Members of the Lodging Industry Investment Council shared some reasons why owners might be concerned about the planned merger of Marriott International and Starwood Hotels & Resorts Worldwide.
NEW YORK CITY—The reality of the planned merger of Marriott International and Starwood Hotels & Resorts Worldwide seems to be sinking in for the hotel industry as the merger inches toward completion.
Members of the Lodging Industry Investment Council shared some thoughts on the ultimate impacts of a combined Marriott/Starwood company during their meeting in conjunction with the 2016 NYU International Hospitality Industry Investment Conference.
The pending deal has been touted by many as a positive for both Marriott and the industry as a whole as it’s expected to give the expanded company a level of influence in combating industry disruptors like online travel agencies.
Mike Cahill, CEO of Hospitality Real Estate Counselors and LIIC co-chairman, said he thinks the merged company will have an unprecedented sway on asset values within the hotel industry.
“Starwood/Marriott will have an inordinate amount of control for a branding entity over real estate value and an increased ability to dictate capital costs,” Cahill said. “I think a lot of people don’t realize that an entity with no skin in the game other than branding can have the ability to control or manipulate values for individual owners.”
Worries for owners
While much of the talk about the Marriott/Starwood merger has revolved around additional negotiating power being an advantage against online travel agencies, LIIC members pointed out that would also apply in negotiations with owners.
In a recent survey of LIIC members, a majority (58%) believe the merger will “hurt hotel owners.”
Even beyond the additional negotiating power gained from its greater size and scope, the company could benefit from the fact that there will be one fewer competitor, said Jim Butler, founding partner with Jeffer Mangels Butler & Mitchell and LIIC co-chairman.
He said that could make negotiations more difficult for owners and developers.
“Starwood has been an important competitive entity,” Butler said. “It has been important to have that alternative.”
Harder for the new kids on the block
Jan Kuehnemann, VP of the capital transactions group at FelCor Lodging Trust, said the landscape isn’t likely to get major new players who can compete on Marriott’s level following the merger.
“It will be harder for new entrants because you have the Marriott behemoth and the Hilton behemoth,” he said.
Kuehnemann expects the branding companies to continue to consolidate power.
“Hilton will not sit on the sideline for a long time,” he said. “And it won’t just be internal growth but acquisitions. Then you wonder what’s next for IHG, Hyatt and some of the Blackstone brands. Those are out there. … What stops IHG from being the next target?”
Marriott’s capital costs
LIIC members said one of the top concerns for owners in the wake of the merger will be Marriott’s ability to impose significant capital costs on owners.
Clyde Guinn, principal at Lodging Advisory Services, said that’s historically been a concern among some owners.
“We did a lot more Hiltons than Marriotts in San Francisco for just that reason,” he said. “The capital costs are just outrageous.”