Brands, owners find alignment

David Pepper

David Pepper, SVP of global development for Choice Hotels International.Pictured: David Pepper, SVP of global development for Choice Hotels International.

Boston – What do the top executives at companies like Hilton Worldwide, InterContinental Hotels Group and Choice Hotels International worry about in their business? Turns out, they share many of the same challenges—and rewards—that owners and managers do. Sessions at April’s HELP conference here illustrated some of the ways senior brand leaders are increasingly on the same page as owners, financiers and third-party managers when it comes to distribution, CapEx funding and consumer trends.

More than ever, brand development executives are citing strong and abiding partnerships with long-term owner/investors as key to growth.

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“The most important thing for us is to create a long-term relationship with the partners who develop our brands,” said Steve Haggerty, EVP and global head of real estate and capital strategy for Hyatt Hotels. “We’re looking for people who can teach us, who have a strong capital base and who can help us co-evolve our newer brands.” Haggerty emphasized that Hyatt “isn’t trying to be a gigantic company,” thus making one-on-one relationships more important.

But even for those gigantic brand companies, awareness of owner and operator issues is front and center, especially as brands strive to grow their footprints long-term.

For Choice, the best partnerships are with people who understand the business, according to David Pepper, SVP of global development for Choice. “We say you have to be careful of deal junkies—the successful people out there in the industry that often forget that this is an operating business,” he said. “Those are people who can get the deal done, but they can’t invest back into the operating side.”

Pepper said it’s important for owners to take time for underwriting, feasibility studies and operational planning, to lower the chances of financial problems later on.

Steve Haggerty, EVP and global head of real estate and capital strategy for Hyatt Hotels.Pictured: Steve Haggerty, EVP and global head of real estate and capital strategy for Hyatt Hotels.

At Hilton, about 73 percent of people developing new Hilton properties are current Hilton franchisees, according to Craig Mance, SVP of development in North America for Hilton. He said the owners who developed hotels during the downturn are doing especially well because they managed through the adversity.

To combat that adversity (and future-proof against it), owners at the HELP conference, who affiliate with brands, talked at length about how working together with brands keeps big-picture problems at a minimum.

“Our main strategy always has been to stay as close to brand strategies as we possibly can,” said Mike Everett, CIO of Sage Hospitality. Many other owners said that since the recession, they have concentrated their development in preferred franchises, rather than spreading out too thinly.

Still, that strategy isn’t without some challenges. While owners recognize that brands were flexible during tough times, they continue to challenge elements they feel incur unnecessary costs.

“Sometimes we get concerned about the economic models of [saving a set amount of CapEx reserves],” said Rob Winchester, president and COO of Waterford Hotel Group. “With some brands we see a new design before the useful life of the old one has ended, and that just collapses any reserve we have.”

Distribution is one area where both brand executives and owners agreed that partnership is essential to drive as much business through the direct booking channel as possible.

Craig Mance, SVP of development in North America for Hilton.Pictured: Craig Mance, SVP of development in North America for Hilton.

“We all feared the Internet would be the death of brands,” Pepper said. “But really, it helped. Everyone is working on laptops, phones and tablets, and so we all need apps and connectivity, and that’s where branding has become so much more relevant, to get distribution.”

As a result, owners are seeing better advance booking trends, in many cases due to stronger high-revenue group business.

Tom Corcoran, principal with REIT FelCor Lodging Trust, said corporate group business is strong, and coming back in the resort segment, in particular.

Everett agreed, saying Sage’s group revenue per available room is projected to be up 6 to 8 percent this year.

On the design and operations side, there is one place where brands and owners are in perfect agreement—the communal lobby.

While all brand executives agreed that the idea of a social lobby is a win-win at most properties, Mance said Hilton notices the trend taking off, in particular at its select-service properties compared to its full-service properties.

From the owners’ perspective, Corcoran and Winchester agreed. “We see a changing environment on how people work in general, and younger people in particular like to work in public spaces,” Winchester said.

“For sure,” Corcoran said. “Interactive lobbies are the way to go.”