Multiple elements define luxury hotel success
 
Multiple elements define luxury hotel success
06 FEBRUARY 2020 9:32 AM

Clear differentiation, knowledge of financing options and staying on top of guest trends help ensure success in the luxury hotel segment.

LOS ANGELES—Luxury hotels occupy a smaller collective space in the global hotel footprint than other segments, but returns can be good for hoteliers who can maximize their potential.

But maximizing that potential requires a tailored approach to each individual asset, according to a panel of hotel executives speaking at the recent Americas Lodging Investment Summit. The processes required to define, finance and operate luxury and ultra-luxury hotels change somewhat with every turn of the cycle, but opportunities are there for the right owners, brands and operators, speakers said.

Outlined below are three critical steps for success in luxury:

1. Set clear definitions
For hotel companies with multiple brands in the luxury segment, clear definition is a must, not only when selling the brand to guests, but also in selling it to owners and other stakeholders.

“You must make sure each brand has its own swim lane in terms of design, purpose and more,” said Heather McCrory, CEO of North and Central America for Accor. “Within Accor, Fairmont (Hotels and Resorts) are larger hotels with more meeting space and significant food and beverage. Raffles (Hotels & Resorts) are much smaller hotels with a different level of service.”

Dino Michael, global head of Hilton’s Waldorf Astoria and Conrad brands, agreed that parent companies can occupy distinct spaces within the same segment, provided they have truly different offerings. He cited Hilton’s Conrad and Waldorf Astoria luxury brands as examples.

“The brands complement each other’s existence,” he said. “They’re not competing for the same space.”

McCrory and Michael agreed that true differentiation of brands requires deep knowledge of what’s important to each stakeholder.

“I think owners have very specific ideas of what they’re looking for,” McCrory said. “We all have our positioning and what defines us. With positioning comes costs and distribution strategy. And there’s more to a brand than (average daily rate) and occupancy; it’s the talent culture and culture of the building itself, which drives service levels. The owner has to make a choice based on what they’re looking for.”

At Hilton, building consistency among all the company’s brands has a halo effect on luxury, Michael said.

“It’s a crowded landscape, but for us it’s about looking at owners and working with the right partners,” he said. “Tech increases at every level, but the touch and sophistication has to be there for luxury, so owners have confidence in us. Owners look at the quality of our portfolio, so for us it’s about having consistency and making sure the quality of the portfolio is kept up.”

Robert Hee is a managing director at Canyon Equity, which develops, owns and asset-manages hotels largely in the ultra-luxury sector.

For his company, clear distinctions among high-end brands make it easier to decide which brand will work best in a given location.

“We look at different things for different locations,” he said. “It depends on whether the destination is one we need to create and need a brand to bring awareness to it, or whether the destination is already well-traveled and we’re looking for distribution.”

2. Know financing preferences
Since luxury projects are cost-, labor- and time-intensive, financiers pay more attention today to all the pros and cons of a deal than ever.

“These deals are absolutely harder (to work through) than mid-segment hotel deals,” said Clifford Risman, partner at Foley Gardere, a firm that represents hotel brand companies and owns luxury assets. “At the end of the day, everything has gotten harder and takes longer than it used to.”

Getting institutional lenders comfortable with luxury deals can be more difficult, he said, and as a result, often those projects are financed through family offices or high-net-worth individuals “who can get more comfortable quickly with what you’re trying to do.”

Often non-bank financiers are the ones more comfortable with non-branded luxury assets as well, said panel moderator John Bralower, principal and managing director at Avison Young and strategic advisor at Six Senses Hotels Resorts Spa.

“The necessity to have a big brand has diminished from the capital side; I think that’s a positive change,” he said.

When it comes to traditional financing though, Hee called brands “very important.”

“Our company is small, and when we look to develop and finance a project, (brand is important),” he said. “Lenders believe Six Senses, for example, can come in and achieve the ADR and price-per-square-foot we put on paper. Or they believe Four Seasons can, for example. It’s hugely important to have a brand on the debt markets.”

3. Stay on top of consumer trends
Luxury hotel deals may take more time and effort to complete, but it’s important to stay nimble and anticipatory when it comes to meeting guest demand for the luxury experience, or the hotel can lose relevance quickly.

“People used to be more into things, and now they’re more into experiences,” McCrory said. “People are a lot more purpose-driven these days and luxury travel falls into that. The hotel, the journey, the programming all has to be authentic. It’s what you have to deliver and we work hard to make sure it happens in our hotels.”

Michael said that because authentic experiences are so critical in luxury travel today, hotels and brands must expand their offerings to fit.

“The dialogue starts before guests even arrive,” he said. “Our hotel concierges reach out to learn about guests. They become in-house travel agents, to understand that purpose of stay and put together something individual.”

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