Developers, operators and brands are learning how to adapt as dual-branded hotels become more prevalent throughout the industry, according to speakers at the Southern Lodging Summit.
MEMPHIS, Tennessee—As dual-branded hotels gain momentum in the development community, so too do the lessons learned from these single assets that house two (or more) brands under one roof.
Perhaps the biggest lesson, according to Gary Isenberg, president of New York-based LWHA Asset & Property Management Services, is leveraging a position in the market.
“One of the reasons we recommend dual branding is if the market can support a 300-room hotel, we believe from a developer’s perspective it’s better to control two brands, two flags than to build one flag and then someone else comes in to bring in another flag,” Isenberg said during the recent Southern Lodging Summit’s “Dual branding—How does it improve profitability?” session. “It somewhat insulates and protects you in addition to the segmentation of brands.”
Mehul Patel, chairman and CEO of Lewisville, Texas-based development and management company NewcrestImage, told Summit attendees that the company has come a long way in its knowledge of the concept since it opened its first dual-brand property in 2013—a Courtyard by Marriott/TownePlace Suites complex in Grapevine, Texas.
At the top of the list of lessons learned is finding the right balance for profit-and-loss statements.
“The first year we had two different P&Ls so we didn’t quite get the proper allocation between the two brands and we couldn’t measure the financials,” said Patel, whose company has three more dual-brand projects in various stages of development. “The following year we went with one consolidated P&L. We would still do a top line (budget) to make sure we had the proper forecast … so we (now) do two different budgets and combine them into one P&L.”
Tracking employees’ work progress was a major reason the two P&Ls didn’t work, he said.
“Housekeepers would clock in here and clock out there at the front desk and you have one GM, two assistant GMs,” Patel said.
The concept has continued to evolve as brand standards change. Patel said Marriott International now allows single-lobby, dual-brand properties, but when NewcrestImage developed its first dual-brand complex, it was required to have two lobbies.
“We haven’t decided to merge (the two lobbies in Grapevine) because it would be very expensive to merge today,” Patel said. “We would look at arrival experience, and even if I have one lobby or two lobbies, I would still enhance the arrival experience. Lobby experience, making it more customized, even a little bit bigger … elevate that experience in the lobby.”
One valuable lesson Patel said he learned from the initial experience is to integrate meeting space whenever possible—even if the two brands involved are select-service brands that don’t normally provide that amenity. The Grapevine complex has done well with the meeting space it included.
“If you add meeting space to that component, it’s (an) added benefit to that mix of it because you’re creating a different segment,” Patel said. “You have meeting space so you’re able to fill the shoulder days and able to fill it on weekends. … I wouldn’t say add value, but you create a lot of value by doing that.”
There is one caveat to the meeting space, however. Patel said Newcrestimage white-labels the meeting space and considers it a third business—a philosophy that has been beneficial.
“Today, millennials’ mindset is ‘I’m getting married at this ballroom, I’m not getting married at the Courtyard,” Patel said. “So we kind of create a different identity for the meeting space by having its own menu, its own uniform, everything. It’s a private-label meeting space business.”
And finally, a key thing to remember is the type of guestroom each brand requires. Patel explained that one mistake the company made with one of its projects was not closely considering the bed sizes.
“In the AC, we have a full-size bedroom and a king-size bedroom, and in the Residence Inn we have a queen and a king,” Patel said. “So it’s a nightmare for laundry people (to have) three different sizes. So you have to think every little bit of detail.”
Learning from the mistakes made is normal for any hotel concept, but the dual-brand philosophy is worth the effort, said Bill Duncan, global head of all suites brands for Hilton.
“Sometimes with risk there is great reward—but there is risk,” Duncan said. “When you look at the dual-build project from a brand and a company perspective, it is going to be very much about the operator. You’re running two hotels with one team, and they have got to be on fire to make it work.”
Adam Sherer, SVP of owner and franchise services and Marriott select brands franchising for Marriott International, said the live-and-learn education process is ongoing. Sherer referenced Marriott’s Courtyard/Residence Inn project in downtown Los Angeles as an example of having to make things work. For example, Residence Inn provides complimentary breakfast and Courtyard does not. That creates a unique situation that a number of other dual-branded projects face.
“How you handle that from an operations perspective makes it incredibly challenging,” Sherer said. “Lots of times when we see the designs of the complimentary breakfast, we like to refer to it as sometimes it looks like a jail because the ops folks want to really segment it away from those who are compelled to pay for their breakfast. But that’s not the experience we try to create. With that project, the Residence Inn space, complimentary breakfast, is up and away from the ground floor. It takes a little bit of work to get to that space. So we think about what’s the optimal way to create ultimately a great guest experience from check-in to F&B to the rooms experience.”
The education process begins with the financing process, the speakers said.
“There’s more difficulty in the dual branding of the Residence and Courtyard, physically the same lot and same operation, I would assume one lender on that,” Sherer said. “In other situations, you have actually dual lenders potentially.”
Patel said selling the project to a lender is all about storytelling.
“When you go to lenders, they don’t understand,” Patel said. “Many times you talk about new brands, and they don’t understand which company that brand is with. So it’s all about storytelling that you’re giving the lender and giving them some case studies and really having the advisor sell the market study.”
Developers also have to explain the two franchise agreements, cross default clauses and the insurance policy, among other things, Patel said.
Separate franchise agreements are in place because the different brands might have different contours in terms of expectations, Sherer said.
But the efficiencies of such a project are enticing, Duncan said.
“Most (developers) stick to the mashup of the core prototypes and put it together in many ways is that single permitting, single (general contractor),” Duncan said. “You just get so much variety of efficiencies throughout the entire process, and that is very attractive to lenders.”