Forty-year-old CSM Corporation continues to build its reputation as a hotel developer, owner and operator by following its own rules.
MINNEAPOLIS—For more than half of its 40-year existence, CSM Corporation has used the same long-term hold strategy on which it was founded to solidify its position in the hotel industry. Steve Schlundt, a 20-year CSM employee who in September was named president of its lodging/residential business, said that philosophy won’t change anytime soon.
“What we have is becoming more and more unique,” Schlundt said during a telephone interview. “To be an owner, operator and developer is becoming more uncommon in the hotel business.
“We get to do what we what we want, where we want and how we want to do it,” he said. “We’ve always been long-term holders from the beginning. (CSM founding President and CEO) Gary (Holmes) has been a long-term holder in all aspects of his investments. … During the last two years was the first time we’ve sold anything.”
Founded in 1976, Minneapolis-based CSM purchased its first hotel in 1994. Its portfolio includes 32 hotels comprising 5,015 rooms—including 26 hotels and 4,264 rooms that are owned and managed and six hotels with 751 rooms that are managed for other owners.
“As we build hotels, we love to look at those who fit outside the prototypical box,” Schlundt said. He cited as a prime example the company’s 2015 project that turned a 1931 bank building in downtown Phoenix into a Hilton Garden Inn property.
“The upfront expense was high, but because we plan to hold it for a long time, we see it as a long-term hold and great investment from a real estate perspective,” he said.
That project fit well into CSM’s historical rehab specialty, said Schlundt, who spent 10 years with Marriott International prior to joining CSM.
“We’re always looking for opportunities to get into bringing a building back to life,” he said. CSM has a long history, he added, “of being good stewards in the markets we’re in … to take historic buildings and modernize them while paying tribute to their historical significance. It does well for us in the community and it usually produces good results.”
Schlundt said brands have turned around properties they can be proud of by relaxing brand standards when the situation calls for it.
“We love downtown locations, urban locations,” he said. “Take a look where businesses in general are going; there’s a big movement for apartments, condos, townhomes. A lot more people are moving to downtown locations and that feeds demand into hotels in those locations.”
CSM is expanding its footprint in the Pacific Northwest, where it already owns two hotels in Seattle. The company has two properties under construction in Redmond, Washington.
The Redmond hotels are in a dual-branded project for Marriott by way of its acquisition of Starwood Hotels & Resorts Worldwide—one portion of the building will be an Aloft property, and the other portion will fly the Element flag. CSM is also beginning a project in St. Louis Park, Minnesota, that will have a Courtyard by Marriott sharing some of the amenities of a Marriott Hotel.
“You get the best of both brands,” Schlundt said. “Aloft is more short-term (stays) and the Element is more extended-stay business.” Dual-branded properties allow developers to “ratchet up shared amenities” such as pools and exercise areas, he said.
CSM is a big believer in the extended-stay segment, Schlundt said, and continues to look for opportunities to add that type of hotel to its system because of the return on investment it provides. Eleven of the hotels in CSM’s system fly the Residence Inn by Marriott flag.
“Extended stay has always been a big attraction for CSM,” he said, adding that the segment has a strong customer base. “Any time you can find a hotel that covers shoulder nights in this business, (that) allows you to push revenue and push profits.”
Expanding its brand footprint
CSM traditionally has been heavy on products from Marriott and Hilton Worldwide Holdings, Schlundt said. It recently completed its first Hyatt Hotels Corporation product—a 125-room Hyatt Place Hotel in Lansing, Michigan. The dual-branded project in Redmond was its first collaboration with Starwood—something that Schlundt said will continue now that Marriott is folding the Starwood brands into its portfolio.
“This changeover, the acquisition of Starwood, allows companies like us to continue to put (Marriott-owned) brands out there in places that don’t have a large footprint right now,” he said.
CSM’s biggest challenge is staying aggressive as the strong seven-year run for the hotel industry slows, he said.
“We’re trying to help determine, especially with new product coming on board, how do we maintain occupancy and drive the ADR?” Schlundt said. “Naturally it will be flattening out, yet expenses don’t ever flatten out, so we have to continue to be in growth mode for rate.”
The slowing cycle also presents opportunity, he said.
“If the economy flattens out, you will see less growth,” he said. “That’s when our opportunities grow.”
CSM finances all of its projects internally, which is a big advantage when lenders tighten their reigns for new hotels, Schlundt said.
“We’re looking to continue to grow,” he said. “We’ll continue to look for acquisitions, but the timing where the market is now makes development a strong option. … We like that 200-room hotel model—select service and extended stay in particular. Those models do a lot in helping make our numbers work.”