SPECIAL REPORT
Cedar Capital bought a 3-star hotel in Prague and converted it to AccorHotels ' lifestyle Mama Shelter brand .
“ AS AN INDEPENDENT , YOU WILL HAVE MORE COSTS AROUND MARKETING , BRANDING AND SALES ; WITH A SOFT BRAND SOME OF THAT WILL BE SUPPORTED BY THE BRAND . YOU HAVE TO DECIDE WHETHER THE AMOUNT YOU PAY FOR THAT WILL DRIVE INCREMENTAL EBITDA .”
JAY SHAH , HERSHA HOSPITALITY TRUST
committing to any kind of brand : exit strategy . “ It ’ s very important to consider your holding pattern for the asset . How long are you going to hold it ? If it ’ s short-term , there is a premium when selling an unencumbered asset . The pool of potential investors is significantly larger ,” says Andrea Grigg , executive vice president of JLL . Buyers want flexibility in determining a hotel ’ s future , and a long-term contract limits options .
RULES OF THUMB “ If you are in a very dynamic market , like a city center , or if the hotel is well-located and has some flair in décor , you can be successful as an independent — no question ,” Doizelet says . It would be difficult for a hotel of less than 50 rooms to get the benefit of affiliation , he adds .
Shah says when an independent operator can offer a unique experience , pricing power might exceed that of a similar branded hotel . “ So you might outperform on the top line without additional costs on the bottom line ,” he says . But , he adds , operators need to have their own capabilities in e-commerce , revenue management , marketing and sales .
BRAND OVERKILL ?
The explosion in hotel brands has been breathtaking : Between 2006 and 2018 , U . S . parent companies created 72 new brands , and each month it seems the big players unveil yet another product . Hotel research analyst Stephen Hennis , president of Hotelogy , calls the phenomenon “ the need to fill shelf space .” in other words , the dominant companies want to have a product that suits a broad range of hotel owners and guests .
“ It gives them more of a basis to compete ,” he says . “ It helps get people to go to their website to book instead of using an OTA . If they ’ re on Marriott . com , and they see the brands they typically stay at aren ’ t available , they might try an Autograph Collection or a Moxy , even if they don ’ t know what the product is .”
On the developer side , Hennis says , companies are betting on the strength of a big company to carry an untested brand . But owners of existing hotels face potential impact issues from the upstart brands , which he calls “ ankle biters .”
For example , travelers on Hilton ’ s reservations site might be looking for a Hampton by Hilton , but see that a less expensive Tru by Hilton is right next door , and will still net them Hilton Honors points . He says that kind of scenario might come into play more frequently if there is an economic downturn and travelers trade down .
The other risk is brand fatigue among consumers , but John Hamilton , senior vice president of development at Pyramid Hotel Group , sees that as a self-resolving problem . “ The main reason there is confusion is that most of these brands haven ’ t been around long enough to develop their own distinct personality ,” he says . “ Over time , there should be more separation , as people stay in these properties and become more familiar with them … And there is a definitely a trend , especially among younger consumers , to have a wide variety of offerings to satisfy individual tastes and needs .”
“ IT ’ S VERY IMPORTANT TO CONSIDER YOUR HOLDING PATTERN FOR THE ASSET . HOW LONG ARE YOU GOING TO HOLD IT ? IF IT ’ S SHORT-TERM , THERE IS A PREMIUM WHEN SELLING AN UNENCUMBERED ASSET . THE POOL OF POTENTIAL INVESTORS IS SIGNIFICANTLY LARGER .”
ANDREA GRIGG , JLL
22 hotelsmag . com December 2018