While alternative accommodations might have a reputation among hoteliers for being unruly and unsophisticated, a recent session at the Hospitality Asset Managers Association fall meeting underlined how the segment is growing up and is serious competition for investment.
SCOTTSDALE, Arizona—Brands and operators in the alternative accommodations space are growing increasingly sophisticated and attractive to institutional investors, according to a panel of sources speaking at the Hospitality Asset Managers Association fall meeting.
Bryan Auchterlonie, founder of Destination Capital, said both investors and lenders have increasing interest in the space.
“If you look at the alternative side, the capital cost is so much lower and the return on that cost is relatively higher,” he said. “If you’re going to be building a $500,000- to $600,000-a-key asset, you can ask yourself if you can build something like AutoCamp or Collective (Retreats) for less and that will yield more.”
Anjali Agarwal, COO of AutoCamp, said well-known investment groups such as KSL Capital are already working in the space. Agarwal comes from a background of hotel asset management, previously working with The Chartres Lodging Group, and now works with a company that describes itself as an “outdoor hotel brand” with “stylish accommodations in modern Airstream suites and luxurious tents.”
“There’s a growing interest for institutional capital entering the space,” she said. “The economics are compelling on a development side and from an operating margin perspective.”
The investment thesis is supported by increasing traveler interest, said Peter Mack, founder of Collective Retreats. Mack is a former Starwood Hotels & Resorts Worldwide executive.
More people are looking for opportunities to disconnect from social media and work, he said. At the same time, they are more interested in spending on travel and unique experiences than luxury goods, which bodes well for unique lodging platforms like those his company offers, he said.
“The convergence (of those trends) is really exciting and something we’ve studied carefully,” he said. “It’s something that should grow hyper rapidly.”
Much of the discussion on hotel companies investing in alternative accommodations has centered on the hotel brands. But David Danieli, SVP of asset management for Pebblebrook Hotel Trust, who moderated the panel, said his company has done some research on whether investing in alternative lodging real estate would make sense.
Agarwal also noted luxury resorts, such as Ventana Big Sur, which is part of Hyatt’s Alila brand, are investing in alternatives, including glamping, which has “tents that are unique and luxurious.”
In some ways, it’s still untamed
While the sector is gaining interest from thoughtful investors, there is still a youth and newness to it all, sources said.
Agarwal said the alternative lodgings business is much more dynamic just because so much less is set in stone at this point.
“In the traditional hotel world, we’re always looking at making incremental improvements,” she said. “How do we take scores from a seven to an eight or an eight to a nine? But when you’re a disruptor, you’re re-envisioning the entire thing. We’re going back to the drawing board.”
Mack said during his time at Starwood, much time was spent seeking efficiency in small things, and while that attitude might eventually hit the alternative accommodations space, it’s not there yet.
“At Starwood, we’d be sitting through Six Sigma meetings for hours questioning whether housekeepers should walk around the left side or the right side of their carts … but we just don’t do that (at Collective). It’s just a whole different beast,” he said.
He said that is also what makes it so difficult for the big brand companies like Marriott International and Hilton to move into the space in a “wholesale” way.
Auchterlonie noted some hotel brands were burned in the past by investments into vacation rentals designed to capture some of the experiential demand.
“There were some missteps by brands using their balance sheets at healthy valuations for companies in the vacation rental space that just didn’t perform,” he said.
He noted Marriott’s move into homes and villas is unique and somewhat surprising because the brand is giving up control of the “end-to-end experience” in a way it doesn’t in traditional hotels. That presents some risk, he said.
“We’ll see over time how the big brands learn about the space,” he said.
Auchterlonie said he also expects the space to rapidly shift and change over the next few years.
“It would be silly not to expect a wave of consolidation as the product matures and demand grows,” he said.
Must follow the rules
With a higher level of sophistication comes the expectation that all of the proper rules and regulations are being followed, sources said. And that hasn’t always been the case in the alternative accommodations space.
Agarwal noted her company went so far as creating special rooms to accommodate guests with disabilities because their Airstream trailers are not ADA compliant.
Mack said all of his company’s destinations are “above code,” but sometimes regulations are interpreted differently for them than traditional hotels.
“Our rooms aren’t in buildings, and usually the building code is where the fire, life and safety regulations (come into play),” he said.