National Report – For many, college is the best four years of their lives. Now, some hoteliers are heading back to school for what they hope are big returns.
Back in June, Hotel Management chronicled the development of Study Hotels, a full-service brand purpose-built for university markets and college towns led by former Starwood executive Paul McGowan and his development company, Hospitality 3. The company already has a Study Hotel opened in New Haven, Conn., by Yale University, and one slated to open in Philadelphia in 2016, near the Drexel University campus.
Now comes a new entrant looking to snag a share of the university business. Graduate Hotels is a new upper-midscale brand being rolled out by AJ Capital Partners in collaboration with Hong Kong-based Gaw Capital Partners. Christian Strobel, president of Graduate Hotels, and former head of development for boutique hotel operator Joie de Vivre, said the expectation is to have 20 Graduate Hotels within the next five years at an investment of around $500 million.
It already has one currently operating, in Athens, Ga. (home to the University of Georgia), which opened in early October. Next up will be Graduate Hotels in Tempe, Ariz. (Arizona State University, and opening later this month); Charlottesville, Va. (University of Virginia); Madison, Wis. (University of Wisconsin); and Oxford, Miss. (University of Mississippi). Of the first five hotels, four will be conversions, the primary mode of growth for Graduate Hotels, Strobel said. Four more Graduate Hotels are under contract, Strobel said, though he was unwilling to disclose the specific locations.
Strobel’s is working with Ben Weprin, AJ Capital’s CEO. The two have a history, having worked on the Hotel Lincoln in Chicago while Strobel was with JDV. The aim was to create more hotels like the Lincoln for untapped markets, Strobel said. Together, the two decided on college towns.
Strobel lists two reasons for the decision to focus on college towns: One is that that while university markets have seasonal demand, they aren’t as cyclical as the rest of the industry. “Predictability of demand is good,” Strobel said, citing data that peak-to-trough revenue per available room declines during the last downturn were greater in the top 10 or so MSAs versus college markets. “They are attractive from an investment standpoint,” he added.
This is a notion shared by another hotel company also highly invested in university markets, Columbus, Ohio-based Rockbridge, which has interests in mostly branded supply and some independents, including The Commons Hotel in Minneapolis, located on the University of Minnesota campus.
“There is a long-standing complementary relationship between universities and hotels,” said Adam Valente, a managing director at Rockbridge. “Many of the large and/or leading universities generate substantial lodging demand throughout the year. History has also shown that there are less severe economic peaks and valleys in university markets. This lower volatility is attractive to investors as it allows for stable and predictable cash flows. These attractive risk-adjusted returns have been appealing to both value-add and core investors, leading to a reasonably healthy pool of interested buyers and owners.”
And while the fear does exist that these university-located hotels could suffer once schools are out of session, Valente dismisses this. “University hotels in urban locations are blessed with the ability to accommodate other demand segments, such as corporate, convention and airline demand lacking in true college towns,” he said. “That said, high-quality and well-located college town hotels at leading universities often do well when school is out of session because year-round demand is generated from continuing education, athletic tournaments and state association groups, for example. Further, top-tier schools with leading business, technology, law and medical programs tend to have significant public-private partnerships that serve hotels well throughout the year.”
Number of Graduate Hotels expected to be open within the next five years.
Source: Graduate Hotels
For Graduate Hotels’ founders, their second reason for focusing on this market is even simpler: theirs is a college-targeted brand, not one of the “big” brands, which “look at everything from a demographic standpoint,” Strobel said. “We look at the kind of business that goes to places that’s not being satisfied by existing product.” He uses UVA as an example. “You typically find people are disappointed with what [hotels] are on offer. There is a large subset traveling for emotional reasons, a reunion, football game, maybe to teach there or to show their kids—all those highly charged moments. Traditional brands have focused on selling consistency; we are saying that the consistency of our product is that it has a real local flavor.”
DESIGNED TO BE DIFFERENT
That local flavor will extend to the design of Graduate Hotels as well. To say they will be museums devoted to college rah-rah (think Arnold’s Drive-In from “Happy Days”) would be wrong. While they will pay homage to the university, they’ll do so via a more subtle effect, Strobel said. For instance, the Athens property, a conversion of the former Foundry Park Inn & Spa, will have art pieces with a nod to chemistry, such as an equation for sweet tea on a wall. Why? Well, the University of Georgia is known famously for Bulldogs football, but did you know that football was actually brought to the school by a chemistry teacher? “We try to soak up the essence of the town but not in a really obvious way,” Strobel said. “We try to get around the folklore of the town.”
AJ Capital will keep the Graduate Hotels properties under its ownership until the brand meets a critical mass. AJ Capital has engaged South Carolina’s Charlestowne Hotels to manage the now-opened Athens and Tempe hotels and the imminent Oxford property.
According to Valente, the future of college-designated brands, like Study and Graduate, and other hotels in university markets is bright. “High-quality hotels that are well located have the best chance of success,” he said.
Rockbridge’s office in Columbus is minutes from The Ohio State University campus. And though Valente is not a grad, he understands the school’s influence and impact. “For a hotel on the campus, guests generally want to see and feel scarlet and gray, OSU football, Columbus and have experiences—including food and drink—throughout their stay that are consistent with these identifiers.”