SILVER SPRING, Maryland—In an opportunistic attempt to further grow its upscale Cambria Suites brand, franchisor Choice Hotels International is acquiring select land parcels at distressed prices in key markets, intending to offer the land to Cambria developers at cost. Cambria has nearly a half dozen sites waiting for bulldozers, and brand executives say there’s more in the pipeline.
Sources at Choice confirmed the franchisor has acquired five land parcels during the last 18 months, located in the following gateway cities: Plano, Texas; El Segundo, California; Scottsdale, Arizona; Orlando; and South Boston. Cambria also is expected to announce an additional two or three similar acquisitions coinciding with the America’s Lodging Investment Summit held 23-25 January.
“We’ve gone across the country and bought a half dozen sites that will put us in a good position going back into a favorable climate for development,” said Brad LeBlanc, VP of franchise and development for Cambria Suites. “We’re opportunistic with Cambria. If there’s potential for the right (revenue per available room) in the right market where the right eyeballs can see it, we’ll move on it.”
According to LeBlanc, the parcels were distressed sales and were acquired at deeply discounted prices, thanks to seller motivation. The land will be sold back to developers at cost—Choice isn’t looking to profit or offer any further bargains for that matter—to fuel expansion, which is critical for the brand as it attempts to break into more key urban and dense suburban markets. As the economy improves, these opportunities significantly diminish.
“If I get these two or three more sites and that means there’s two or three more gateways that we’ll have, that’s probably enough today, unless I find another real opportunity. I’m still looking, but it’s not my effort,” said LeBlanc, who dismissed rumors that Cambria was acquiring a Las Vegas plot. Looking ahead, he’ll still consider land in urban or “beltway” markets with a RevPAR of US$75-plus and an average daily rate in the US$125 range.
“In terms of going out and finding additional sites, I think the discounting is done. We’ve taken advantage of it,” he said.
Building the portfolio
The land strategy is yet another incentive Choice is offering to developers as it works to build Cambria’s critical mass. Cambria has been assisting with financing/equity for deals, and the land speculation is another attractive piece. Presently, Choice itself only owns three properties total from its Mainstay Suites brand, and while it is not uncommon for a large operator like Marriott International or Hilton Worldwide to engage in such land transactions, it’s not standard practice for franchisors.
“I haven’t heard about it much on the franchise side … But when you have a new brand you’re trying to get established, and you’ve got a weak operating transaction and financing environment, you’ve got to be creative and try to come up with some things to spur development,” explained Steve Joyce, president and CEO of Choice. “We’ve got more dry powder than we know what to do with, so investing in the brand makes a lot of sense, but also it sets a tone with the development community about how much you believe in what you’re doing, when you’re willing to put your own money at stake.”
Cambria developers agree. Mark Laport, whose Concord Hospitality Enterprises is developing two Cambria Suites—in Houston and Washington, D.C.—said, “It’s a bold strategy; you can consider it a nuance and one-upmanship for Choice, at this point.
“It’s extremely important that Choice gets behind its brand and helps launch it by creating a myriad list of incentives and inducements to help the brand grow,” said Laport, president and CEO of the Raleigh, North Carolina-based owner-operator. “It not only benefits the company, but also those of us who are developing the properties because the brand needs distribution for it to become what we all want it to become.”
Laport said Concord is one of several serious potential buyers for the Orlando land parcel, after being enticed by the offer presented by the Cambria development team. Although he turned it down in prior talks, which unfortunately happened to occur mid-recession, Laport now feels the timing is right to reconsider, especially due to the parcel’s advantageous location in downtown Orlando.
“It potentially presents us with an opportunity we would not have looked for otherwise. Normally developers have their own ways of finding sites, but we’re excited about the possibility as it relates to Orlando,” Laport said. “We’re taking a hard swing at it, with Choice’s help and underwriting.”
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Targeting new markets
Cambria’s major-market land grab is somewhat of a reversal from its earlier efforts; Joyce explained that in prior boom years from 2004 to 2007, much of the brand’s development occurred in tertiary markets. He said these days Choice generates demand for millions of room nights in most urban locations, but because its upscale products are under-represented there, Choice ends up not satisfying those customers. Therefore opening Cambria properties in such markets, however possible, is a core objective.
“We know if we have a quality product that’s well run, we’re going to be able to satisfy that demand, and also, provide a steady stream of occupancy for the developer and operator of that property,” Joyce said. “Cambria allows us to get into that upscale business where we need to be, but also to take advantage of that unmet demand.”
Joyce said the Scottsdale, Plano and Orlando properties Choice acquired “all have very active interest from partners involved, who are in various stages of moving to start developing them.” Concord, for example, represents the ideal partner for the Orlando project, according to Joyce, because as a developer/operator, they can ensure “steady management and ownership through the opening of the property.”
That said, Cambria isn’t opposed to working with developers who hire third-party management; Joyce said both of the Cambria properties under development in the New York area will be run in this manner. Flexibility is a virtue at Cambria, and executives are wagering that all the inventive groundwork being laid now will pay dividends in the not-so-distant future.
“We think by 2013 the credit lines will have loosened up, and we’ll see some real activity. When that happens, there’s a lot of opportunity sitting on the sidelines that’ll jump in,” LeBlanc said. “There are a lot of developers with equity and desire and sites they’ve stockpiled. People are going to jump in, and we want Cambria in the right place when they do.”