Marriott's Tim Walton talks Starwood merger, Brexit and Europe development

The Annual Hotel Conference

Tim Walton, Marriott’s RVP of International Development for Western Europe, is responsible for overseeing the development of Marriott’s brands across Western Europe.

At the upcoming Annual Hotel Conference, Oct. 12-13 in Deansgate, Manchester, Walton will participate in the panel discussion "Make It Count": “Key strategic decisions will determine the viability of a development scheme. Learn from those currently living the process, as well as those drawing up the plans, how they have negotiated the hazards and made it work.” 

Ahead of the conference, Walton spoke with HOTEL MANAGEMENT about Marriott’s acquisition of Starwood Hotels & Resorts, the company’s plans for growth in Europe and the state of the hotel industry across the continent as a whole.

1) At this moment, how would you characterize the overall state of hotel development in the UK and, further, across Europe? 

Walton: Currently it's very strong. Clearly, as far as our company is concerned, we're going through a transition at the moment as a consequence of the recent acquisition of Starwood, but with that in mind, we see continued tremendous growth opportunity in terms of development. Specifically, in terms of the UK, there's been some level of caution in the market generally and in the economy generally as a consequence of the recent referendum vote to leave the European Union, but from a hotel development perspective, we have not noticed any slowdown at all. In fact, our UK team has never been busier.

From a development perspective, we're going to open seven hotels in the UK this year—that's our busiest year ever in terms of hotel openings, and the pipeline is also looking extremely strong. The situation across Europe is similar. We're seeing more development in some countries compared to others, but, generally, notwithstanding the geopolitical tensions across certain parts of sort of Eastern Europe and beyond at this stage, the development horizon is looking good.

As a consequence of what's happening in the world, things have slowed down a little bit in Turkey and in Russia, [but] things are looking particularly positive in Spain and Greece. Spain is having a very good year as far as trade is concerned. Hotel trade in Iberia generally is very firm—in part due to displacement from some of the more troubled regions of the world. That has stood to Spain's benefit in terms of trading. Because of the strong footprint we have down there subsequent to the acquisition of 18 hotels, we have a very significant presence there now, and that is starting to bear fruit in respect of other developmental opportunities, so there's a lot happening in Spain at the moment.

Similarly, Greece. Greece is a market where for the last few years Marriott has had absolutely no representation whatsoever, and over the course of the recent term we've opened our first two hotels in Greece. They're both Autograph Collection Hotels on the Island of Crete. We're building a robust pipeline there. It's spotty across Europe. There are more opportunities in some countries at this time that there are in others, but we continue to assess them all.

2) How are the lending markets? Would you describe them as active? Cautious? What are the types of projects getting done?

Tim Walton is Marriott’s RVP of International Development for Western Europe

Walton: Again, the situation varies enormously across Europe, and one mustn't look upon Europe as being a homogeneous plain. If we talk about the UK specifically, the lending market is both active and cautious—if that's not an oxymoron. We are seeing lending both in respect of conversion and new-built projects. With that said, there is an air of caution within the lending market, but that notwithstanding, stuff is getting done. For the right projects in the right locations with the right brands, the right management teams and the right marketing positioning, stuff is getting done.

I think that plays to our benefit to a certain extent because we're proud of our suite of brands. Our brands have an excellent track record when it comes to producing business and driving business into hotels, and I think vendors are looking for that comfort of a strong brand when it comes to lending to particular projects, be it on a conversion or a new built basis. Yes, there is lending in the marketplace, and yes, at the same time, I think there is also a certain level of caution to lending, too, but stuff is getting done.
3) With the Starwood deal finalized, Marriott now has 30 brands in its portfolio. That’s a lot of brands to develop. Any sneak peek on Marriott’s strategy in Europe?

Walton: One of the key motivations behind the Starwood acquisition was access to their brands. We have long admired Starwood brands, particularly when it comes to their luxury and lifestyle brands. Part of the motivation is the fact that we now have an offering at every level of the marketplace, from very luxurious, in terms of Bulgari and Ritz-Carlton and St. Regis and so forth, all the way through the quality food chain down to Moxy, which is our budget offering within our European stable.

We feel that although it's a lot of brands, there is sufficiently a space between all of those brands to be able to differentiate each, and it is our strategy to grow all of those brands in Europe. Our view is that there is likely to be a bigger opportunity in the moderately-priced and budget-price tier in terms of scale. That's where we see the opportunity. That notwithstanding, we have a great range of brands within the luxury tier now and will continue to develop those, but on a far more selective basis, because not every market will support the capital costs and the operating costs associated with a luxury brand. The opportunities as you move down the quality food chain are far greater, because down the budget and economy end of the market your capital cost of delivery and your operating cost is that much lower. Those costs can be justified in a greater number of markets than is the case for the luxury brands.

Part of our motivation of buying Starwood was to be able to grow those brands, so our plan is to grow them all.

RELATED: AHC speaker series—Danny Pecorelli of Exclusive Hotels; JLL's Max Thorne; OakNorth's Trevor Morris.

4) What are the current opportunities and challenges facing development?
The greatest opportunity for us arises from the recent acquisition of Starwood—this being a longstanding admiration in respect of their design, their customer service experience and their marketing experience, and also their SPG program.We see an opportunity to put all of those things together with our sort of our people first culture, or operational expertise and our market leadership when it comes to sales marketing distribution and so forth. We think the sum of the two is greater than the parts.
Our thinking is that one plus one will equal greater than two, and as a consequence of that will deliver great value to our owners, because Marriott Rewards and the SPG program together is a very compelling proposition of market leading sales and marketing platforms together with the Starwood marketing program.

In terms of driving business into hotels across the 30 brands, it should be very compelling. That's where I see the opportunity in terms of being a genuine market-leader through scale when it comes to driving business into the hotels that are bearing our brands. The Starwood acquisition is incredibly new, but just as a consequence of the scale, there is incredible opportunity there for the owners of our branded hotels in terms of us being able to drive in business at the top line and drive in operating efficiencies in terms of bottom line growth.

The challenges in Europe are those that have always been. There are very high barriers to entry in many markets. In many markets there just simply aren't that many opportunities for new-built hotel development. All the really good sites went a long, long time ago. City center locations in particular are very restrictive. In most jurisdictions in Europe, we work with very restrictive planning conditions and statutory planning consent can be very problematic and difficult and drawn out and expensive to obtain.

As a consequence of scarcity, land costs are high in terms of buying land. Europe is by its very nature in most jurisdictions a high-construction cost and high-operating cost part of the world. Another challenge is the fact that in many provincial markets in Europe there is inherent price sensitivity in terms of the sort of rates that you can charge for rooms. It's why we see a really good opportunity when it comes to the development of our mid-market and economy brands, because there is this inherent rate sensitivity when it comes to the provincial and secondary markets.

We continue to look at many conversion opportunities and we continue to work on many of them, but it's a fact of life that 70 percent of all rooms in America are branded, 30 percent are not. The inverse is true in Europe insofar as 70 percent are unbranded and only 30 percent are, which naturally makes you think that there is an opportunity there for rebranding—and it is, but it's only ever going to be selective because, candidly, many of the unbranded rooms in Europe are simply unbrandable—certainly when it comes to our brands. While we continue to look at conversion opportunities on a selective basis, it will only ever be on a selective basis, because many of the unbranded hotels we see in Europe simply aren't viable for conversion to our brands.

The last main challenge is because of the scarcity of real estate in Europe, there is strong competition from other classes of real estate, whether it's residential use or office use. There is a lot of competition for that, so that too makes it challenging when it comes to the development of hotels. 

5) What would you say is the biggest difference between hotel owners/developers in Europe versus the U.S.?

Walton: The United States is perhaps more of a homogeneous plain than is the case in Europe and there is a tendency perhaps for people to consider Europe as a whole without necessarily an appreciation of the fact that each jurisdiction can be extremely different when it comes to development conditions, market conditions, contractual conditions, even brand recognition. In some markets where Marriott lacks distribution and representation, our brands aren't as well-known as they might be in parts of Europe where we do have strong distribution.

In the UK, for example, where we have some 65 hotels plus now 11 from Starwood, people know our brands and people know our companies. In other parts of Europe where, perhaps, we don't have so much distribution, our brands aren't as well-known; whereas in the United States, where we have strong distribution across the country, there is a much higher level of recognition than is the case in some parts of Europe.

That's a very long-winded way of saying that in America it's easier to be standardized when it comes to doing business. In Europe, each jurisdiction is different and each jurisdiction has its own inherent and individual challenges that, frankly, make it a very interesting place to work, because each jurisdiction is different. It's by no means a homogeneous plain and we have to be sensitive to that as we do business in Europe.

The Annual Hotel Conference is Oct. 12-13, at the Hilton Hotel in Deansgate, Manchester. To learn more about the conference and to register, click HERE.