Marriott International has purchased the 1,000-room Sheraton Grand Phoenix Hotel for $255 million, a move that appears to run counter to the hotel company's asset-light strategy, but is part of a bigger push to update the beleaguered Sheraton brand.
When hotel companies use their own balance sheet to acquire real estate, many times it is done to take the lead on a brand transformation, which has been the case for Sheraton.
In a release today, Marriott stated its plans to renovate the property’s guestrooms and public spaces, setting the stage for the future of the brand.
“The hotel will provide a living and breathing showcase of our new vision for the Sheraton brand, underscoring our commitment to restore the brand to its leadership position,” Arne Sorenson, president and CEO of Marriott International said in a statement. “Going back to Sheraton’s roots as being the heart of the community, the renovated hotel will showcase the brand’s new focus on services and design that enable socialization, productivity and personalization, featuring collaborative venues and technology that enable unique experiences. The Sheraton Grand Phoenix will become a wonderful destination for locals and out-of-towners.”
The 33-story Sheraton Grand Phoenix opened in 2008, and is located in a market that has been subject to more than $4 billion in investments over the past six years related to office space, retail, restaurants, educational facilities and convention space. The hotel has roughly 77,000 square feet of meeting space, and for that reason it has been chosen as the launch pad for Marriott’s Sheraton redevelopment effort.
The hotel was acquired from the city of Phoenix through a partnership with TLG Investment Partners and Concord Wilshire. These two groups had plans to purchase the property without Marriott's involvement, and also expected to invest an estimated $30 million to $40 million in renovations. In a release, TLG and Concord suggested they were considering terminating the property's management agreement with Marriott, and this along with Marriott's plans for the property as a launch pad for the Sheraton revitalization may have led to Marriott's decision to repurchase the hotel.
Marriott highlighted the Sheraton brand as a target for improvements shortly after its acquisition of Starwood Hotels & Resorts nearly two years ago. In March of 2017, Marriott delivered a presentation to its investors promising a new take on Sheraton, with Marriott Chief Commercial Officer Stephanie Linnartz stating at the time that the brand was “plagued by poor consumer perception in North America.” Linnartz elaborated that a large gap between the company’s best and worst hotels as well as poor quality assurance and inadequate accountability have damaged the brand’s reputation.
Marriott responded with a step-by-step initiative to turn Sheraton around, and the company estimates that Sheraton owners have already invested more than $500 million in updates. Later in 2017, the company made good on its promise by showing off a new guestroom concept for Sheraton, and at this year’s NYU International Hospitality Industry Investment Conference in New York City, Marriott demoed a new prototype for Sheraton lobbies.
As part of the renovations, the Sheraton Grand Phoenix Hotel can expect to receive new lobby seating and shared communal tables with lockable drawers that can be accessed by guests. The hotel’s lobby will also include partially enclosed meeting areas and soundproof privacy booths for individual guests looking to make phone calls or focus. At the NYU conference, Marriott also showed off a new lobby bar concept in which the space pulls double duty as a coffee bar in the morning and a traditional bar in the evenings. This change was adopted as both a space-saving measure and a means to monetize the lobby more effectively.
Absent from Marriott’s announcements is a price tag on the renovations to the Sheraton Grand Phoenix Hotel. Meanwhile, Marriott also shed roughly 6,000 rooms from the Sheraton portfolio since its acquisition of Starwood in 2016, and adding roughly 5,000 rooms back in during the same period. A further 2,000 guestrooms are planned to exit this portfolio by the end of the year.
“From the moment we closed the Starwood [Hotels & Resorts Worldwide] merger in late 2016, the revitalization of Sheraton has been a top priority for our company,” Sorenson said.
The aforementioned changes will be included in the Sheraton Grand Phoenix Hotel once it concludes its updates in 2019. Once completed, however, Marriott has no plans to hold on to this hotel. Instead, it will be traded away as part of a long-term management agreement after it has served its purpose as an example of what a Sheraton hotel can be to owners looking to make some changes.
Marriott employed a similar strategy when overhauling the Marriott Hotels brand in 2013. After buying the Charlotte (N.C.) Marriott City Center and using it as an “innovation center” from which to base other renovations in the brand, Marriott then sold it subject to a long-term management agreement. This way, the company is able to foster the renovation of a brand while sticking to its asset-light ethos.
Sheraton Hotels & Resorts currently has nearly 450 hotels with more than 155,000 guestrooms across 70 countries.