’s Courtyard Irvine Spectrum is one such example. There was a “big gaping hole in the market,” he said. The Courtyard his company built lifted the Courtyard brand, he said. The hotel has localized art, and it has a great outdoor space and meeting space. The lobby is a celebration of the Irvine Ranch history, he added.

While the company has done mostly branded hotels, it does have experience in the independent space as well. Olson developed the Paséa Hotel & Spa in Huntington Beach, and being an indie property allowed the company to unleash all of its creativity, he said. It’s a full-service hotel with a rooftop bar and restaurant, and the property celebrates the beach and surf culture of the area.

“I think it’s one of the best lifestyle hotels in Southern California,” he said.

R.D. Olson Development has developed 23 hotels, nine of which it owns, he said. At the time of the interview, it had one property under construction and another five in planning. Its focus has been along the West Coast and Hawaii, he said, but the company is also looking into markets in Arizona and Colorado.

“Everything we develop, we develop to own,” he said. “We have yet to develop a hotel we intend to sell. That’s really for business reasons. The last thing we want to do is build something to sell that doesn’t sell. If we don’t want to own it, we shouldn’t be developing it.”

Challenges to development
R.D. Olson Development’s roots are in the construction business, Olson said. It has a sister company, R.D. Olson Construction—of which Olson is CEO—that has a workload of 30% R.D. Olson Development projects and 70% everyone else.

“They have a great reputation as delivering projects on time, with high quality and getting competitive pricing and resources to do it,” he said. “We’re fortunate to have that relationship. Still, it’s an arm’s length transaction.”

All aspects of hotel development are becoming more expensive. Regarding furniture, fixtures and other equipment, Olson said his company has changed where it’s sourcing its products.

“Until the tariff war is figured out, we have shifted to Vietnam for purchasing,” he said.

The industry is already seeing the early signs of what the Chinese tariff issue will do to costs, he said. The problem is when a competitor is removed from the market, it decreases the competitive nature of purchasing, he said.

The hotel industry is having a difficult time developing new properties because of the demands put on the limited resources available, Olson said. The last financial meltdown reduced the number of people in the construction industry, he said, and much of the immigrant workforce left and didn’t come back. There’s been a shortage of tradesmen, and one of the problems there is most young adults graduating from high school aren’t pursuing construction trades despite how well they would be paid.

Though overall supply growth has decreased, it’s still a market-to-market issue, Olson said. Some markets are overbuilt while others are still underbuilt, he said, and it’s a matter of determining the current and future demand generators.

“Is it simply economic growth, or is it new demand generators like offices, leisure, new education?” he asked.

Even high-barrier-to-entry markets are seeing supply coming in because it eventually does arrive, he said. Being high-barrier doesn’t make it impossible, he said, it’s just harder and requires being smarter about getting it done.

These kinds of situations arise at the top of each economic cycle, Olson said, and it makes it more difficult to get new hotels approved. Developers and owners making a deal today have to be comfortable with their long-term plan knowing there will be a drop, he said.

“If you’re not willing to take that to stay in it for the long term, then no deal,” he said.