When de-flagging a branded hotel to an independent, there are many things to consider, such as timing, vision of the asset and collaboration with management companies.
REPORT FROM THE U.S.—Taking a branded property and converting it to an independent is no easy process, and it comes with several risks, sources said. It can, however, be financially rewarding for owners when done right.
Most importantly though, hotel owners should look at the de-flagging process holistically and consider the asset’s ideal position, said Raymond Martz, EVP and CFO of Pebblebrook Hotel Trust.
Dissect the assets and markets
With seven hotels in San Francisco, Pebblebrook is very familiar with the market, Martz said. When the company had the opportunity to turn two branded properties in the Fisherman’s Wharf neighborhood independent, Martz and his team jumped at the chance. Pebblebrook converted a Best Western property to the Hotel Zoe Fisherman’s Wharf and a Radisson hotel into Hotel Zephyr.
“We knew where the rates could go,” Martz said, adding Pebblebrook was confident each of these hotels could be repositioned to more of a lifestyle brand due to the type of travelers and hotel guests who frequent San Francisco.
Markets are always key to this process, said Matt Marquis, president and CEO of Pacifica Hotels. There are a lot of good brands in good markets that Pacifica would consider underperforming, he said. Right now, the company’s strategy is to build relationships with owners of those properties.
Romy Bhojwani, EVP of HotelAVE, said his company has de-flagged properties in urban markets like New York and Boston. He said one of the key considerations is to look at the availability of brands in those markets.
Timing is key
Owners who are thinking about converting a branded hotel to independent need to factor timing into the process, sources agreed.
Marquis said for most of its de-flagged properties, Pacifica waited until the hotel’s brand was ready for a seasonal or cycled property-improvement plan.
During a typical property de-flagging, Marquis said his team usually refreshes the property anyway, a process that could include replacing soft goods or case goods, updating guestrooms and renovating public areas.
From his experience, Marquis said he has seen instances where there’s been anywhere from a $25 to $40 bump in rate after removing a brand from a property and renovating it as an independent, meaning that bump easily covers the investment in refreshing.
It is also common for a newly converted independent hotel to see a dip in occupancy at first, Marquis said, but the rate bump makes up for it, which leads to an increase in revenue per available room.
Another factor to keep in mind is the time of year when the de-flagging process is scheduled to end. Marquis said Pacifica tries to time its rebranding and renovation projects to conclude in April, right before summer kicks in, which allows for a buffer period.
“In high-occupancy markets there’s a lot more room … for transition, one that won’t hurt as much financially,” he said.
Staffing after de-flagging
Bhojwani, who is also a member of Hospitality Asset Managers Association, said when HotelAVE considers how to staff a newly de-flagged hotel, it depends on the position. Some owners will replace most of the staff, while others might keep a majority of the employees.
Positions in hotel operations, for instance, are easily transferable from a branded to an independent, Bhojwani said. But there is value in bringing on new staff within the sales and marketing departments and in revenue management—specifically those skilled for independents.
“Revenue-managing in independent hotels is a very different mindset and skillset versus a branded hotel (because) they have their own revenue systems … they’ve got resources that the brand provides,” Bhojwani said.
Pacifica, which manages all of its own assets, has had success in carrying over employees from a branded to an independent property, Marquis said.
Help from OTAs, management companies
When leaving a brand and going independent, Marquis said it’s inevitable that you will need to work with online travel agencies quite a bit to keep occupancy at the fledgling indie property high.
The OTAs will have a role, Martz said, and that’s not a negative.
“We don’t paint them as a big, bad villain … they’re certainly an expensive channel, but they have their place in the world,” Martz said.
One downside to keep in mind is that it could take a while for the property to even show up on the first few pages of channels like TripAdvisor, partly because of its algorithms.
“You go through a period of not only do you have a new hotel that no one knows (about), but now it’s not even on TripAdvisor … it may take a few months for it to appear back to where it was,” Martz said.
But owners shouldn’t just rely on OTAs to help ramp up business. It also comes down to “getting on the road and attracting the customer,” Martz said. “It’s easy to fall in the trap of being lazy and relying all on the OTAs.”
Another key player is management companies, which Martz said have to share the same vision and excitement for the property; otherwise, that would present a huge challenge. Marquis agreed that it needs to be a collaborative effort.
All in all, “there’s risks to (de-flagging), there’s a lot of headache, but if you do it well, we find it to be very rewarding,” Martz said.