Global Update investment trusts , whose stock prices have been depressed .
Consolidation among third-party managers may , in fact , be driven by changes occurring on the hotel company side . “ The bigger third-party managers become , the greater the clout they ’ ll have dealing with the mega-hotel companies ,” Lesser adds .
Consider the impact of Airbnb and the OTAs . Opinion differs on the part these two formidable disruptors have had on hotel companies joining forces . Zok believes they ’ ve been a factor . “ Add the growth of OTAs and alternative lodging solutions like Airbnb to the mix and it ’ s put more pressure on hotel companies to take a consistent , rather than fragmented , position in their response to compete effectively ,” he says . The bigger the hotel company , the argument goes , the more clout it will have at the negotiating table .
Look no further than the availability of capital , including flight of capital . Consolidation occurs most often when capital is readily available , which has been the case recently , according to Alex Cabanas , CEO of Benchmark Hospitality International , a third-party management company . “ Valuations tend to be significantly higher at that time to the point where it makes sense for a company to weigh the value of consolidating ,” Cabanas says .
Capital has been available for deals from a variety of sources , including international sources . “ International sources actually top the list ,” Lesser adds .
Much of it is what he calls the “ flight of capital ,” money flowing into the U . S . from markets like China , Russia and other parts of the world because investors there view the U . S . as a safer geopolitical environment . “ On a relative basis , they perceive the U . S . as the safest place on the planet .”
Horwath HTL ’ s Robert Hecker , who is based in Singapore , agrees when it comes to the Chinese with their deep pockets . “ Having active Chinese buyers and investors no doubt heats things up ,” he says .
Accor ’ s new ownership will take on an interesting dynamic with sellers the Qatar Investment Authority and Saudi Prince Alwaleed ’ s Kingdom Holding Co . ( here with Kingdom Hotel Investment ’ s Sarmad Zok ) taking seats at the boardroom table with their new 10.5 % and 5.8 % capital shares , respectively .
Not surprisingly , two Chinese hotel groups — Homeinns and Jin Jiang International — are often cited as potential consolidation players .
The availability of foreign money ends up lowering the cost of capital , Cabanas adds . “ International investors often aren ’ t interested in the same rate of return as investors in the U . S ., given the safe haven concerns ,” he says .
Dealing with brand proliferation . Hotel companies are introducing brands at a prodigious rate and show no signs of letting up . Douglas Dreher , president and CEO of The Hotel Group , an owner and third-party manager , sees that leading to confusion among consumers . “ Consolidation from this perspective would be good and perhaps inevitable ,” he says , assuming the mega-companies would rationalize their portfolios and eliminate redundancy . “ It ’ s reasonable to assume the parties would attempt to ‘ take the best from the best ,’ in cases where two or more brands targeted the same demand segment ,” Woodworth adds .
Yet Bjorn Hanson , clinical professor at NYU ’ s Tisch Center for Hospitality and Tourism in New York , says merging brands , particularly those at the same service level and price point , would prove difficult . It ’ s one of the risks hotel companies face in joining forces . “ Similar brands within the same mega-company would compete with each other , causing asset owners to quickly grow frustrated ,” he says . “ Owners ’ brand loyalty could then become an issue .”
Brands are under siege . Proliferation aside , the value of brands to owners is already a hot topic , fueled by rising franchise and management fees and rising costs of distribution . With owners questioning the value of chain affiliation , Cabanas expects some , looking at the prospect of consolidation , might opt out .
“ Owners may already be put off by the matter of size . Plus in an industry that has traditionally valued long-term relationships , there are bound to be senior-level personnel changes in the offing ,” he says .
Imagining the landscape post-consolidations . Once the dust has settled , Zok says he expects that “ certain smaller operators will move to exploit opportunities that remain in the marketplace .” Hanson envisions these smaller companies focusing on a single market , single country , or in the U . S . a single coast . Or they might create a special niche in the boutique or lifestyle segments .
“ There will always be an opportunity for smaller companies as niche players . With the mega-companies dominating the market , the real challenge then will be for the mid-size companies ,” Hanson says .
www . hotelsmag . com March 2016 HOTELS 13