Most hotels in the United States operate under the umbrella of large hospitality chains such as Hilton or Marriott. But today’s hotel owners and investors are increasingly flying solo, eschewing big-brand affiliations to create their own independent identities.
A 2017 ULI Fall Meeting session, moderated by Rajesh Chandnani, vice president of strategy for WATG/Wimberley Interiors, explored the advantages and disadvantages of the independent approach.
On the most basic level, recognizable hotel brands help attract customers and can aid in obtaining debt financing. But this support comes at a cost—a hefty percentage of hotel revenue, commissions paid to online travel agencies such as Expedia and Booking.com, and revenue lost to hotel loyalty program redemptions.
The reality is more complex. Depending on a hotel’s location and target market, having an independent brand can attract more customers and increase revenue.
“Most hotels should be branded, but independent hotels work better,” said Robert Lowe, chief executive officer of Lowe Enterprises and Fall Meeting cochairman.
Independence is the best choice for an asset with an excellent location, amenities, and design reflecting local culture and history, he said. Well-amenitized resorts can differentiate themselves better than room-only hotels, taking advantage of customers looking for unique experiences in their vacation destinations.
For investors, slightly different criteria are at work, said Andrew Gindy, principal at Walton Street Capital. “We want flexibility,” he said. “If an asset is unencumbered, we can sell it to anyone. But it depends on the asset. A large hotel, for example, can be harder to sell.”
But urban hotels also can succeed without flags, Lowe noted. The company is developing Ivy Station, a transit-oriented development in the Culver City neighborhood of Los Angeles, where former industrial space has been converted to accommodate creative office and film studio uses. The site is adjacent to the Metro Expo Line, a new light-rail connection between downtown Los Angeles and Santa Monica.
In addition to the hotel at Ivy Station, the development will have 200 apartments, 200,000 square feet (18,600 sq m) of new office space, 50,000 square feet (4,600 sq m) of retail space, plus open space and parking. The planned 148-room hotel, Lowe said, will not have a name brand. “This was a no-brainer,” he said. “Why bring in a flag and pay 16 percent of the revenue when we have all the demand drivers we need?”
A similar approach was taken by Sage Hospitality, which developed the Maven Hotel as part of a full-block redevelopment called Dairy Block in downtown Denver. “This was a placemaking story,” said Michael Everett, chief investment officer for Sage Hospitality Resources.
“Along with our partners, we acquired a full city block that was half historic—the home of Windsor Dairy in the 1800s—and half scary parking garage. We tore down the garage, built a 300,000-square-foot [28,000 sq m] office building, and talked the city into giving us an alley where we are putting in six restaurant and bar concepts, plus retail space. We reject national retailers.” Sage’s own restaurant, Kachina Southwestern Grill, is located in the Maven Hotel.
In this setting, with its focus on locally produced products and Denver’s history, a flag just would not fly, he said.
“We operate both branded and unbranded hotels,” Everett said.
Working with development partner Flank, Sage is developing Perry Lane Hotel in historic Savannah, Georgia. “We had worked with Starwood’s Luxury Collection in the past, and having their brand will help us refinance the construction loan in three years and stabilize faster.”
For the Logan Hotel in downtown Philadelphia, formerly the Four Seasons, Sage chose to align with Hilton’s Curio Collection. This property has 394 rooms and just 12,000 square feet (1,100 sq m) of meeting space. The Hilton affiliation helps fill rooms with transient business travelers, Everett said.
Jeff Senior, vice president of marketing for KSL, added a marketing perspective to the debate. He discussed how KSL acquired the St. Regis Monarch Beach resort in Orange County, California, at foreclosure, then embarked on a $34 million renovation.
“This was known as the best meeting facility in the area,” said Senior. “But we saw opportunity in focusing on leisure guests. We used technology to retarget customers and found guests who are not intimidated by a $30 cheeseburger.” The bottom line has improved greatly, not only from deflagging, but also from eliminating heavily discounted Starwood Preferred Guest redemptions, he said.
It is clear that millennials and other travelers are looking for memorable experiences when they travel. Big-name hotels are often viewed as cookie-cutter facilities, and the plethora of new brands can be confusing. But for hospitality industry players, there are many factors to consider. As a result, the answer to the flag versus no flag debate continues to be: it depends.