With threats coming from all directions, owners and operators must work harder to make brands relevant, investments thrive and ensure survival.
LONDON—Owners and operators don’t always see eye to eye, but in today’s hotel industry, the two parties are more or less on the same page given the industry’s solid performance and the major hotel companies mostly being asset-free or asset-light, sources said.
But friendly relations can change as quickly as one can say mergers and acquisitions.
Panelists who participated in a session titled “Aligning interests: Stakeholders engagement strategies and approaches” at the Hotel Investment Conference Europe—better known as Hot.E—discussed the owner-operator relationship and several other hot-button issues.
For one, the industry is not saturated with brands, apparently. Moderator Theodor Kubak, senior investment manager at Union Investment Real Estate, said brands in the hotel industry are still few when compared to other industries.
“(Retail company) Unilever alone has around 400 brands,” Kubak said.
Panelists said alignment between owners and operated needs to be focused on underlining and increasing the relevancy of brands. Making brands relevant equals survival.
“It’s about putting the glasses on the potential customer,” said Martin Löcker, member of the board at UBM Development AG, a firm currently with 15 developments in Europe. “It is a multibrand strategy. All the big players have books on all the shelves.”
For owners, those shelves can change shape, such as when Marriott International bought Starwood Hotels & Resorts Worldwide.
“Whereas Marriott was the competition, it suddenly became family,” said Ramsey Mankarious, CEO of Cedar Capital Partners, a hotel investment firm that concentrates on full-service hotels.
Change often comes when customer demand points to a new niche in company portfolios.
“Proliferation comes from customer need … and with everyone looking at the market with more sophistication,” said Habib Enayetullah, SVP of real estate at Hilton.
“Is there unmet whitespace all within specific swim lanes?” Enayetullah added.
Christopher Pfohl, SVP of hotel acquisitions and new business at Pyramid Hotel Group, said cultivating brand awareness among customers is a top priority.
“(Owners and operators) know where all the brands fit in, but do customers?” Pfohl asked.
Pfohl said Hilton is still at the top in terms of customer recognition.
“And brands remain more financeable as during the downturn they perform better,” Pfohl said.
Exclusion and enhancement
Players might see growth in different ways, panelists said, and that does not always help the alignment of investment goals.
Mankarious said when Cedar Capital Partners wanted to change the brand on its Crowne Plaza Amsterdam, it would not have chosen Kimpton Hotels & Restaurants if InterContinental Hotels Group had not bought it.
“The hotel had 91% occupancy but only a rate of €125 ($147.95), which we thought should have been between €200 ($236.72) and €250 ($295.90), so we needed to rebrand,” Mankarious said. “Kimpton, we knew, but we would not have done that if it had not been bought by (InterContinental Hotels Group).”
That project involved an owner choosing another brand within the same family, but that is not always the case.
“As an owner you are worried by all those brands,” Mankarious said. “It is not a clear lane, more of a circle.”
Exclusion clauses might protect owners’ investments, but as recent M&A activity has shown, the landscape can change quickly.
“It is about you handle something like this contractually. Marriott and Starwood is a once-in-a-lifetime event,” Enayetullah said, who added he did not see any “fuzzy differentiation between brands.”
Löcker said more and more investors are funding projects that are deemed safe and not so much unique opportunities.
“Hotels are becoming less exotic,” he said. “Professionalism has grown so much, even in the last two years, and there has to be minute detail going into optimizing contracts, especially in this period of liquidity in which anyone who can spell the word ‘hotel’ gets financing.”
The panelists agreed and said they support the traditional owner-operator relationship.
“The last thing we want is the brand to have, say, 20% of the hotel,” Mankarious said. “We do not want alignment in that way. I do not want Hilton, Marriott, et cetera, competing for hotels with me.”
Pfohl said recent management changes at Pyramid properties have gone smoothly.
“In Dublin, it was a combination of the asset being cleared, repositioned and our own management system put in,” Pfohl said of a recent asset, one of 105 hotels Pyramid oversees.
He added labor challenges are still a concern.
“Amazon in Seattle pays $15 to $20 per hour, and stock, which we cannot pay,” he said. “And to find management that will make a difference to the hotel, certainly with (revenue per available room) stabilizing.”
Löcker said another concern was the social pressure of living in cities for staff, certainly when hotel brands still largely target gateway cities.
Unmentionable but always mentioned
Panelists also debated whether a “lack” of brands or better alignment in the hotel industry means there is space for Airbnb to become a larger player.
“If Airbnb gets common standards on the business level, yes, we could have a problem, if they were to get big contracts with the likes of PwC, et cetera,” Enayetullah said.
Pfohl said the hotel industry’s attention should be focused on how it positions itself against Airbnb.
“We might feel (the effect of Airbnb) in the next downturn,” Pfohl said, who added when Airbnb starts to think like a hotel brand is when the industry would start to have problems.