By focusing more on what consumers want, the leaders of Locke Aparthotels are using the backing of private-equity firm Brookfield to jump-start the company’s development program.
BERLIN—A year after being acquired by private-equity giant Brookfield, London-based Locke Aparthotels is banking on studio-sized rooms to fuel its growth across Europe and beyond.
The company has locked in on primarily using studios—rooms that don’t offer separate bedrooms—because it’s what consumers want, according to Nick Barton, the company’s chief commercial officer.
“The economics of building studios works better for us, but more importantly the guest is pretty willing to adopt to studio as long as you have the right zoning and spacing in it,” Barton said during a break at the recent International Hotel Investment Forum. “The combination of the economics of aparthotels from an investor point of view as well as the consumer trends are all kind of moving to this segment being the hot thing right now, and studios are what consumers are looking for.”
Locke’s portfolio includes three open aparthotels—one in London, one in Manchester and one in Edinburgh. During IHIF, the company announced it is adding properties in Lisbon, London (Dalston) and Berlin to its pipeline, which will bring its operating and development portfolio to 12 properties, Barton said. Other markets in the company’s established plans include Dublin and Cambridge.
“We have the fortune of being backed by a very serious player,” Barton said, noting that Brookfield is focusing on co-working spaces, student housing and aparthotels. “We broadly say that our goal is to open between four and five aparthotels per year over the course of the next three to four years. That gets to scale across the majority of those European gateway cities.”
Cities on the company’s expansion wish list include: Paris, Munich, Hamburg, Frankfurt, Barcelona, Madrid, Copenhagen, Stockholm, Prague, Budapest and Athens, according to Barton. He said the east and west coasts of the U.S. and key cities across the Middle East, Africa and Asia could be on the wish list further down the road once the brand is established in Europe.
“Eventually I could see ourselves on a global level, but right now the focus is the U.K. and Europe where there’s significant inbound demand, usually quite high levels of project work and well-placed international talent in those cities,” he said. “That gives us the base to work from and when you top that with leisure and some of the mid-stays, and the model really works for us.
“Where it doesn’t work is when that long-stay business isn’t there,” Barton added. “That’s really the fundamental aspect that we’re looking for.”
The latest batch of deals includes a property in Lisbon, which involves converting a former convent into an aparthotel—a project that will cost upwards of £100 million ($132 million), Barton said.
“That’s probably toward the upper end of the type of deals we’re going to do,” he said. “Typically you’ll see us do deals between £30 million ($39.6 million) and £70 million ($92.4 million) or £80 million ($105.6 million).”
Locke likes to own facilities between 100 units and 300 units that predominantly have studio rooms, but it will add 1-bedroom or 2-bedroom units when the site allows, Barton said.
“The Brookfield model right now is predominantly one of ownership,” Barton said. “But if we can find the right deals, then we’ll be into potentially looking at leases or management contracts. But generally the view is to combine the operating company with the development company with the property company. The Brookfield model right now is to own and operate the assets.”
Locke’s operating model involves centralizing finance, sales-and-marketing and other back-of-the-house operations, the executive said. Food-and-beverage outlets are outsourced, while the GM, business development manager and a number of front-line employees are on the property.
“The operating model is basically one of lean manning,” Barton said. “In some cases we’ll outsource housekeeping as well, so we’re running a pretty slim model.
“That means we can achieve (gross operating profits) in a stabilized environment in the mid-60s and even into the high-70s,” he added. “The profitability of the model is very attractive relative to a similar-size midscale or upscale hotel where you might be local to get mid-40s in terms of GOPs.”
The average length of stay for Locke’s guests is between 15 nights and 20 nights, according to Barton. Not only does that help with the operating model, but it also helps keep distribution costs in line.
“You’ve got long-stay guests so you don’t have to turn the rooms so often, so you don’t need to acquire the guests so often and that really helps,” Barton said.
In general, Locke’s optimum business mix is between 30% and 40% extended stay (more than 30 nights), between 30% and 40% mid-stay (seven to 28 nights), then 30% transient across the shoulder nights, he said.
“What drives the economics, of course, is the longer stay—more than seven nights,” Barton said. “That’s cheaper to acquire and cheaper to manage in terms of operating efficiencies.”
RevPAR remains an important benchmark of success for aparthotels.
“What we tend to do is measure ourselves against two comp sets—one usually is a more traditional extended-stay (competitive) set and places such as London we’ll measure against boutique/lifestyle hotels,” Barton said. “Our industry has become quite used to lower-rated business in terms of that extended stay but what we’re seeing in places like London is some of that stabilizing and we’re achieving ADRs and RevPARs on par, if not beyond, some of the boutique properties because we’re starting to reset the business like we talked about.”
Barton, who spent 20 years with IHG, is part of a new management team for Locke. That team also includes Stephen McCall, another former IHG employee, as CEO. Eric Jafari is Locke’s creative director and chief development officer.
The history of the company is rooted in serviced apartments, but with consumer trends changing, it will build upon what is becoming more a crossover product, he said.
“We see Locke as quite organic,” Barton said. “We’re not looking to have cookie cutters all over Europe. Locke is not going to be a vanilla experience. You’re going to experience it a lot differently wherever you go. … We won’t tier or stratify the brand but they’ll all be differently flavored.