DEALS |
||||||
|
THE COMPETITION FOR CONVERSIONS HAS BECOME VERY FROTHY
– BRIAN QUINN , CDO , SONESTA
INTERNATIONAL HOTELS
|
Baird highlighted the slowdown in new supply and transactions as chief culprits for the increase in key money and , since publicly traded companies , such as Marriott and Hilton , are judged on Wall Street by their ability to add new hotels to their systems , accretion is needed by any means necessary . “ Spending has increased and is likely to remain elevated due to the slowdown in both new-construction activity , particularly domestically , and transaction activity ; therefore , fewer deals are available , which is negatively impacting net unit growth ,” it noted . “ Brands are providing an increasing number of financial incentives to owners / developers in order to win conversion or development deals .”
Though Marriott said it deploys key money on around
|
33 % of deals in its pipeline , Hilton , as noted in the Baird note , commits key money on only around 9 % of hotels in its development pipeline . And while it ’ s reasonable to think that key money is dispersed on deals in the luxury or upperupscale space , there has been a spate of key money deployment in lower chain scales .
Consider Choice Hotels International . Baird noted that Choice ’ s total spending in 2023 was 21 % of gross fees , but the composition has shifted , “ from more notes receivables and equity method investments pre-pandemic to more key money spending recently .” Meanwhile , Choice competitor and one-time acquisition target Wyndham Hotels & Resorts ’ net key money spending in
Renaissance New York Chelsea Hotel , managed by Stonebridge Companies .
|
2023 represented 9 % of gross fees , a high mark for the company . As Baird pointed out , Wyndham ’ s key money spend increased since the company ’ s 2018 spin-off , its recent focus on higher-fee-per-room hotels and to trigger growth in its Echo Suites extended-stay brand . Executives have also noted that the increase in key money spend in 2023 was an attendant result of Choice ’ s hostile takeover bid .
At the same time , the competition for conversions has made key money a defensive play as brands look to ward off birds of prey . “ It ’ s become so fierce that you ’ re seeing key money being used to defend existing assets ,” Sonesta ’ s Quinn said . “ If you have a marquee asset and it ’ s at the end of the contract , or there ’ s an
|
out , the competition is going to come in with key money .”
Other times , key money is used to expand , especially a brand ’ s footprint , and particularly in the higher-end segments , which can have a resultant halo effect . Sonesta , for example , has two hard brands in the luxury / lifestyle space in Royal Sonesta and The James ; they are two brands that Quinn said Sonesta could deploy key money to build out .
MO MONEY , NO PROBLEMS Hotel owners now find themselves in an enviable position where key money can come from not only brands , but also from management companies , which traditionally have been a source of key
|
||
10 hotelsmag . com Mar / Apr 2025 |