REPORT FROM THE U.S.—The Valencia Group has been bitten by the growth bug.
Executives at the Houston-based development, ownership and management company are so confident in a hotel recoverythey’re planning to introduce a new mini-brand of unique, 150-room roadside hotels they’ll build and manage themselves.
Valencia’s portfolio features three full-service, independent hotels—the 212-room Hotel Valencia Santana Row in San Jose, California; the 213-room Hotel Valencia Riverwalk in San Antonio, Texas; and the 244-room Hotel Sorella Citycentre in Houston—all of which the company owns and operates.
Valencia recently broke ground on Lone Star Court just outside Austin, Texas, which is scheduled to open in early 2013 and will debut a new boutique concept the company hopes to spread across the Southeast United States quickly.
“It’s an entirely new concept. While Lone Star will be specific to Austin, the court concept will be a new brand. They won’t all have the Lone Star name,” said Roy Kretschmer, VP of operations for Valencia. “Just as Lone Star picks up the locale, so will hotels we develop near (Louisiana State University) or in Baton Rouge (Louisiana).”
Valencia’s new concept will be a throwback to the old roadside motel of the 1950s and 1960s; a tribute to Americana that will merge nostalgia with 4-star guestroom amenities such as high-thread-count linens, complimentary high-speed Internet and flat-panel TVs. The key differentiator will be a focus on social programming of the outdoor space. Valencia will set aside a large budget for landscaping and the swimming pool. There will be a truly “authentic” bar and live music will be featured regularly.
“It’s hard to be authentic if you’re piping in music,” Kretschmer said.
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The key differentiator for Valencia’s new hotel concept will be a focus on social programming among the outdoor spaces.
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Valencia has identified nearly 20 major university towns and state capitals in the Southeast United States for development spots. The goal is to open about three a year and get up to 15 in five years, Kretschmer said. One key requirement is the markets have “plenty of sunshine” because the concept will feature several spots to socialize outdoors, including a courtyard, the pool, a pavilion and a fire pit.
“We’re primarily looking at sites where we can do new builds, but we’d certainly look at the right opportunity to convert the right space,” he said.
They won’t be markets that have a huge a corporate infrastructure, but demand will be there for a unique, smaller product, Kretschmer said. The first property, Lone Star, will open in Austin’s northwest corridor in a mixed-use development called The Domain, which will feature restaurants, luxury retail and Westin and Aloft hotels.
“We’re not looking to have a $400 average rate,” Kretschmer said. “We want to embrace the local communities.”
Right timing
Kretschmer and the Valencia team knew new-construction financing would be a challenge, but so far they’ve been successful working with banks. And, obtaining debt for Lone Star was “no challenge at all,” Kretschmer said.
“It was a little scary at how subscribed it became,” he said. “Our bank of investors and lenders seem to have really embraced it and endorsed it.”
Kretschmer said the new roadside concept—with between 100 and 150 rooms and taking less than two years to build—is more efficient than a high-rise and therefore won’t require as much equity capital. “If they were $70-million projects it would be a different story,” he said.
However, the new concept hotels do take up a considerable amount of land—three to four acres—and are “more or less space hogs,” Kretschmer said.
Building the brand
In fact, it was a challenging finance market that led Valencia to invent the roadside concept.
“We were sitting around a board table having a casual conversation. We were remembering when we were kids and taking road trips; back when you didn’t need to make a reservation,” Kretschmer said. “As a kid you didn’t care about the amenities, you just wanted to make sure there was a pool. Wherever you went, the architecture changed. The whole design of the place changed.”
Valencia hopes to put its spin on the roadside concept by ensuring it doesn’t feel like a chain.
“We’re not trying to replicate (the ’50s and ’60s) in a very plastic kind of way. We didn’t want to create a theme or be Disney-esque,” Kretschmer said. “That’s why we wanted control of the design and building process … to make sure our concept is derived.”
Kretschmer said Valencia’s President and CEO Doyle Graham Jr., was raised in a hotel—as his father was in the hotel business—back in the days when Waldorf Astoria and other Beverly Hills hotels were popular without being prototypical.
“There weren’t big-box chains and the hotels weren’t designed 1,000 miles away,” Kretschmer said. “Doyle didn’t grow up in that area. Hotels he was accustomed to seeing were independent hotels with the ability to customize your experience.
“We’re really trying to capture that authenticity. We’re the anti-chain; the anti-prototype.”
On the operating side, Kretschmer said the new concept will be managed just as the three full-service hotels in the company’s portfolio are. Social media and online-booking channels help level the playing field between independents and brands, he said.
“Before 10 years ago, if you weren’t plugged into a major chain you were at a disadvantage,” he said. “Today, in each of our markets we’re running at a premium over our (competitive) sets. … We’re competing with the same usual suspects and we’re outperforming them even though we’re an independent.”
Valencia has built its own internal central reservations systems and each of the new hotels will be plugged in. The company has its own web-booking engine and will take advantage of online-travel agents when necessary, Kretschmer said.
“The goal is to convert more bookings where the cost of the transaction is zero,” he said.
