Slowing hotel metrics don’t hamper expansion plans
 
Slowing hotel metrics don’t hamper expansion plans
07 NOVEMBER 2016 8:37 AM

Owners, management companies and brands—including newcomer Artistry Hotels as well as Chesapeake, Driftwood, Choice and Embassy Suites—continue to look for ways to grow their positions in the crowded hotel industry.

PHOENIX—Growth remains top of mind for brands, owners and management companies even as the hotel industry’s performance metrics slow.

Executives of several companies took time at the recent Lodging Conference to lay out their expansion plans.

Artistry Hotels looks to fill niche
Executives at Artistry Hotels describe the company as a full-service, independent boutique hotel brand in the “new luxury” segment that will deliver distinctively artful and imaginative experiences reflective of each property’s location.

CEO Chip Headley said the idea for Orlando-based Artistry Hotels was hatched two years ago when the executive team began working on developing a hotel next to a performing arts center.

“We started calling it the Artistry, and as we started looking at it, we realized that there’s a brand here,” he said. “We started talking about what we really want that to be and what would be our unique value proposition.”

The result: A focus on full-service hotels located near universities or in urban core environments.

“We want locations where there’s density of community around the hotel so we have an opportunity to engage the community into the hotel and guests out to the community,” Headley said.

Different styles of art—including sculptures, paintings, architecture and even interactive technology—helped formulate the foundation of the brand’s mission, according to the CEO.

“We want to replicate that thread through additional properties, but they’re not going to be cookie-cutter,” Headley said.

The company has yet to announce its first location, but Headley said planning is “well underway” and Artistry has a letter of intent for a second location.

He estimated Artistry properties will have average daily rates of between $170 and $300, depending on the market.

Artistry will own and manage properties in its portfolio.

“We have outside investment partners—like almost everyone in this business, we’re always looking for capital partners,” Headley said. “We also will license and manage to other owners who like our concept. We will operate everything we do under Artistry brand.”

Headley said he expects to start 15 Artistry projects within the next five or six years.

The Artistry brand will shoot to have a level of energy in the public space that makes it a gathering spot for hotel guests and the community in general, he said.

“Included in that is a whole element of interactive art,” he said. “Floors, screens … all the programming is what makes it different.”

Each guestroom will have unique art elements, he said.

Chesapeake Hospitality targets full-service hotels
Greenbelt, Maryland-based Chesapeake Hospitality is looking to expand its portfolio of full-service hotels in secondary and tertiary markets, COO Chris Green said.

“A lot of people are dismissing those hotels, and there are a lot of them that need quality management,” he said.

Chesapeake recently added several full-service properties, including a DoubleTree by Hilton Hotel in Syracuse, N.Y.; a Holiday Inn in College Park, Maryland; and a Marriott hotel in Detroit with the Detroit Metro Airport Marriott.

“Those types of hotels need a focused sales and marketing effort, and revenue management that’s granular down to the account level,” Green said.

The company prefers to have its vice presidents oversee no more than eight hotels to maintain a hands-on mentality, and Green said the company added three additional VPs to handle its growing portfolio.

Chesapeake has 13 clients and a portfolio of 32 hotels, with six more under contract.

Green said the company is changing its business model to focus on first-class, full-service hotels with up to 250 rooms. Dependability and gaining share against a comp set are calling cards for the company, he said.

“We’re cautiously aggressive,” he said. “We’ve declined more deals than we’ve taken. We have to be able to do it our way while aligning with ownership interests to be successful.”

The company has been primarily located east of the Mississippi River, but the recent addition of a VP in Denver will help facilitate its westward growth.

“We’re going to be able to go center west now—not California, but Denver and other major cities,” Green said.

While the company is open to investing in properties, he said, its primary business model is third-party management contracts.

“We’re totally open to sliver equity, but what I found now is clients and owners want the ability to change managers when they want to … with a sliver partner, it makes it more difficult,” Green said. He added that Chesapeake will own or enter into joint ventures if the right opportunity arises.

Green said he hopes the industry’s long-term success continues, but the idea of a downturn has some advantages for companies such as Chesapeake.

“It’s going to be a ripe time with RevPAR moderating, maybe even going negative in ’18,” he said. “That’s when we see deals open up for management companies. We benchmark our performance in a downturn.”

Choice continues upscale expansion
Choice Hotels International has made a commitment to grow its portfolio in the upscale segment through its Cambria Suites and Ascend Collection brands, said Janis Cannon, SVP of upscale brands. Choice’s portfolio now includes more than 225 hotels.

“Upscale is about building a category for Choice,” Cannon said. “Choice has a systems and platform perspective; that is why the company is strong as it as.”

The Ascend Collection, a soft brand that allows hotels to maintain their own name and identity, has 208 hotels, including 117 in the United States.

“Ascend is a perfect fit for those who want to maintain their independent brand but need a distribution and acquisition solution,” Cannon said. “It’s about giving great value and a great price point.”

Cambria, which has had a roller-coaster existence since its 2005 launch, has 26 properties open and is now focusing on high-density markets, Cannon said. There are 14 additional Cambria properties under construction.

Six companies are developing multiple Cambria properties, and Choice is also investing its own money into Cambria, she added.

“That’s proven to be a really effective partnership that has served as a catalyst for growth with the right hotels in the right locations,” Cannon said.

The company has been on a mission to find billboard locations for the brand, she said.

During the past year, Choice opened two Cambria properties in New York—one developed by Hidrock Properties and Concord Hospitality and the other developed by We Care Trading Company and Concord. On 1 November, Fillmore Hospitality opened the 215-room Cambria Chicago Magnificent Mile.

Cambria properties are under development in downtown Philadelphia (Pearl Properties) and Los Angeles (Fillmore Hospitality), New Orleans (Fillmore Hospitality) and Asheville, North Carolina (The FIRC Group).

“We’re playing primary urban markets, and we’re investing right alongside of the developers,” said Cannon, who spent 10 years with InterContinental Hotels Group prior to joining Rockville, Maryland-based Choice in April 2016. “You have to make sure there’s proof of concept, and we’re ensuring that by being aggressive investors. That’s where the capital markets are located, so that builds some brand awareness.”

Cambria’s portfolio can include conversions, adaptive-reuse projects and new-construction properties. The company is building a land bank to offer developers interested in Choice-branded projects.

“We have a land team looking at properties that would make great hotels within city centers and (central business districts),” Cannon said, adding that the company has three former office buildings in prime downtown locations ready for development.

Driftwood’s two-pronged approach fuels growth
Driftwood Hospitality Management and Driftwood Acquisitions & Development provide opportunities to grow on the management and ownership front, according to EVP Steve Johnson.

Based in North Palm Beach, Florida, Driftwood Hospitality has a portfolio of approximately 8,000 rooms in 40 hotels. It has ownership stakes in two-thirds of those properties, Johnson said; the others are primarily management contracts through special servicers.

One ownership approach is to partner with private equity groups and invest in turnaround assets that require renovations of up to $35,000 per room, Johnson said.

“They’re underutilized assets that need some help,” he said.

David Buddemeyer, Driftwood’s president, and COO Michael Diaz have spearheaded a mentality that concentrates on the nuts and bolts of the business, which highly targets turnaround assets, Johnson said. The company typically is involved in five to 10 renovations at one time.

“When there’s this point of cycle where we can’t find many value-add deals, we can go get the performing assets that can give high teens (internal rates of return),” he said. “We have a lot of investors looking for those kinds of returns and like the real estate piece.

“The value-add play is more focused on major markets and are mostly full-service,” Johnson added. “Our private equity groups don’t want to go to secondary and tertiary markets, per se.”

Driftwood Acquisitions & Development, an affiliate company, focuses on acquiring stable full-service and select-service assets and will look at assets in secondary and tertiary markets, Johnson said.

“It’s focused on cash-flowing assets that may need some money—but have smaller renovations … usually around $10,000 a room,” he said.

DAD was formed by CEO Carlos Rodriguez in 2015. It has five hotels in its portfolio—all of which are managed by Driftwood Hospitality.

Once each property is acquired, DAD syndicates 90% of the equity of each hotel, while keeping 10% of the equity and the administration as general partners, according to its website.

DAD typically likes a 10-year hold, while the private equity entities that DHC partners with prefer holds in the three-year to five-year range, Johnson said.

Johnson handles the acquisitions and development for DHC; COO Carlos Rodriguez Jr. and investment associate Johannah Durow is in charge of acquisitions for DAD.

“There’s always going to be a cycle, so the DAD side levels out the dips,” Johnson said. “With our track record, we’re ready to go the next time there’s an opportunity.”

Embassy Suites refreshes and grows
Embassy Suites, one of 12 hotel brands in the Hilton Worldwide Holdings portfolio, is in the midst of a product refreshment that is reinventing its iconic atriums. At the same time, the company is aggressively adding hotels to its roster, according to VP and Global Head Alan Roberts.

The brand has 223 properties open and 48 hotels in the pipeline. There are active property improvement plans at more than 80 Embassy Suites hotels.

“The good news is that by 2019, between renovations and new builds, 75% of our hotels will have new interiors,” Roberts said.

The focal point of the PIPs are public spaces, including the atriums, he said.

“We’ve developed an atrium refresh guideline for owners to understand what we were looking for,” Roberts said. “The goal is to tackle the atrium space, commercial it better, activate better, create better (food and beverage areas), center the restaurant and expand the seating.”

More than 40 atriums have been renovated.

“We are making the space more adaptable to whatever group is in there so the whole atrium becomes revenue-generating space,” Roberts said.

In conjunction with the renovation program, Embassy Suites is working on a comprehensive F&B reinvention.

“How do we modernize the cook-to-order breakfast and the evening reception?” Roberts said. “How can we enhance the breakfast buffet, and how do we combine pay options with complementary options to make people want to stay beyond the evening receptions?”

The brand’s design option 3 for new properties continues to look for new ways to reduce square footage per key by as much as 100 square feet, Roberts said. Because the executive team doesn’t want to take space out of guestrooms or commercial areas, it is looking at options that include back-of-the-house areas and corridors.

“We want to make design option 3 more appealing to ownership groups in the focused-service area that want or are stepping up to full-service,” he said. “But we can’t sacrifice the guest experience and what the guest wants.”

The Embassy Suites prototype has 174 rooms.

“If the developer can pencil it and make it work, I’m not opposed to considering smaller, especially in adaptive-reuse projects like the one we have in Bogota (Colombia),” Roberts said.

Embassy Suites falls into Hilton’s all-suites category. The 752 hotels in that category are under the Embassy Suites, Homewood Suites and Home2 Suites brands.

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