REPORT FROM THE U.S.—As brands update their prototypes and cut aging assets adrift, owners are pursuing a variety of avenues through which to extract value.
The turnover has become more pronounced recently as the economy improves and franchisors introduce new layouts that no longer fit first generation Hampton Inn, Residence Inn, Fairfield Inn and Courtyard by Marriott hotels, among others.
“We’re seeing it across the board,” Mike Cahill, CEO and founder of Hospitality Real Estate Counselors, said. “If it’s a really strong hotel market, the brands are going to be more aggressive about getting rid of the old (generation).”
Prototypes that were en vogue during the 1980s and 1990s are very different from the designs brands are rolling out today, Cahill added. For example, the older Hampton Inn’s had exterior corridors and much smaller guestrooms.
Hospitality Real Estate Counselors
Faced with obsolescence, some owners often choose to sell.
“If a brand doesn’t want to leave a flag on the hotel, you’re the owner, you really have no choice,” Cahill said. “Do you want to own the hotel that’s going down a death spiral?”
There are a lot of willing buyers, he added.
“You do see a lot of the early generation assets for sale, especially economy and limited-service. Typically, the older brands go to the cheaper, lower-end buyers,” Cahill said.
Many developers and individuals actively look for hotels at the end of their license with a brand, said Mark Carrier, president at B. F. Saul Company Hospitality Group. The unencumbered nature of the asset affords owners more flexibility.
Other times, in an effort to maintain a prominent flag, an owner can invest the necessary money to renovate and update old generations to fit newer brand standards.
For example, B.F. Saul acquired the 301-room Holiday Inn Gaithersburg, in Gaithersburg, Maryland, with plans to upgrade the property.
“We wanted it to stay a Holiday Inn, so we did a very significant exterior renovation and made it as nice as any Holiday Inn you’re going to find,” Carrier said. The company spent $8.5 million on renovations at the property, which were done in 2009, he added.
B. F. Saul Company Hospitality Group
“A well located hotel cared for by the right owners can be renovated and repositioned for the future with the right investment and the right focus and the right brand, but there are times when a brand no longer fits a given piece of real estate,” Carrier said.
Renovate and reflag
While selling outright or renovating to extend a brand license might work for some, many owners choose a different route: reflag.
Carrier owned one of the first generation Hampton Inn properties near Dulles International Airport in Washington D.C. His team was told two years in advance that Hampton would not be renewing their license because of the property’s outdated physical characteristics.
“We went and built a new Hampton Inn and took the existing one, renovated it and converted it to a very successful Best Western,” Carrier said. “We repositioned it so it targets the economy and leisure segment. It fits very nicely into a demand system that exists there.”
AmericInn has made such conversions one of their specialties, according to the company’s president and CEO, Paul Kirwin. The company recently acquired and converted the following properties:
the 128-room AmericInn Hotel & Suites Omaha, Nebraska (formerly a Hampton Inn);
the 128-room AmericInn Hotel & Suites Schaumburg, Illinois (formerly a Hampton Inn);
and the 77-room AmericInn Hotel & Suites Indianapolis Northeast in Fishers, Indiana (formerly the Holiday Inn Fishers).
Older boxes are often better built, Kirwin said. For example, first generation Hampton Inn and Holiday Inn hotels were mostly built with masonry, which holds up well over time.
“When you’re buying a building that was built with masonry, builders are pleasantly surprised,” he said. “That is an important draw for us. You’re going to get a longer life out of it.”
Having a sturdy structure comes in handy when renovating a property because it allows owners to focus on additional amenities such as an indoor pool, which Kirwin said generally takes up about half of the renovation costs for the properties the company has converted. He added that for each property, AmericInn is typically spending $750,000 to $1 million on improvements.
B.F. Saul recently purchased the 178-room Hampton Inn Germantown in Germantown, Maryland, and has earmarked $3 million for a conversion to a Holiday Inn Express and Suites, Carrier said.
“The situation in this particular example was someone else was going to build a new Hampton Inn a few miles away, and this hotel was being sold for what we thought was a good price,” he added. “Rather than keep it a Hampton Inn, we decided to reflag it.”
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