Multi-unit development to boost Cambria portfolio
 
Multi-unit development to boost Cambria portfolio
12 APRIL 2018 8:52 AM

Choice Hotels International is continuing to grow its upscale Cambria brand by focusing on multi-unit development in urban locations.

ATLANTA—As Choice Hotels International continues to grow its upscale model, the name of the game is multi-unit development to exponentially grow the Cambria Hotels brand.

Choice’s Janis Cannon, SVP, upscale brands; and Mark Shalala, VP, development, upscale brands, spoke with Hotel News Now during a break at the recent Hunter Hotel Conference to talk about Cambria’s growth strategy and the types of developers they’re targeting.

“On the Cambria side, our target has always been really trying to get into the top 25, top 50 urban locations,” Shalala said. “That’s where our guests want to be and quite frankly where it gives our brands visibility.”

Accelerating growth
Cannon and Shalala said multi-unit development in particular is a method they’re finding success in making transactions easier and driving consistency for growth.

And a majority of this growth is supported through Choice’s balance sheet, Shalala said.

“We understand to grow the brand, we have to get a little involved in the balance sheet,” he said.

He stressed the importance of having an investment platform in place so developers know they have a consistent source of equity coming from the brand.

When a strong developer goes to a lender with Choice as their partner, it’s a “strong sponsorship,” he said.

What’s important about the timing now of pursuing multi-unit development, he said, is “we all hope this prolonged cycle continues, but if it doesn’t … it’s going to come to a downturn at some point. If we can be partnered with some really good developers and have this in place, we’ll be able to build through the down cycle.”

Cambria currently has 38 opened hotels, 15 under construction and 70 fully executed deals, Cannon said. The company is in motion to open 12 Cambria properties by the end of this year, she said.

About 90% of hotels in the Cambria portfolio will be franchise-based, Shalala said, and some arrangements will be set up as a joint venture for a period of time.

“Our goal is let’s invest with you on these five deals, at some point recycle our capital and then we’ll go out and deploy it somewhere else,” he said. “Our intent with Choice has been and always will be an asset-light model.”

Favored markets, construction type
Visibility is key, Cannon and Shalala said, meaning growing in the markets where people are going. And for the most part, Cambria has been focused on urban markets.

Not only does it buy visibility for the brand, but it buys revenue per available room and performance, Shalala said, because those urban markets perform well.

Cambria is present in about 38 of the top 50 markets in the United States, he said, and the brand still has “some wood to chop to get into some of those final, tougher markets, like San Francisco,” he said.

The brand is also starting to branch out into secondary urban markets, where developers know they can still find land and make deals, Shalala said.

“In one way we’re a little bit at the mercy of where the developer’s going to chase returns in those markets, but we’re controlling it,” he said. “We also have a site team where we’ll go out and acquire sites where we know we want to be and bring those opportunities. That’s really been the strategy in where investment’s going with Cambria.”

About 80%-90% of the Cambria projects being worked on now are new construction, Shalala said.

But he’s recognized that in some markets with high barriers to entry and development costs, it requires a bit of strategy, namely through adaptive-reuse projects, he said.

Choice will infuse its own modern design into historical buildings and in the end the product delivers a unique and dynamic guest experience, he said.

One example of a recent adaptive-reuse project, Cannon said, was the transformation of the 23-story Tower Petroleum Building in Dallas into a Cambria. She said they are now getting ready to do the same with Houston’s 21-story Petroleum Building.

“We love looking at those projects and that’s a way to get into some of those (tougher) markets,” Shalala said.

Cannon said the brand has also done some conversions like with the Cambria Chicago Magnificent Mile, which used to be an independent boutique hotel. Looking for something that already existed helped the brand move into a prime location, she said, instead of a new build.

Types of developers
While multi-unit development is a focus, Cannon said they are not limiting to just multi-unit developers, but including single-asset ones, too.

“We do need a combination of both,” she said.

Shalala said the company has seen several multi-unit developers come to them and say, “We really like what you guys are doing. For our investment strategy it doesn’t make sense to do one, we want to do three or four, how can you support us in that,” he said.

Filmore Capital Partners is one of Choice’s partners that developed five Cambria properties, Cannon said. They were a prime example of providing successful multi-unit development for the brand.

“We’re in the process of putting together a new development agreement with them and we’re going to be off and running,” Shalala said.

O’Reilly Hospitality Management is another developer Choice is working with to build multiple Cambria properties, Cannon said.

Several of the developers are coming from other industry sectors, too, and understand the franchise model, Cannon said, or it might even be their first hotel venture.

“That’s another reason they’re doing multiple units … it’s a model they feel very comfortable with,” she said.

Shalala added that Choice is keen on taking the new hotelier and bringing them into the fold.

Future Cambria openings are planned in Austin, Texas; Burbank, California; Baltimore; Calabasas, California; Charleston, South Carolina; Houston; Miami; Milwaukee; Minneapolis; Napa, California; Orlando, Florida; Tampa, Florida; and Washington, D.C., according to a company news release.

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