PHOENIX—While converting a hotel from one brand to another might seem pretty straightforward, there’s a great deal of work involved behind the scenes, from discussions about capital structure to management to choosing the right brand.
As recently as 10 years ago, many hotel brands were hesitant to grow their portfolio by way of conversion. But today it’s become an important way to expand, and brands can work with owners to reposition a tired asset and breathe new life into it, according to a panel of hoteliers at the 18th annual Lodging Conference at the Arizona Biltmore.
“For a lot of people, it’s new. They’re not used to doing a lot of repositioning and rebrandings, but it’s something that we’re doing now and we’ve been doing for the past couple of years,” said Jim Chu, senior VP of franchise and select brands for Hyatt Hotels Corporation. “It’s a great way to get into the core areas of some of these marketplaces; to get representation without having to go through five years of a development project.”
Panelists with expertise in rebranding and repositioning an asset offered a handful of best practices. The Hampton Inn brand was referred to as an example because franchisor Hilton Worldwide is going through a process of weeding out older assets from the brand portfolio.
“Hilton is going through a non-renewal of Generation 1 Hampton Inn properties,” said Paul Kirwin, president and CEO of Northcott Hospitality, which owns the AmericInn brand. “They don’t want any properties over 30 years old.”
That leaves Generation 1 Hampton owners in a position where they’ve got to decide what to do with a 30-year-old asset. It’s a difficult situation, Kirwin said, because when owners lose the Hampton flag, they immediately lose 50% of the revenue stream—“which, as you can imagine, is devastating,” he said.
Limited choices
The choices for owners can be somewhat limited. They can sell, which is difficult because it may be hard to find a buyer for that type of property. And the owner might not be willing to take a hit on a property that he or she developed and has ridden successfully for 30 years.
Selling often is the most viable option.
“In general, it typically takes some type of capital event to make these things happen right,” Chu said. “Usually someone purchases the hotel or a new investor is introduced.”
“Seldom have I seen it where it’s the same exact structure and they’re just contributing additional capital.”
Renovating and repositioning a tired asset offers owners the opportunity to rebuild the business, often with a new segment of consumers.
“The best thing to do is rebuild the business,” Kirwin said, suggesting adding a pool to target a different type of traveler. He also recommended changing the GM.
“There can be different demand generators with a new flag or a repositioned property,” he said.
In the case with Hampton, Kriwin said Hampton GMs have been trained to focus on having the highest customer-service scores. A rebranded property can take a different approach and focus efforts elsewhere, such as increasing profit margins.
Kirwin said AmericInn recently has converted two Hampton Inns to their brand and is evaluating the purchase of another near Chicago O'Hare International Airport. He also is in talks with an owner who is looking to convert six Hamptons.
Steps to take
There are many factors to consider when choosing how to go about a rebranding. Chu said, first and foremost, owners should look at the market and see what is available and what is already saturated.
Next, clearly outline the capital investment required.
“Make sure the capital partners understand; understanding the capital structure is critical,” Chu said.
Ellen Brown, executive VP of acquisitions and development for Denihan Hospitality Group, said her company goes back to look at the assets and see where they can “carve out value.” For example, Denihan has “de-suited” hotels in New York; in one case Denihan was able to add 60 keys to 70 keys for only $100,000.
“The return on that is pretty much a no-brainer,” Brown said. “That’s one thing we’ve done very successfully. We’ve added 150 keys in New York City.”
Timing the renovation and repositioning is hugely important, panelists said. First, all the parties involved must determine the best time to take down a flag.
“There’s a discussion about when do you deflag and how much pain does everyone want to share,” Chu said. “There’s a definite business impact.”
The group agreed that speeding up the process is in everyone’s best interest.
“People want to spread the capital out as long as they can, but until you finish you don’t have a great story,” Chu said. “I’m an advocate of doing things as fast as you can.”
“We try to get them done as soon as possible,” said J. David Merritt, senior VP of development for Marcus Hotels and Resorts. “It’s a lot different today; we’ve tried to move from a three-phase program to a one-phase program.”
“We like to keep the length of renovations as short as possible,” added Denihan’s Brown. “You get one shot to present that new hotel, and if you do it over an extended period of time you lose that shot. You can’t get that $50 to $60 pop that you can get from introducing something new to the guest.”
