Independent roundtable: What it takes to operate alone

Pictured from left: Mark Shalala, VP of development for upscale brands at Choice Hotels International; Justin Jabara, VP of development and acquisitions at Meyer Jabara Hotels; Gerry Chase, president and CEO of New Castle Hotels & Resorts; Grey Raines, president and owner of Raines Hospitality and managing partner of SpringBridge Development; Harry Wheeler, principal of Group One Partners; Gautam Sharma, president of Global Vision Hotels; Bruce Marcus, VP at Cooper-Horowitz; and David Eisen, editor-in-chief of HOTEL MANAGEMENT magazine.

Independent hotels used to walk a lonely road, but they are now enjoying more time in the limelight as experiential travel booms. Beyond that, they now have more distribution options available to them via the so-called soft brands that have sprouted of late.

In recognition of that, seven executives in the hospitality industry, who understand the independent landscape, convened to discuss the state of independent hotels, the growing interest in soft brands, financing original ideas and more.

 

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The definition of “independent hotel” is suffering a death by degrees as concepts such as “branded independents” and “soft brands” become ubiquitous in the hotel industry. Gerry Chase, president and CEO of New Castle Hotels & Resorts, said an independent is a hotel that operates without flag support, but that doesn’t mean these hotels operate without support of any kind. Independents are able to purchase partnerships to fill in operational gaps when needed, such as reservation systems.

We typically approach that concept with our team… we do it by reservation systems, and there’s a couple really good ones out there,” Chase said.

Why go independent? Mark Shalala, VP of development for upscale brands at Choice Hotels International, said developers perform rigorous research before deciding on a project, and many mature markets simply won’t benefit from the addition of yet another branded hotel.

“It’s [about] differentiating yourselves, being unique, taking something that is special or unique about the locality, or the history of the piece of real estate that they’re buying and weaving that into your own story for the hotel, and making it its own brand locally,” Shalala said.

Many hotel owners decide to attach a soft brand, such as Choice Hotels’ Ascend Hotel Collection, to their independent properties as a middle ground rather than going at it alone or as a hard brand. Shalala said soft brands are an extension of the independent and lifestyle hotel movement, but sometimes the terminology is used incorrectly, even by large hotel companies.

“There are brands that are [calling themselves soft brands], but when you look at what they end up asking for as far as product improvement plans and some of the brand’s hallmarks that they are forcing the developers to build in… to me that’s not a soft brand, that’s another brand that they’re calling a soft brand,” Shalala said.

David Eisen [center], editor-in-chief of HOTEL MANAGEMENT magazine, and Mark Shalala [right], VP of development for upscale brands at Choice Hotels International, discuss soft-branded hotels.

Building Soft

Thanks to social media, online advertising and the reach of online travel agencies, operating an independent hotel isn’t as much of a struggle today as it was even 10 years ago. However, building an independent property can still be a challenge. Bruce Marcus, VP at Cooper-Horowitz, said the lending markets still retain certain guidelines that get in the way of independent hotel development. Some criteria can be softened if the development is in a strong location and the lender takes a leap of faith.

“It’s very difficult today for a new development team to come in that’s never done a hotel before,” Marcus said. “You have an interesting problem where some lenders don’t want to finance a property with a developer that’s not in their zone. Then if you go to the same bank in that location, they say, ‘Well, the borrowers are located in New York so we can’t finance his property in Chicago.’ It’s a matter of finding the right ingredients… and the lenders that are willing to step up to the plate usually can’t do very large deals.”

Another aspect of the issue is education. Gautam Sharma, president of Global Vision Hotels, said lenders are just now beginning to understand the concept of a soft-branded hotel. When Global Vision began the process of developing its first soft brand, it required multiple phone calls and interactions with many layers of lenders before they initially understood the concept.

“They didn’t understand, or didn’t want to understand, that we’re still a brand,” Sharma said. “If you send a brand, there’s no phone call because they already understand what a brand is. I think the only benefit of having several soft brands is that at least people will be aware of what [the concept] entails.”

Using soft brands, developers are also able to establish themselves in markets choked by an overabundance of traditional brands. Justin Jabara, VP of development and acquisitions at Meyer Jabara Hotels, said his company ran into that problem in Baltimore roughly five years ago, when suddenly he realized the city was full of every possible Marriott and Hilton hotel. At that point, competition became uncharacteristically fierce.

“That’s where the soft brand came in for us,” Jabara said. “We, as a true independent, didn’t have that brand system or the guest loyalty program. For us to have all that back-of-the-house marketing support, to run this portfolio as a true independent, we went with Ascend for our properties in Baltimore. It was a game changer for us.”

Left to right: Harry Wheeler, principal of Group One Partners; Justin Jabara, VP of development and acquisitions at Meyer Jabara Hotels; and Gautam Sharma, president of Global Vision Hotels.

Daring to Be Different

Despite the difficulties associated with developing, opening and running an independent property, the model remains attractive to owners and operators. Harry Wheeler, principal of Group One Partners, said his company is designing more independent hotels than ever before. He said this is likely happening because both guests and owners appreciate the freedom independent hotels offer to do something different.

According to Wheeler, these hoteliers are willing to pay 10 percent more on average for financing because they know they can do whatever they want with the asset.

“They’re willing to pay that extra 10 percent… and two years down the road [if they] want to sell it or refinance it, they think ‘I’ll pick a flag,’ or ‘I’ll pick a soft brand,’” he said. “Because instead of having maybe one or two independents nearby when it opens, by that time there’s going to be six or seven.”

From Wheeler’s perspective, speed is the key. His company focuses on designing independents in urban markets with high barriers to entry, and the first property to open often is able to dictate the market. The race, however, takes place at the lending level.

“We’re not seeing that rush to pick a brand or soft brand yet,” Wheeler said. “We’re seeing people a little bit more willing to wait and do it the way they want, and see how they float before they bring somebody on.”

Later in the conversation, Sharma validated Wheeler’s statement. Sharma said that his company never set out to create a brand, but after enjoying the process of launching an independent hotel, Global Vision moved forward with a plan to create more of them with the same name.

“The challenge always was, ‘Will we be able to sell these hotels with these brands?’” Sharma said. “Then we made a conscious decision, saying, ‘We’ll invest in this for the long term, then we’ll see what happens.’”

Shalala [left]; Grey Raines [center], president and owner of Raines Hospitality and managing partner of SpringBridge Development; and Gerry Chase, president and CEO of New Castle Hotels & Resorts, consider the attractiveness of independent hotels to developers, despite the challenges of getting these properties off the ground.

Independent Issues

An independent hotel requires a different kind of employee, as well. Sharma said independents are often on the hook to create their own training programs because they don’t have access to branded options, and it becomes more difficult to attract dedicated, skilled workers overall.

“With an independent hotel, you can’t tell them that you can transfer to 6,000 other hotels,” Sharma said. “It’s a little harder, but if you do find the right people, it’s a lot more fun. That’s what you have to sell.”

Chase said that this is true for independents in all respects, particularly when it comes to upholding standards. Independents are forced to create their own standards, and then police themselves to ensure they are living up to those standards. Failure in this regard can be devastating because negative online reviews are much more difficult to overcome when you are on your own.

While independent properties are popular with guests and hotel owners and operators, when larger hospitality companies try to make their way into the independent space their attempts sometimes fall flat.

Grey Raines, president and owner of Raines Hospitality and managing partner of SpringBridge Development, said many of these companies underestimate what it takes for an independent or soft-branded hotel to be successful.

Raines said winning independent properties are born from original ideas and passionate operators. However, he finds investors are trying to cash in on the independent craze by hiring consultants to brainstorm a concept that will be buoyed by a soft brand, thinking it will be successful on its independent label alone.

“I think three to five years to develop a property, especially on the lending side, is really important,” Raines said. “Charleston, S.C., is a perfect example. There, you’ve got a lot of really big players that are coming in that are never stepping foot in these assets. At the end of the day, they are going to compete against some really good independents and soft brands.”

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