Charlestowne Hotels, the Charleston, S.C.-based management company, isn’t afraid to operate and develop independent hotels. It’s the company’s bread and butter. Of Charlestowne’s 41-hotel portfolio, 34 are independent hotels and five more currently in development are, as well. It’s a space that the company knows well, and is a reason why, according to Larry Spelts, VP of business development, developers seek out Charlestowne’s services.
“Developers that come to us recognize that we have a portfolio that’s heavily weighted toward independent upper-upscale and luxury boutique hotels and they want to avoid the expense of franchise-flag affiliation—recognizing that we are capable of enabling hotels to capture their fair market share without the need of a flag,” he said. “We’ve demonstrated that with the proper distribution infrastructure, good revenue management, strong digital marketing and strong reputation management, an independent hotel in the right destination can effectively compete without franchise-flag affiliations.”
Charlestowne’s clients are diverse, though their pursuits are the same: to develop great hotels that make money. That’s where Charlestowne comes in. Consider Columbus, Ohio, private equity firm Rockbridge, which specializes in hospitality investment. Charlestowne has operated hotels for them, but, “They need virtually nothing from us toward developing a hotel,” Spelts said. On the other hand, when the University of the South, in Sewanee, Tenn., decided it needed a hotel, the university turned to Charlestowne for its soup-to-nuts experience. “No private developer would come and do one, so they decided to do one themselves,” Spelts said. “They had no idea where to start so they hired us at the very genesis to guide the project.” The Sewanee Inn opened in May 2014, and in its first full calendar year of operation achieved revenue per available room of $133.20. A quick glance at TripAdvisor shows it as the No. 1-rated hotel in the state of Tennessee.
It’s no surprise, then, that one of Charlestowne’s specialties is university towns. It currently is developing hotels at the University of Central Florida and Clemson University, and it also worked in tandem with Chicago-based AJ Capital Partners when it launched the college-town-focused Graduate Hotels brand.
To hear Spelts tell it, it’s not that Charlestowne has focused on university locations; they have, more or less, fallen into its lap. “We just had some real serendipity,” he said, pointing to its partnership with AJ Capital. “Through it, we got very familiar and comfortable with those markets and other developers were drawn to us.
“The thing about university markets is that they are very stable markets and they’re very consistent. They tend not to tank in downturns as much as other markets, but, conversely, they also don’t tend to spike as high in up cycles. They are steady.”
While Charlestowne is an advisor on many development projects, it rarely has skin in the game. Of the 41 hotels it manages, it has an equity stake in one. “If we’re presented with a good opportunity and see that it’s a good project, we’ll do it,” Spelts said. On the development side, that’s tougher. “We would have to be the last dollars in and there would have to be a completion guarantee from the project sponsor. As a practice, we’re not investing to get management contracts, but if we had an attractive opportunity and we really needed to put skin in the game, we would figure it out.”
Independent hotels have never had more options at their fingertips—from distribution to marketing services. As the competitive landscape gets more crowded, it’s less and less that a hotel is a true independent—it has some external help. Which is exactly where the soft brands have made their mark, from Autograph Collection to Ascend Hotel Collections—large multibranded hotel companies have created affiliations or collections wherein independent hotels can reap the benefits of, for example, a robust reservations system.
Charlestowne is currently involved in the development of The Asheville (N.C.) Foundry Inn, which it will manage once it opens later this year. The hotel, an adaptive reuse project of a historical structure, will be part of Hilton Worldwide’s Curio Collection, which launched in 2014 as a way to tap into the independent market.
Collections are “definitely en vogue,” Spelts said. “It’s the right play for the developer who wants to have an easier time financing it.” Hotels without a hard brand are usually more difficult to get financed with good terms. “I’m not going to mislead or create any illusions: It’s harder to finance a hotel development project that’s not going to have franchise-flag affiliation,” Spelts said. “There’s just a lot of lack of knowledge among many lenders and equity investors about the fact that an independent hotel can succeed. If a deal does not go well and there’s a default on the debt, who wants to be that guy that originated the loan? Now, if it works, you’re a hero. But if it doesn’t work, then all of the sudden you’re stupid.”
Still, a common belief remains that soft brands are cheaper than hard brands. This is often not the case, Spelts said, though allowing that soft brands, from the likes of Hilton, Marriott and Choice, have an ace up their sleeve: “They can deliver mid-week corporate business,” he said.