With Anbang out, how will Marriott/Starwood tie-up impact franchise owners

Marriott Starwood

With Anbang Insurance Group bowing out for the rights to Starwood Hotels & Resorts Worldwide, and with Marriott International now the presumptive winner, still, at least for the short-term, owners of Starwood-branded hotels need not worry.

Michael Bellisario, a VP at financial firm Robert W. Baird, said, not much is likely to change for Starwood franchise owners. “If you own a Starwood property, you are bound by a management contract and a franchise agreement,” he said. While those who feel passionately about the parent company’s ownership status can pay a termination fee to leave early, Baird does not expect to see much change for the first year after closing no matter who ultimately has the winning bid. 

After that first year, owners and guests may start to see some changes depending on who takes over. “From Marriott’s perspective, they don’t want to rock the boat,” Bellisario said. “Customers really like Starwood properties, and Starwood Preferred Guests are very loyal. [Marriott doesn’t] want to make them unhappy or devalue their points. They will go through the transition thoughtfully and—probably—slowly because there’s no hurry for them.” Merging platforms and the back end should be seamless, he explained, and could take years. "They’re managing forever. They want to merge the platform, the back end seamlessly. If it takes three years, it takes three years," he said.

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Marriott

Some franchise owners may see increased opportunities with the Marriott merger, Mary Beth Cutshall, SVP of acquisitions and business development at HVMG, said. “The industry is more supportive of Marriott than Anbang because of the respect we all have for the brand, and knowing what they bring to the table. There are owners who see an opportunity to have more brands to choose from, and there owners who may be concerned because they have a property that now will sit across the street from what used to be a competitor that now taps into the same reservation system.” A merger with Marriott raises some big issues for owners, she said. “How will their room rate be affected? Every owner will have a different situation.” In fact, she noted, owners can have multiple different situations in just one portfolio. “Each property will have to be looked at individually for potential impact that could swing based on market.”

Bellisario believes that Marriott winning may actually entice owners to convert properties that are not Marriott- or Starwood-branded to a Marriott or Starwood brand. “The combined platform is even bigger and more powerful [than the separate brands],” he said. Franchisors may need to pay more in fees because a larger company has more bargaining power, he acknowledged, but a small increase may be worthwhile to have the support of the largest hotel company in the world. 

Cutshall does not expect an unloading of Starwood hotels or brands if the merger with Marriott goes through. “The majority of brands are very complementary between the two franchisors,” she said. “At the end of the day, Marriott is in a franchise business. They want to grow their franchise fees, not reduce them.” 

Anbang's Loss
Now, there is no worry of an Anbang buy. Cutshall said she had not heard many owners or managers talk about opportunities with Anbang, and Bellisario said the situation would have become more muddied had Anbang emerged victorious. 

If Anbang had prevailed, this may have been the scenario: “You would hope that they will keep the Starwood management team in place and that, from a customer’s perspective and an owner's perspective, not much changes, if anything,” Bellisario said. “But they’re not U.S.- based. They might not have the same oversight and they definitely don’t have the same hotel experience to manage a brand and a real estate company. Two or three years down the road, things could fall through the cracks and equity could start to deteriorate.

"Some owners could have converted their hotels to Hyatts or Hiltons—or even to Marriotts, he noted. 

Starwood

 

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