Cost pressures, shifting project types, speed-to-market demands, technology and financing conditions are shaping today’s development landscape. Hotel Business spoke with Ryan Gibson, COO, Thomas Construction; Brett R. Hanson, CEO, Hanson Construction Services; and Bill Wilhelm, president/CEO, R.D. Olson Construction, to gather their thoughts on these issues.
—Gregg Wallis
How are current cost pressures—particularly around labor and materials—shaping the way you approach new hotel development and renovation projects?
Gibson: It really comes down to proper planning, value engineering and setting a realistic budget from the start to make the project viable. Material pricing has been relatively steady, but with ongoing uncertainty around tariffs, global conflicts and oil volatility, it’s hard to predict where costs may head as we move into the second and third quarter.
On the labor side, things are becoming more predictable. That may be due to a slowdown in overall construction activity, which is creating a more competitive labor market and helping stabilize pricing with subcontractors.
Hanson: We’ve moved past the era of “predictable” budgeting.
Current cost pressures have forced us to bake a 15%–20% contingency into our initial mechanical, electrical and plumbing (MEP) budgets. Because specialized labor remains our tightest bottleneck, we are now locking in subcontractors six to nine months earlier than we did five years ago. On the materials front, we’ve pivoted toward “Value Engineering 2.0”—it’s no longer about finding cheaper materials but about finding materials that reduce on-site labor time, such as prefabricated wall systems and finished bathroom pods.
Wilhelm: Construction costs have remained relatively stable over the past 12 months. Some markets have experienced upward movement, typically driven by commodities, while others have softened, helping to balance the overall landscape. The industry is also working to establish backlog and secure more work which has helped keep pricing at moderate levels. In this environment, planning and procurement are critical. On projects like AC Hotel Pasadena, that level of coordination allowed us to maintain efficiency and deliver on schedule despite broader market pressures, especially in the Los Angeles region.
Are you seeing more ground-up hotel construction or is activity shifting toward conversions and restorations?
Gibson: We’re seeing a strong push toward conversions and restorations right now, largely driven by brand initiatives, speed-to-market pressures and current financing conditions. But we still believe ground-up construction presents a stronger long-term opportunity, particularly when you look at the total lifecycle for ROI, operational efficiency and market positioning.
New-builds allow developers to fully align with current brand standards, optimize layouts and deliver the kind of product today’s guests are actively choosing. There’s also a growing gap in the market due to the lack of new supply over the past few years, which creates a real advantage for well-executed ground-up projects.
While conversions can appear more accessible upfront, they often come with limitations involving design constraints, unforeseen costs and shorter functional lifespans.
We’re already seeing more conversations shift back toward new development, especially as groups begin planning for the next cycle in 2026–2027. Developers who are thinking beyond immediate entry costs and focusing on long-term value are leaning back into ground-up new construction, and that’s where we see the strongest opportunities ahead heading into this year.
Hanson: The pendulum has swung toward conversions and adaptive reuse. While our pipeline still includes strategic ground-up builds, we are seeing a shift toward brand conversions and restorations. The driver is simple: speed-to-yield. In an environment where construction costs have risen nearly 45% since the pandemic, adaptive reuse allows us to bypass the civil and structural risks of new-builds. We are focusing on underperforming office assets or recycling older hotels into lifestyle brands that prioritize unique character over standardized footprints.
Wilhelm: Ground-up hotel construction has been slow, with many projects still in design and permitting as owners secure financing. Renovations and repositioning efforts have remained strong and are expected to increase as these projects require less capital and often deliver immediate returns. We’re seeing this play out in projects like the expansion of the landmark Lido House in Newport Beach, CA.
How is the industry balancing speed-to-market demands with quality and long-term durability in today’s construction environment?
Gibson: Projects today are taking a lot longer to break ground than they did in years past, driven by tighter financing, more complex permitting processes and extended design timelines. Because of that, the industry isn’t really choosing between speed and quality, but it’s being forced to get smarter about how both are achieved.
Long-term durability still starts with strong upfront planning. The most successful projects are the ones where critical decisions are made early, not rushed later. Today’s guests can immediately recognize when quality has been compromised, and that directly impacts brand performance.
That’s where the role of the general contractor has shifted. A strong general contractor isn’t just building the project, but they’re actively working alongside the design team to navigate permitting challenges, identify potential delays and keep the project moving forward smoothly.
It also comes down to proactive execution by staying ahead of long-lead materials, sequencing construction efficiently and bringing creative, practical solutions to the table that accelerate timelines without cutting corners. The projects that are winning right now aren’t the fastest or the cheapest, but they’re the ones that are the most well-coordinated from day one.
Hanson: Speed is essential, but durability is our hedge against future CapEx.
To balance these, we are leaning heavily on modular components. By using factory-built guestrooms, we can shave months off the construction schedule without the quality variance found in on-site labor. However, we aren’t cutting corners on finishes. We are investing more upfront in “harder” materials—like LVT flooring and high-grade stone—to ensure the asset doesn’t require a massive refresh in year five. In 2026, a durable build is a sustainable build.
Wilhelm: Speed-to-market and quality control remain critical in today’s construction environment. The industry continues to navigate working with a limited workforce while still meeting project objectives and delivery timelines.
At R.D. Olson Construction, we’ve discovered that both speed and quality are best managed through proper sequencing from start to finish. This can be challenging given the number of third-party dependencies involved; the fundamentals remain the same: selecting the right contractors, procuring materials efficiently, building early mock-ups and maintaining clear communication across all parties. Strategic partnerships and efficient communications reduce inaccuracies and lead to stronger relationships over time. We build projects across a wide range of properties for notable hotel brands including Hilton, Hyatt, Ritz-Carlton and Marriott. For the Lido House expansion, which is our second time working on the property, we created a thoughtful phasing and established robust collaboration with Marriott to ensure the hotel remains fully operational and preserves the guest experience during construction.
What role is technology playing on the construction side of the business?
Gibson: Technology is playing an increasingly important role across every phase of construction from project management and design to estimating and procurement.
AI, in particular, is making a meaningful impact by improving speed, accuracy and decision-making. We’re seeing it help streamline bidding, enhance design coordination and provide better data insights early in the process. Adoption across the industry is dealing with mixed reviews with some teams leveraging it effectively, while others are still working through the learning curve.
But at the end of the day, the human element remains critical. AI is a powerful tool, but it’s most effective when used as an extension of experienced professionals, not a replacement. It can accelerate processes, but it still takes the right team to interpret the data, make informed decisions and execute at a high level. The same applies to technology as a whole. It should support the way we build, not dictate it. The most important piece isn’t just having the right tools, but it’s how efficiently they’re implemented in the field. Execution is what ultimately determines whether technology adds overall value or becomes just cluttered noise.
Hanson: Technology is now the operational backbone of our construction. We aren’t just adding tech for the guest; we’re using it to build smarter. We use 3D modeling to catch “clashes” before a single nail is driven, which is critical for staying on schedule. We are also integrating AI-powered energy management systems (EMS) from day one. These systems use occupancy sensors and predictive algorithms to reduce HVAC energy consumption by up to 45%. Technology also helps us track carbon footprints during construction, which has become a non-negotiable requirement for our institutional investors.
Wilhelm: Technology is leading the way. Today’s technology enables faster, controlled communication and allows teams to manage real-time project demands more effectively. Notably, we are seeing the advancement of cloud systems, particularly when these systems begin to merge. With building information modeling (BIM) and enterprise resource planning (ERP) systems coming together, they are evolving to merge design and administrative systems within one place, providing multi-dimensional insights that mitigate current and future issues.
We are also seeing the advancement of construction monitoring technology—like drones and aerial monitoring. On complex builds like the Element Mission Valley, technology drone footage was essential for managing site constraints including schedule, safety and quality management for areas not always fully accessible.
How are financing conditions and capital availability influencing which projects move forward and how they are structured?
Gibson: Financing conditions are one of the biggest factors determining which projects move forward right now. Across the board, developers are facing tighter capital, higher interest rates and increased scrutiny from lenders. Because of that, strong projects aren’t just about location or brand but they’re about how well the deal is structured.
We’re seeing a clear shift toward more creative capital stacks, with developers blending private equity, institutional lending and strategic partnerships to make projects viable. In many cases, the structure of the deal has become just as important as the construction process itself.
This is also where early alignment becomes extremely critical. Projects that involve the general contractor early on during pre-development are a lot better positioned to control costs, validate budgets and ultimately secure financing.
Hanson: Capital is available, but it has become incredibly “thoughtful” and selective. The days of market-driven financing are over; today, lenders care about the “story” of the specific asset. We are seeing tighter underwriting and a greater reliance on structured finance, including preferred equity and private credit, to fill the gaps left by traditional banks. Because of these conditions, we only move forward with projects that have a lean operating model (like select-service or extended-stay) that can withstand higher interest carry during the construction phase.
To be candid, the relationship with brand partners is currently a “constructive tug-of-war.” While brands are fiercely protective of their identity, the reality of 2026 economics has forced a level of pragmatism we haven’t seen in decades.
Wilhelm: Financing conditions and capital availability continue to shape which projects move forward, with location and property type playing key roles. Location and property type factors heavily because lenders evaluate local demand and how well that type of hotel typically performs when determining the level of risk and financing terms. Hoteliers are continuing to improve ADR values following the significant impact of 2019 hitting the industry.
Destination-driven projects are gaining the most traction, as they align with long-term travel demand and experiential trends. Appellation Healdsburg, born from a partnership with celebrity chef Charlie Palmer, puts Sonoma Wine Country at the center of everything—from the glass to the plate. The property’s robust demand since its September 2025 opening reflects a broader capital shift—one that’s moving beyond primary and coastal markets toward destinations built on genuine identity.
