NEW YORK—For hotel owners and developers looking for the right brand to fit their box, today there is a brand for every kind of traveler, and it’s important for owners to position their hotel correctly, brand leaders said during the NYU International Hospitality Industry Investment Conference.
“There are a lot more options, and there is a lot more flexibility today,” said Jim Abrahamson, who moved from the brand side to the management side when he joined Interstate Hotels & Resorts this time last year. He now serves as CEO.
When converting a hotel, Abrahamson said today Interstate can go to an owner with several options. “We can look at related brands within the family that might have a 50% less (product-improvement plan),” he said.
To help owners make an informed decision, brand leaders outlined their near-term strategies during the conference.
“As we look forward, we’ll use capital to add brands and assets and enhance new growth platforms,” said Arne Sorenson, president and CEO of Marriott International. “How do we add a brand for India that allows us to add dozens and dozens of hotels?”
Sorenson said much of Marriott’s focus surrounds ramping up the Edition brand. The company used its balance sheet to jumpstart projects in London and New York and hopes to recycle the capital from each of those investments. After showing its commitment, Marriott has seen interest from three or four additional developers.
The brand has four properties in development and one property open at present: The Istanbul Edition in Turkey.
For Hyatt Hotels and Resorts, the focus has been on building the framework for the Andaz brand, which has eight properties in operation. Because Andaz features unique service and operating models, Hyatt CEO Mark Hoplamazian said the company felt it was best to develop and own the first few properties.
Joel Eisemann of IHG (right) and Jim Abrahamson of Interstate (center) discuss brands and management companies working together to monitor stave off expense creep.
"We knew initially that we were going to have to develop this on our own nickel,” he said. “We refined the operating model and then took it out. All the new deals are with third parties. We made the investment up front and got the brand established.”
“We wanted to create critical mass for the extended-stay segment,” Hoplamazian said. “Getting to a coverage level for our extended stay brand was critical.”
For Jumeirah Group, the recent focus has been on increasing the geographical spread of the brand. Jumeirah went from 11 to 21 hotels in a year. The idea of a new brand—initially called Venu—was tabled for the time being, according to Gerald Lawless, executive chairman.
Howard Johnson needs to be re-energized, and that is a priority for Wyndham Hotel Group, said CEO Eric Danziger. Wyndham’s balance sheet in the near-term will be used to help the brands perform.
Limiting CapEx costs
Through the downturn, franchisors were lenient with their PIPs, brand standards and capital requirements. Now that performance metrics are improving, those programs will return, said David Pepper, senior VP of global development for Choice Hotels International. However, the brands will continue to keep the owners’ limited access to capital in mind.
“As a brand program, what we try and do is gradually put it in, not all at once,” Pepper said. “And we try to help align our franchisees with financial resources.”
David Kong, CEO of Best Western International, said it is important for brands to not introduce frivolous upgrades just to do so. He said Best Western has embarked on a fiveyear plan to visit every hotel in the system, inspect the hotel and determine necessary upgrades.
“We want the improvements to have optimal returns on investment,” he said. “Things that don’t have a return on investment are frivolous.”
Kong said Best Western is trying to move its brand from the midscale segment to the upscale segment, and the company can do that with a few larger impact changes—such as flat-panel TVs—rather than a 200-item checklist.
Vasant Prabhu, vice chairman and CFO of Starwood Hotels & Resorts Worldwide, said brands and operators need to install improvements cautiously. He said the industry has a tendency to increase operating costs as industry performance returns.
“As rates go up, GMs feel compelled to do more for their guests,” he said. “But not everyone wants an apple in their room.”
Abrahamson echoed those concerns, saying operators should be wary of expense creep.
“It’s all about rate, so what you can do to capture rate is No. 1,” he said. “But more importantly, it’s what the ROI is on these improvements.
“All of the brands are going through some type of a lobby renovation right now,” he continued. “We really like those new programs where we’re activating lobbies and getting the opportunity to drive rate.”
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