HM Exclusive: Hotel franchising space crowds as Sonesta digs in

Sonesta has done in two years what it takes some companies decades to build. After Sonesta began franchising the brands Sonesta Hotels, Sonesta Select, Sonesta ES and Sonesta Simply Suites last September, the Newton, Mass.-based hotel company is accelerating growth, announcing that 50 new Sonesta franchises opened in the first six months of 2022. 

To hear it from Keith Pierce, who joined Sonesta in March 2021 as EVP, president of franchise & development, Sonesta’s meteoric rise is highlighted by two major events: the addition of more than 200 hotels from real estate investment trust Service Properties Trust, which owns 34 percent of Sonesta and is better known by its trading name SVC, and the acquisition of RLH Corporation, a deal that closed concurrent to Pierce joining Sonesta.
The separate deals swelled Sonesta to 1,200 properties across 15 brands in eight countries, a 350-percent growth rate since mid-2020.  
Pierce is no stranger to growing franchise systems, having spent 27 years combined at multi-brand franchisor Wyndham Hotel Group and Cendant Corp. “Now, we are one organization, one enterprise,” he said of Sonesta. Pierce joining the company is part of a major overhaul for Sonesta, which prior to the SVC property conveyance and RLH deal was known more as a niche hotel company than a top global player, now swimming the waters with the big fish. In April 2021, Sonesta hired veteran hotelier Brian Quinn as CDO. About a year later, Sonesta announced that CEO Carlos Flores was stepping down after seven years at the helm, replaced by John Murray, who was CEO of SVC. 

Good Timing

Registering the four brands for franchise—in addition to the brands that fell in the lap of Sonesta with the RLH deal, came in the nick of time for Sonesta. SVC made the decision to sell 65 of the hotels it put into the Sonesta system to repurpose capital, as REITs frequently do. “Had we not had franchising in place, those assets would have been sold basically unencumbered,” Pierce said, meaning that the new owner could choose what to do with the property: potentially brand it under a flag other than from the Sonesta family or repurpose the hotel into another type of asset, such as multi-family.
Of the 65 that SVC sold, 51 remained Sonesta franchises. Moreover, when the new owners committed to buy, they also agreed to future deals with Sonesta. “The net-net of the whole exercise is that we ended up with 20 committed future deals,” Pierce said. He calls it the 50-20-20 approach: 50 hotels, 20 new ownership groups, 20 future projects. 

Royal Sonesta, the fifth of Sonesta’s core brands and a higher-end, full-service product, will as of now continue to be grown via management contracts retained by Sonesta or, in some cases, by third-party. 

Looking Ahead

Sonesta is now positioned to grow its franchise brands throughout North America, having also fully registered in Canada. The company, which already has a presence in Latin America, will look to accelerate franchise growth in the region, where it previously had in place a master franchise agreement with GHL Hoteles. Pierce said Sonesta now plans to locate franchise development personnel in the Latin America region to spur growth. The focus, Pierce said, will be the Caribbean, Mexico and Brazil, to start. “The Americas are complete now for Sonesta brands and the RLH portfolio,” Pierce said.
According to Pierce, picking up the RLH portfolio not only gave Sonesta a valuable, companion platform, it gave RLH owners a sense of constancy and dependability. “The last two years before Sonesta acquired Red Lion were a little bit unstable,” Pierce, who was instrumental in the RLH sale to Sonesta, having put together an investment thesis to buy the company and helped raise the capital, said. “Now, there's this opportunity where they’re attaching their cart to a horse that’s rising.”
In order to service the full spectrum of Sonesta’s brands, Pierce has rebuilt the organization to include two branches: one comprised of its midscale and economy hotels; the other that handles upscale and above. Pierce said they now have a franchise organization that hits on the full spectrum of market segments. “We've been growing those businesses all through the course of 2021 and into 2022,” Pierce said, adding that RLH is going to be a “great opportunity” for us in Latin America. 
In the U.S, Sonesta will look to grow in major markets via franchise, but also, in its latest move, by acquisition. Last month, it acquired four New York City hotels from Denihan Hospitality Group that Sonesta will also manage as The Benjamin Royal Sonesta New York, The Shelburne Sonesta New York, The Gardens Sonesta ES Suites New York and The Fifty Sonesta Select New York. It also acquired the intellectual property of The James Hotels brand, which it will look to expand on. 
The groundwork has been laid for Sonesta, now comes the execution. “The first step was setting up the franchising platform—done, checked the box,” Pierce said. “The second step, retain the for-sale assets under Sonesta franchise—check. Now, we are in acceleration mode. It’s really a great success story.”