Interstate Hotels & Resorts continues to explore portfolio and one-off opportunities to add to its 100-hotel management portfolio in Europe, according to EVP Aaron Greenman. Being patient while helping owners understand the value of third-party management is one of its opportunities and challenges.
BERLIN—With more than two decades of experience managing hotels in Russia, Interstate Hotels & Resorts continues to look for more expansion opportunities in that country, the Commonwealth of Independent States and Europe.
Aaron Greenman, EVP of acquisitions and development-EMEA for the Arlington, Virginia-based management company, said during the recent International Hotel Investment Forum that with nearly 100 hotels in its portfolio in those three areas, Interstate has a solid foundation to continue educating the markets about the benefits of third-party management.
“Since 2010, we’ve expanded in a way that has been with more of a strategic eye towards all of Europe,” he said. “We’re quite pleased with the growth, but it still is very much a story in progress.”
Interstate set up its international presence in Russia in the mid-1990s, Greenman said.
The company has operations centers in Moscow and Birmingham, England. It is building another one in Amsterdam and has a finance office in Glasgow, Scotland, Greenman said. Interstate employs 100 people above the property level in Europe.
“There are markets closer to the U.S./North American style where there is broad acceptance to third-party management,” he said.
However, European markets such as Germany, Austria, France and Italy have other preferred hotel models, including leases, Greenman said.
“The lending community where the structures are a bit different, there are more lease entries,” he said. “The entry for a pure third-party management company that offers a service is not always that obvious.”
In 2013, Interstate acquired Sanguine Hospitality and its 14 management contracts as well as Chardon Management and its 32 contracts.
That foundation continues to give Interstate a formidable platform—one that it would like to expand through more portfolio acquisitions and through one-off management contracts, Greenman said.
“We’ll always look at things that are interesting, but there aren’t a tremendous amount of true third-party management companies in Europe,” he said.
A big part of that growth is dependent upon hotel owners having a better understanding of the third-party management model, Greenman added.
“A large part of my job has always been the educating the market,” he said. “That will always be the case.”
Interstate is not opposed to using its balance sheet to facilitate growth in the region, Greenman said.
“If there’s desire for us to provide some financial incentive to get the contract, we will,” he said.
The company has its sights set on markets across Europe, but one country in particular has attracted its attention.
“For the moment, we have prioritized some of the key markets in Germany,” he said. “We do have some development pipeline in those markets, but we’d like to have greater depth overall in some of those markets.”
Consistency across the company portfolio—regardless of what continent a hotel is located on—is the most important aspect of its management solution, Greenman said.
“The biggest opportunity for us is continuing to do what we’re doing,” he said. “It doesn’t happen overnight. The best opportunity we have is to continue to demonstrate we can optimize profit.”
Trends in the overall hotel industry environment play a role in Interstate’s expansion trek, Greenman said.
“If you go back three to five years, there was a tremendous amount of transactions activity going on, particularly in the U.K.,” he said. “Transaction activity creates opportunities for companies and services such as ours.
“The last several years the transaction activity has been a bit quieter,” he added. “It’s also been more lease-oriented because of the type of capital looking (for deals) and the ability to acquire at the pricing the market wants. You’ve seen more institutional capital, high net worth (investors) and sovereign capital buying. As a complement to that, those deals are also seeing leases put in place … sometimes that’s been a bit more challenging for us to be part of the mix.”
However, the overall landscape provides a good backdrop for Interstate’s potential growth, Greenman said.
“The operating fundamentals are quite good,” he said. “The expectation is that it’s not going to last forever, but a market downturn isn’t necessarily a bad thing for a third-party manager that’s confident they can manage costs and drive revenue. Owners have to focus even more on achieving that bottom line.”