DENVER — 2018 was a big year for Cobblestone Hotels. In its 10th year of existence, the Neenah, Wis.-based company closed on its acquisition of the Key West and Centerstone brands, adding 27 properties to its portfolio. Two months after that deal closed, the company acquired the Boulders Inn & Suites brand, onboarding 13 hotels by the first quarter of 2019.
With 140 hotels open or under construction across 27 states, President/CEO Brian Wogernese kicked off the company’s recent annual conference at the Hilton Denver City Center with a look back over the accomplishments of the past year and the past decade. In 2011, the company had all of eight hotels was looking to have a portfolio of 50 in the next four years. Instead, he said, it reached 60 by 2015 and reached 100 in 2018.
Wogernese acknowledged that he wasn’t fully sure why the team went on an acquisition spree in 2018. Vimana Franchise Systems, the group that had owned Key West and Centerstone since the 1980s, had reached out to Cobblestone, he said, because the brands “needed new life.” Cobblestone, in turn, needed hotels in the American South. “We learned what to do and what not to do,” Wogernese said, noting that the deal was the company’s first acquisition.
Boulders, meanwhile, was Cobblestone’s biggest competition in Iowa, a valuable market for the brand. “Why not buy them?” Wogernese asked rhetorically. The company launched at the same time Cobblestone did, and similarly grew primarily through new-builds. “We bought them in October, started franchising in December and onboarded in January and February,” he said. “If that doesn't seem like a big deal, it is.”
After a year of major deals, said Jeremy Griesbach, president of development at Cobblestone Hotels, the company’s strategy for 2019 is to slow the pace down somewhat. “We learned a few years ago that busier isn’t always better,” he said. In the meantime, the company still is looking to form development partnerships in a bid to increase bandwidth, particularly for the Boulders brand, which has exclusive rights for some sites in Iowa and Missouri. “Part of the plan to increase our bandwidth is to partner with the people who raise the money,” Griesbach said.
Cobblestone also is expanding into new markets, and the team expects to add another 60 properties to the portfolio by 2022. The company’s first property in New York is slated to open in the town of Medina, and will mark Cobblestone’s easternmost location. The westernmost, meanwhile, is slated to open in Morgan, Utah. “The pipeline looks strong for both corporate and franchise hotels,” Griesbach said.
Griesbach predicted that the company’s Main Street prototype model would bring the brand to “higher profile” locations, but acknowledged that what Cobblestone sees as high profile is likely different from what a company like Hilton might consider. “Ours would be Chippewa Falls or Hartford, Wis.,” he said. “Not huge markets—what most brands see as tertiary.” Focusing on these often-overlooked markets, he said, is how Cobblestone competes against bigger brands. “It puts us in areas [where] the brand will be more recognized and will get traffic,” he said.
Currently, the company has eight Main Street models open and operating, another eight under construction and four in development.
But for all the company’s growth during the past year, the development team does not expect to see Cobblestone hotels in New York City or Los Angeles. Cobblestone, Wogernese said, fits “a certain niche” in towns with fewer than 10,000 people. Most larger hotel brands want to have between 80 and 90 guestrooms for their smallest properties. “We can do 45 to 50 rooms,” he said.
The bigger companies—almost all of which are publicly traded, Wogernese noted—are focused on bottom-line revenue for their investors and get most of their income from franchise fees. “If you have a 40-room hotel, [it’s going to gross] less than $1 million, so it’s not attractive for most investors,” he said. “We can afford to do that.” In smaller towns, he acknowledged, it’s hard to find investors willing to take a risk on a hotel. By keeping the cost per key down, however, the overall debt is also lower, making it easier for owners to see a return on their investment.
“We would rather not have enough rooms than too many,” Wogernese said of the company’s growth models. As such, the company builds for future additions. “If the market says 70 rooms, we build 50. The banks will give more money for additions if you do well, but won’t take rooms back or forgive loans if you don’t.”