LOS ANGELES—Five years after its launch, O’Reilly Hospitality Management is ready to take a big step forward. The Springfield, Missouri-based company is ready to grow its portfolio through the ground-up development of hotels.
“All of our near-future opportunities are new builds,” said Tim O’Reilly the managing member and CEO of OHM. “The timing is the big thing. If we are able to move forward (on) all the projects we’re contemplating at this point, it just makes sense to do it.”
“We’re going to try to build in places where it will be difficult to replicate what we’re doing,” he added. “To be the newest in a good market is a great opportunity.”
O’Reilly declined to reveal specific markets he’s looking at for development. He said that while his company wants to be a 70% stakeholder and the management company for all of its properties, the current economic landscape provides challenges.
“The lending environment and trying to put together the right partnerships and right joint ventures are challenges,” he said. “There is no magic number in terms of total hotels. I want to take advantage of the opportunities presented to us. I hope that means significant development.”
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| From left: O’Reilly Hospitality Management executives Brian Sims, Tim O’Reilly and Scott Tarwater, take a break during last week’s Americas Lodging Investment Summit in Los Angeles. |
Scott Tarwater, the company’s chief development officer, said major announcements regarding development will come from OHM soon but declined to provide details.
“There are a lot of opportunities, but everyone is struggling with funding,” said Tarwater, who spent the majority of his career with John Q. Hammons Hotels & Resorts. “The model has shifted to where the equity piece is substantial. But for someone to come in with the appropriate funding, there are a lot of people open to partnerships.”
He said public-private partnerships are gaining momentum as a number of universities and cities are interested in improving their markets and are willing to invest in hotel development.
“If you have a chance to build new and built it efficiently, then you have a huge advantage over competitors,” O’Reilly said.
The company prefers developing hotels from the ground up to build its portfolio, but it hasn’t set a goal for the number it wants to construct.
Brian Sims, OHM’s COO said the development plan is one of the reasons he joined the company a couple of years ago; Sims also is a former JQH employee.
“New builds from an operations standpoint are easier,” Sims said. “You can build the right team in the right environment with a new build.”
Sims said because of downsizing during the recession, there is an abundance of available talent in most markets, meaning a new-build hotel attracts top employees. That makes it easier to develop best-of-class service, which in turn makes a hotel more successful out of the gate.
After launching the company in 2007, O’Reilly opened OHM’s first hotel in 2008—the DoubleTree Hotel in Springfield. The company subsequently added several hotels to its portfolio: a Hilton Garden Inn property in Springfield in early 2011; the Yellowstone Valley Lodge in South Livingston, Montana; a Baymont Inn & Suites in Branson, Missouri; and a Holiday Inn in Tulsa, Oklahoma.
“Most would say it was the worst time ever in the hotel industry’s history,” O’Reilly said. “It worked the opposite for us.”
He said he plans to continue building hotels that are sustainable. The Hilton Garden Inn, for example, is designed to be certified by the U.S. Green Building Council’s Leadership in Energy and Environmental Design guidelines. It has a geothermal HVAC system in the public areas, solar panels on the roof and efficient fixtures in the guestrooms, among other things.
“If you do it right there are some things with LEED certification that make great financial success, some things that don’t,” O’Reilly said. “You have to find that line.”
He explained the solar panels have a 25-year return-on-investment horizon.
“It’s a big interest of mine. I want to support the technology,” O’Reilly said. “The marketing of that will become tremendously more important. Within 10 years people will be making their hotel and meeting decisions on how efficient you are, how sustainable the hotel is. I don’t want to build now and have issues later, so we’ll focus on having those features that make a hotel attractive for people looking for things that are designed to be LEED certified.”
With such a strategy in place, the company intends to have a long-term hold on its assets.
“We all know the cyclical nature of the hotel world and sometimes you have to sell,” O’Reilly said. “But our intent is to retain the hotels for an extended period of time.”
