Small towns drive considerable demand

Known as an all-new-construction brand, Neenah, Wis.-based Cobblestone Hotels began in 2008 as a solution for small Midwestern towns that had demand for hotel rooms but not on a huge scale. After designing a 31-room prototype, co-founders CEO Brian Wogernese and CFO Mark Pomerenke originally thought they would be the sole investors, Wogernese said. Then the phone started ringing as other potential investors grew interested. Today, the upper-midscale limited-service chain, which has its own management company, remains focused on its original goals while incorporating growth to new regions. Hotel Management spoke with Wogernese on why this formula works.

HM: We hear a lot these days about brand expansion only in key gateway markets. That’s not Cobblestone’s plan. Why not? What makes these small towns a good fit and how do you do feasibility studies?
BW: We’re not just in tertiary markets; we’re in tertiary markets of tertiary markets. It can be difficult to determine if a hotel will make it or not in these markets, because it’s not like we can pull a STR report in many cases. We have to talk to locals and do a lot of digging to feel comfortable. We look at the whole area. We look to see where people are staying. These small towns can pull from much larger communities. If visitors need to drive half an hour or 45 minutes away to get to the next bigger city, then we have a chance. We do studies for every market we enter and we build anywhere from a 31-room property up to a 50- or 60-room one.

HM: The first Cobblestone opened in 2008, yet you still had considerable interest during the recession. Why?
BW: Every city has weddings, class reunions and other business that you can count on. There’s no clear-cut financing plan for every deal. Our deals aren’t big and sexy and we tend to work with smaller regional banks. Mark and I personally invest in almost every property. Other than that we may have a lot invested at different levels, but no deal is more than 60 percent leveraged.

HM: What construction costs and labor trends have you noticed in the markets Cobblestone is in?
BW: We bring in the entire team. If there are locals who can do it, that’s great, but we tend to stick with people we know. The brand started with new-builds because there really isn’t any other option in most of these places. They can be done cost effectively and people like the ‘new-car smell.’ We have found that development so often is based on relationships with companies that know your product and pricing.

HM: Your core brands, Cobblestone Hotel & Suites and Cobblestone Inn & Suites, are all new-build, but your Boarders Inn & Suites brand is conversion. How do they all fit together?
BW: The Hotel & Suites brand has a pool and the Inn & Suites brand does not, so those just depend on the market. Our Boarders brand grew as a lower-cost option for owners that might be at the end of a license agreement and want to convert. We’re in some larger markets with Boarders but it’s not really what we’re focusing on. For those we want quality conversions—we don’t want to just take anything.

HM: The U.S. has no shortage of small towns. Where are you looking now?
BW: Our largest concentration now is Iowa, Nebraska and North Dakota. Texas is another big focus for us; we have three in the ground right now. We have two under construction in Pennsylvania. Our three hotels under construction in Texas are related to the oil fields, but not all of our six North Dakota properties are there because of the oil. Our pipeline for 2014 is a lot bigger than it was last year. In the first half of this year we’ll open 10 hotels. We have so many pieces to what we do. I’m involved in development, construction and management. I don’t think I’d ever want to be just a franchisor. I don’t want to say, “Here’s a franchise agreement, send us some money, see you later.” We want to be involved with our developers. There’s a personal aspect to what we do. We’re still small enough that I go to every groundbreaking and every grand opening at the very least; usually I’m there along the way.

 

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