The dual-branded hotel model has been attractive to many hotel players since the early 2010s, but the idea of doing more with less has garnered particular favor in the current environment – for good reason.
High interest rates, labor shortages, the increasing appeal of mixed-use developments, less available land, heightened material and construction costs and the ability to pull in different but complementary types of travelers have put this efficient model front and center for certain hotel investors in certain markets.
Mark Kallenberger, principal of hotel investment consultant firm Kallenberger Jones & Co., believes the dual-branding approach can be win-win-win.
“It is market-driven in that it benefits hotel guests, franchisees and franchisors,” he explains. “Hotel customers are afforded more purchase choices, increasing the possibility they’ll find ones that better meet their needs. Franchisees are often able to realize higher financial returns and possibly limit competition from other developers. Franchisors are able to enhance the distribution of their brands, especially when launching new brands.”
The Benefits of Dual Branding
The efficiencies inherent with the dual-branded model are particularly attractive to franchisees who face high development costs. The price of construction materials, labor and land increased steadily post-pandemic through 2022, according to CBRE, with many markets experiencing an increase between 10 per cent and 20 per cent. These costs remain elevated, though stabilized in many markets.
“The per-room cost of developing a market-supported dual-branded hotel is likely to be lower than that of a single-branded hotel largely because it should have more rooms since it is appealing to a broader swath of hotel customers,” Kallenberger adds.
Clarence T. Vinson, president of PFVS Architects, adds that diversity and density are two big bonuses with the dual-model, especially in this competitive environment.
“Real estate and land prices are growing every day,” he says. “Dual and triple brands allow the developer to build more on smaller parcels. It especially is an advantage in urban areas where lots can be very small.”
Lightstone knows this firsthand. The privately held real estate company opened the Moxy Downtown Los Angeles and AC Hotel Downtown Los Angeles in April 2023. The 37-story tower contains a total of 727 keys, in addition to 12 dining and entertainment venues and 13,000 square feet of meeting and events space.
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