Independent hotels are growing in popularity in the eyes of guests and hoteliers, alike. So much so that major hotel companies have launched soft brands, or affiliation programs, to tap into the market. The very concept of an independent hotel remains somewhat nebulous, which, perhaps, only adds to their mystery and appeal.
HM: What is the true definition of an independent hotel, and can such a hotel exist solely as an independent or can it have a branded element?
Bernstein: We are trying to establish [Pod] as a brand. We think it has legs to grow as a brand because it’s a unique property and people like what they see [in it]. Being an independent, we can go out and try things that maybe you couldn’t try if you weren’t independent.
Kakarla: For us, the definition varies based on how you move your distribution. For me, you have the independent hotels that are truly on their own, where the sales, marketing and e-commerce are being supported solely, then there are soft brands that are independent from a design perspective, but you are plugging into the distribution channels, and then you have the full branded hotels.
Prins: The line has been blurred quite a bit. When we started negotiating with Marriott four years ago to bring the Autograph Collection into one of our hotels, it was quite a departure from our thinking, because we are an anti-brand type of company. We were then plugged into that big red machine. We still feel strongly that [the hotel] is independent and we are treating it that way. When we evaluate other hotels, we look at Curio, we look at all the other soft brands now as one of our weapons.
Colin: It has a lot to do with where it is and the heritage of the hotel. The Garden City Hotel is a 140-year-old brand, so the first thought that came to mind was that it was our job to protect the brand because it means so much to the region.
Chase: Independents will be around indefinitely. Almost every brand we have today was an independent. Eventually they wanted to have more product, and they distributed it, it became more lucrative. It is a business, after all.
On the industry’s newfound love of independents
Pabon: It would seem self-serving to say that we all love independents and we always have, and we’ve become geniuses because now everyone is moving in this direction, but the reality is that in the beginning we became independent hotel operators by accident. And also by modest rejection from the flags, which worked to our benefit. We’ve seen the light of our model.
“Almost every brand we have today was an independent.”
Gerry Chase, president/COO, New Castle Hotels & Resorts
Seidel: Our industry is going through a metamorphosis. The brands are trying to get into that independent space, and are offering all their engines to help [independents], so it’s kind of fun to watch just because it’s interesting to see how it will play out.
HM: Why develop an independent hotel in lieu of one that is brand-affiliated? What are the benefits and drawbacks?
Israel: There are a couple different factors, and they are not necessarily sales- or profit- or revenue-driven. A lot of rationale behind developing an independent, especially in a high gateway market like New York, is what will happen when you choose to sell that property. The flexibility you are offering to enable anybody else in this room to come in and put their vision or their brand on this property greatly opens up that exit opportunity.
Seidel: It comes to sales, really. The question is, do you think you’ll be able to generate the RevPAR with the help of a brand or not?
On the evolution of the independent hotel concept
Kellerman: What’s going to define an independent hotel moving forward? Can an independent hotel be 10 hotels in 10 different cities? Can it be 10 hotels in one city? It’s going to become less and less relevant, what the definition of what you are is.
Seidel: That’s right, until you speak to a lender! I think it’s great, but look at China. There are, what, 2,500 brands over there, and the average brand size is six hotels. And you see how that’s going.
Chase: There are funding sources now that are very excited about the independents, but they are not your institutional lenders. They are in destination and urban markets.
Kakarla: Operators have evolved, some of whom have come from the brand environments, and really developed standards and protocols, all that you take for granted at a branded hotel but wonder about at an independent. In some urban markets, you have the potential to hit a rate ceiling and be homogenized, and customers are becoming less loyal to any one hotel. You have to be more true to why you chose that location to get the rate premium.
Israel: It’s very important to delineate between urban markets and suburban markets, because when you go into some non-core market that sense of knowing what you are going to get is very important. And that’s why you don’t see a lot of boutique operators going to suburban places. That sense of place is important. The business traveler still wants to know what they are going to get.
On lending and hiring
HM: What does the lending picture look like as it relates to independents? Is it more difficult to get an independent financed compared to a branded hotel?
Pabon: Certainly, we deal with a lot of lenders, but the reality for us is that it depends on the demands of your equity capital. If you have institutional, short-term money, don’t get in this business. We have investors that put their money in 18 years ago, and not many people are going to look at an 18-year hold on a deal.
Prins: It’s tough to have a discussion about this without talking about the cycles. We’re about to hit something again. We are in the seventh inning or eighth inning.
Chase: I tell our investors we are in the second inning.
Prins: As it relates to equity, debt, getting deals done, we’re going to hit another situation again. The good news is that people are comfortable with the independent boutique hotels, but the checklist will come back. And it will have a brand sitting there.
HM: When hiring for an independent hotel versus a branded one, are there different things you look for in a GM?
Brown: On the recruitment side, it can be hard to attract talent for independents. For the Knickerbocker [in New York] it was a lot of work to get a GM and director of marketing. At the end of the day they are the brand.
Chase: The branded person has to be totally engaged on the identity and personality of the brand, and be a part of it. It takes about three to four times more resources to run an independent than a flag. If you don’t hit it, it’s an ugly scene.
Brown: I would have dreaded getting involved in the Knickerbocker if it wasn’t for having the machinery of Highgate and FelCor—that combination and their willingness to step out of their comfort zone.
Bernstein: We always look to a younger crowd. That’s one way of approaching the independent need for help, is giving these people the benefit of helping us do what works, and not telling them what they have to do to work.
HM: Do independent hotels have to be savvier in terms of distribution?
Chase: From the brands, we are able to take some best practices and bring them to the independents, so it helps a great deal. One of the things we have had to continue to relearn and get better at in the independents is social media. The landing pages, the website all has to be like the flags, but you have to do it better. Pictures on the site, the ease of making reservations all have to be better.
Colin: Managing content online and keeping it current is almost a full-time job. It has got to be visual, it has got to be great and it has got to be 365. You have to showcase it seasonally.
Kellerman: I think the technology exists for independents, if utilized correctly, to be much better than the brands from a distribution perspective. The way consumers are searching for travel has changed drastically. If you can spend the money on your own channel to make it better than what they’re seeing on the other channels, we hope that the OTAs and all these other providers just become the billboard.
Pabon: It’s so hard to navigate the digital marketplace. It’s ever-changing, there are different vendors, you don’t know which paperclip provider to go to. You have to be entrepreneurial as a revenue manager and look at the relationships your sales team has created.
“What’s going to define an independent hotel moving forward? Can an independent hotel be 10 hotels in 10 different cities?”
Justin Kellerman, GM, The Jade Hote
Kakarla: It comes down to: What is your short-term, long-term defined segmentation strategy, and what is your profit/loss tolerance and what you’re willing to spend in different areas? Based on that working relationship, in this game you can’t be short-sighted. You must be prepared to spend long-term and invest in your presence online. It isn’t going anywhere.
HM: When is the day going to come when the traveler can choose the exact room that they want to book?
Kellerman: I think that would be a revenue manager’s nightmare.
Chase: That actually is something we’re doing with one of our brands right now.
Bernstein: Do you charge a premium for that?
Chase: No, it’s actually through a Hilton brand. It’s not perfect, but it’s already being offered. It’s about giving the customer the feeling and experience of controlling the room type. The technology is already there.
ON the Chinese traveler and competitive sets
HM: Everyone talks about the millennial traveler. How about the Chinese traveler? Is this traveler looking for an independent-minded experience?
Bernstein: Most leisure travelers travel in groups, and they stay at branded properties. They have an apprehension of the unknown.
“You couldn’t go to a conference last year where 60 percent of it wasn’t dominated by the millennial traveler.”
Ben Seidel, president and CEO, Real Hospitality Group
Seidel: The Chinese traveler, to get them in large quantities you are going to have to deal with up to five different middlemen before you actually get paid. There are brokers on their side that answer to larger brokers that accommodate all of Asia, that have incoming operators that deal with receptive operators on this side and then they get to your doorstep. In the off-season, you quote a rate of $169 and you may see $119 of it.
HM: Do you have any independent and branded hotels in the same segment, in your portfolios, and are there stark differences in ADR, RevPAR and such?
Kakarla: You have to be careful with comp sets and revenue management with independent hotels. For most of our independent hotels, we have the traditional sub-market comp set, and then we have the comp set that ties in more to that traveler—be it national, millennial or direct bookers. We use them at different times.
Israel: We’ve studied a couple of key markets, New York, Boston and Miami, and we’ve typically seen somewhere between a 4- and 6-percent occupancy premium for branded assets. Not only in the independent asset are you not paying all the brand fees, but you are also driving a higher ADR in high-demand markets. In lower-demand markets it’s a different situation, that brand is potentially even more valuable.
HM: What is the future of independent hotels as global hotel companies launch new brands?
Seidel: I think the lines are getting blurred and are going to continue getting blurred. You couldn’t go to a conference last year where 60 percent of it wasn’t dominated by the millennial traveler. This last cycle was really scary. When the downturn hit, our independents went down real quick. We needed that global sales office.
Pabon: We’re trying to grow our business, so we think there will be more independent hotels at least from us. We think that, if you’re strategic, there is always going to be a sliver of any market that is looking for something different, something local and, if you have your finger on the pulse of that locality and can provide that product, then there is an opportunity.
Colin: Competition is good. It allows a little more negotiation, softening those fees if you decide to take an independent into that safe harbor of a brand.
Prins: One thing I love about independent hotels is that you don’t have that encumbrance that you have with a brand. It’s all about the exit, and I want to always have that flexibility. This is a great space for me.
Kakarla: So many hotels that could easily be branded have chosen not to in urban markets, and there is a slow trend toward institutional acceptance. The brands are coming faster than I would have realized into this space. The space was defined by being different and having an alternative approach; five years ago that was about the neighborhood, curating authentic experiences and big brands are there for a reason. Much of what was created [by independents] has been mimicked by companies with large distribution.
Kellerman: What is the future of the independent hotel? None of us in this room really knows. It’s going to be ever-evolving. We are building all these brands for millennials, and they aren’t involved in their creation. They aren’t very excited by it. We’ve not yet seen what they are looking for. As this group of people gets older and are more involved in the decision-making, it could look like something that is completely different from what we know today.
Snow was still falling in New York in late February, but it didnt deter those attending Hotel Management’s inaugural Independent Hotels Roundtable. Participants discussed emerging trends in independent hotels, the reasons owners choose to go the indy route and the subsequent advantages and disadvantages.
“So many hotels that could easily be branded have chosen not to in urban markets.”
Naveen Kakarla, president and CEO, HHM
The roundtable took place in Hotel Management's New York office and included, back row, left to right: Richard Rose, manager at HMK Wholesale Mattress, which sponsored the roundtable; Thomas Prins, principal at Gemstone Hotels & Resorts; Gerry Chase, president and COO of New Castle Hotels & Resorts; Leslie Pia of HMK; David Bernstein, managing director of Pod Hotels; Robin Brown, principal at Spot on Ventures; Naveen Kakarla, president and CEO of HHM; and Grady Colin, GM of the Garden City Hotel; and, front row, left to right, David Israel, VP of hotelAVE; Ben Seidel, president and CEO of Real Hospitality Group; Joe Pabon, CIO at Greenwich Hospitality; and Justin Kellerman, GM of the Jade Hotel.