Peer-to-peer review sites an impetus for new soft brands

Subsequent to this note is Hotel Management's take on Starwood's Hotels & Resorts' new soft brand for upper-upscale independent hotels, Tribute Portfolio. HM was given exclusive access to, first, a Starwood-hosted dinner in New York unveiling the new brand to SPG members, then an invite to Starwood's Starlab, also in Manhattan, where the brand was hatched and developed. While the launch of a new brand—particularly when it's Starwood's first in almost 10 years—is exciting for the company and travelers—the bigger story here is the unquestionable influence sites such as TripAdvisor have on how and what guests book nowadays. Brands used to have the power, but now guests can read about just any hotel out there, and look at unvarnished pictures. Now, they have the power and are less wary of staying in hotels without a brand flag. Will it continue and what are the far-reaching implications?

Below is a truncated version. Check out the May issue of Hotel Management for the unabridged version.

The writing was all over the wall in early March. That’s when news broke that REIT Chesapeake Lodging Trust had closed on its acquisition of the Royal Palm in South Beach, Miami. No huge deal; REITs buy hotels with high frequency. What was eye-catching was this line in the release: “The Trust entered into a new franchise agreement with Starwood Hotels & Resorts, where the hotel will be affiliated with Starwood’s new brand for independent hotels.”

Was it a new brand for independents? Starwood, at the time, hadn’t announced anything. Naturally, the wheels started turning, but comment from Starwood regarding a new brand was nil.

But it didn’t take a genius to see what Starwood was doing: launching a soft brand to steer independent hotels into its vast distribution network. A month later, it was confirmed. Starwood had formally launched Tribute Portfolio, a soft brand focused on the upper-upscale independent hotel space. The 10th brand for Starwood is a sort of sister brand to Luxury Collection, Starwood’s soft brand for luxury independent hotels.

The goal: 100 Tribute Portfolio hotels by 2020, from 100 to 400 keys, in urban and resort locations. “We’ve worked diligently on it the last six to seven months,” Dave Marr, Starwood’s SVP of brand management, North America and global brand leader for Tribute Portfolio, said. “We’ve seen the opportunity growing in the independent, upper-upscale space.”

Why Tribute Had To Launch Now
For years, hotel companies have been all about their brands: highly protective and prescriptive of existing ones, while continually searching for opportunities to fill gaps with new ones. Hotel brands essentially compartmentalize travelers: promising a specific design and service that fits a certain taste or need. Travelers, in many ways, allowed the hotel companies to make their travel decisions for them. And that was ok.

But then social media and peer-to-peer review sites, such as TripAdvisor, came along, affording prospective travelers the ability to read—hopefully true—reviews and accounts of specific hotels and look at unvarnished imagery. A vast web was out there vetting hotels for the world to see.

Today, in part due to social media and review sites, there is a large swath of travelers comfortable booking unbranded, independent hotels. Conversely, more and more hotel developers today have the confidence to build and open independent hotels, convinced they don’t need to hang a hard brand flag on their property and adhere to strict brand standards.

“Many developers have come to me with opportunities over the years for an independent hotel, and trying to see what we could make it,” Marr said. “Can it be a W, Westin, Le Méridien, etc.? It felt like putting a square peg in a round hole—the developers’ vision wasn’t matching up against our other nine brands.”

This confluence, not to mention the fact that a large inventory of existing global hotels are already independent, was the impetus for the soft brand or affiliation programs the hotel companies offer today—from Marriott’s Autograph Collection, Choice’s Ascend Collection and Loews’ OE Collection, to Best Western’s BW Premier Collection and Hilton’s Curio.

CEO Speaks
The launch of Tribute Portfolio comes on the watch of Adam Aron, who succeeded Frits van Paasschen as CEO of Starwood back in February. At the time of the announcement, it was clear that the change at the top was made in order to, in the words of Bruce Duncan, chairman of the Starwood board, “do better,” by accelerating the company’s pipeline, driving top-line revenue growth, increasing net-room growth, continuing an asset-light approach, managing costs better and sharpening operational performance.

Word is Aron fast-tracked Tribute, which he called “one example of moving this company forward.”

REIT’s Reasoning
One is already onboard: Chesapeake Lodging Trust, owner of the Royal Palm, the first hotel in the Tribute Portfolio. As Rick Adams, EVP and COO of Chesapeake, told it, the REIT, which launched in 2010, had been looking for an asset in South Beach, “from day one.”

Trouble was, everyone else was, too. And finding the perfect asset, one which, as Adams called it, had been modernized and on the water, was not easy.
“Regardless of the cash flow, there is perception of value of the real estate that often doesn’t come close to matching a good financial investment,” Adams said.

So when KSL Capital Partners put the Royal Palm up for sale (at the time it was operated under The James brand), Chesapeake took a hard look.
Ultimately, Chesapeake acquired the hotel for a reported $278 million, or $707,000 per key for the 393-room property. (KSL originally bought the asset in 2011 for $130 million.)

South Beach is an independent market,” Adams said. “The third highest RevPAR city in the U.S., and yet it’s dominated by indies.”  At the time Chesapeake bought the hotel, around half its revenue was coming via OTAs or wholesalers. “How do we shift this lower-rated business to something else?” Adams asked. “That’s when we started talking to Starwood. We didn’t think it fit into a traditional brand. So, what makes sense? That’s where [Tribute] came around. It’s a leap of faith based on years of trust and Starwood delivering.”

That’s the real benefit of a soft brand: it allows owners of independent hotels to stay independent, but plug into the vast and far-reaching global reservations systems of large hotel companies.

Subsequent to Royal Palm, more Tribute openings are expected. In Asheville, N.C., the BB&T Bank building will be converted into a hotel and open in 2017 as the Vandre Nouveau Hotel, a Tribute Portfolio Hotel. Starwood is also working with Rockbridge to open three Tribute Portfolio hotels. Debuting in 2016, the Noel Place Hotel in the Printers Alley area of downtown Nashville will undergo a renovation and feature 166 guestrooms. Also slated to open in 2016 is a new-build hotel in Savannah with 173 guestrooms. Then, in 2017, Tribute Portfolio will debut in Charleston with a 100-guestroom hotel.

Tribute’s initial growth trajectory will be in the U.S., but expectations are that it will expand globally, most likely in Europe, first. Marr said the brand is already in discussions with a property in London, though he was reluctant to name the hotel.