You are here

Independent US hotels band together to keep giants at bay

[NEW YORK] A group of independent hotel owners is forming a "rebel alliance" to survive the pandemic and prevent their properties from getting swallowed up by the likes of Marriott International and Hilton Worldwide Holdings.

The group, led by Pebblebrook Hotel Trust, is launching Curator Hotel & Resort Collection, a new company that aims to reduce costs on everything from bed linens to credit card processing. The move comes during the worst year in the history of the modern lodging industry, as spiking Covid-19 cases threaten to squash a modest travel rebound.

"We're trying to give owners and operators of independent lifestyle properties an alternative to selling out their businesses or becoming more commoditised by joining with a major brand," Pebblebrook chief executive officer (CEO) Jon Bortz said in an interview. "We want to do it in a way that gives them all the flexibility to be the rebels they want to be."

Companies like Marriott, Hilton and Hyatt Hotels own very little real estate, and they make much of their profits by licensing brands and providing services to property investors, who agree to comply with certain standards as part of the deal. In downturns, they focus on recruiting owners of existing hotels - dangling so-called soft brands that let owners join the larger network without going through a wholesale makeover.

"Conversions as a percentage of our openings were highest coming out of the Great Recession," Marriott CEO Arne Sorenson said on a recent earnings call. "We would expect conversion activity to increase, certainly in terms of discussion, starting now."

Your feedback is important to us

Tell us what you think. Email us at btuserfeedback@sph.com.sg

OCCUPANCIES HAMMERED

This year through September, occupancy at US hotels was below 45 per cent on average, down from 68 per cent during the same period of 2019, according to lodging-data firm STR. The pandemic has landed hard on urban hotels, which depend on a combination of business travel and leisure guests who come to sample local restaurants and cultural institutions.

Pebblebrook, whose 53 properties include the Viceroy Santa Monica Hotel and the Paradise Point Resort in San Diego, has seen its shares plummet 33 per cent since the beginning of the year, in line with a Bloomberg index of real estate investment trusts that own hotels. While lodging stocks have rallied on recent vaccine news, industry projections estimate that a full recovery is at least three years off. Pebblebrook shares gained 4.7 per cent on Tuesday amid a run-up in hotel stocks.

Mr Bortz said his company began developing the plan after outbidding Blackstone Group to acquire LaSalle Hotel Properties in 2018. The US$5.2 billion deal made Pebblebrook the largest US owner of independent lifestyle hotels, giving it scale to negotiate savings with a variety of vendors.

Curator will aim to provide similar savings to other hotel owners, charging fees that are roughly 15 per cent of what big brand companies demand, and offering short-term contracts that give owners freedom to exit the programme after 12 months.

Pebblebrook is the majority owner of Curator. Other founding members have minority stakes, including Benchmark Hotels & Resorts, Viceroy Hotels & Resorts and Provenance Hotels, the lodging company founded by former US ambassador Gordon Sondland.

BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes