|
|
Ten years ago, Choice Hotels opened the doors of a property in Norfolk, Va., that placed the Sleep Inn and Quality Inn & Suites brands under one roof. It featured a separate lobby and mostly autonomous public spaces for each brand, but a shared pool and back-of-the-house operations. The dual-branded nature of the hotel helped it attract leisure guests at different price points, but it was the operational efficiencies of the model that turned heads in the corporate offices. At the time it was a one-off project, says Mike Varner, senior director and head of domestic brand management for Choice Hotels International, but soon the company saw how a streamlined version of this project could be used to attract both transient and extended-stay guests to the same location.
“The idea for dual-branded properties lay dormant until we actually started having franchisees come to us and say, ‘I get calls from people who are looking for an extended-stay room, but I don’t know if there is enough demand in this market for a whole hotel,’” he says. “We started hearing the same thing from multiple people, across the country and in different market types. We figured there was probably something to the idea.” So last year, at Choice Hotels’ annual convention, executives unveiled a new prototype that gives hotel owners and developers the chance to build dual-branded properties consisting of the Sleep Inn and Mainstay Suites brands.
With this new product, Choice joins other major industry players, such as Hilton, Marriott, and Starwood, on the dual-branded bandwagon. These two-pack projects are popular with hotel companies and developers because they offer substantial economies in terms of building costs, space savings, and operational efficiencies, while allowing hotel owners to capitalize on two different customer segments at the same time. Varner says that in 2012, Choice signed five deals to develop two-pack properties in states such as Montana, Mississippi, and Pennsylvania. He expects at least three of the hotels to break ground this year. Citing examples from the fast food world—such as the partnership between Kentucky Fried Chicken and Taco Bell—Varner has confidence that the Sleep Inn and Mainstay Suites prototype will fill a niche for hotel owners and developers. “Essentially, you’re combining the best of both brands in an operationally sensible way to meet the needs of very different travelers.”
Sharing for Savings
One of the most alluring aspects of dual-branded properties is the efficiency that comes from combining lobbies, fitness centers, meeting rooms, pools, and even back-of-the-house spaces such as administrative offices, employee break rooms, laundry facilities, and storage. “In dual-branded properties there are a lot of areas that can be shared,” says Craig Mance, senior vice president of development, North America, for Hilton Worldwide. “That creates large economies of scale from both a construction standpoint and an operational standpoint. For instance, you can have a similar entrance and parking area, you can share a monument sign, and you can use the same meeting rooms and pre-function space for both hotels.”
Hilton Worldwide currently leads the industry when it comes to developing two-pack, and even three-pack, properties. The company currently has 14 dual-branded properties open in the U.S. and Canada with another 15 hotels approved or under construction. Recent openings include dual-branded Hilton Garden Inn and Homewood Suites properties in Atlanta, Ga., and Shreveport, La.
“The brand folks were a little iffy at first because individual hotels have so many prototypical assets that are inherent to them,” says Mance. “But they’re big proponents of [two-pack properties] as long as the integrity of their brands is protected. It makes a whole lot of economic sense for the owner and the operator.” Not only do combined spaces cut down on construction costs, but dual-branded hotels also require a smaller staff and fewer employees than two separate hotels. “You’re able to combine some of the senior management level positions at the property so you don’t have to have two separate teams and it allows you to cross-utilize staff,” says Gerry Chase, president and chief operating officer of Newcastle Hotels & Resorts. Newcastle is currently developing a dual-branded 180-room Courtyard by Marriott and Residence Inn hotel as part of a mixed-use development called Armory Square in downtown Syracuse, N.Y. When the property opens in May, it will mark the first new-build hotel to open in Syracuse in 50 years.
With all the overlapping functions and spaces associated with dual-branded properties, Chase says it is important for hoteliers to keep each brand clearly defined and differentiated. Most two-pack properties feature separate entrances and many also offer different front desks and elevator courts. But amenities belonging to just one brand—such as free breakfast or use of a business center—could cause some operational hiccups. “Make sure that there isn’t guest confusion among the two brands,” says Chase. “There needs to be good communication, proper training among the staff, and effective implementation of the signatures that are important to both brands.”
Capturing Different Customers
Almost all dual-branded hotels that are open or in development allocate a certain number of rooms to an extended-stay brand. Hilton properties use the Homewood Suites and Home2 Suites brands in their combination projects; Marriott’s most common dual-branded properties feature Residence Inns; Choice’s two-pack prototype includes Mainstay Suites; and Starwood is reportedly developing a hotel in Philadelphia that will combine its extended-stay Element brand with the luxury W brand.
“If you’re an owner, you can cast a wider net when you combine two very distinct products,” says Jim Holthouser, executive vice president, global brands, for Hilton Worldwide. “Going the dual-brand route allows you to focus on that long-term stay while coupling it with the right transient product.” The extended-stay brands are especially popular in areas near major office complexes, military bases, and hospitals. In those markets, guests may be coming for a quick visit or short business trip, but they may also need an extended-stay suite for long training programs or a lengthy stay while a family member is receiving medical treatment.
“There aren’t too many of these properties where you’re going to have two transient brands,” says Mance, “because they would just be attracting similar markets.” Varner explains that areas on the outskirts of oil fields in states such as North Dakota and Texas also make sense for dual-branded properties. In the heart of the oil fields, developers can build full extended-stay hotels because the demand exists. But in markets that border those drilling locations, developers and hotel owners feel more comfortable with a dual-branded hotel that can cater to both transient and extended-stay guests.
“Developers really like the flexibility of this concept and the cost point where they can get into it,” he says. “It reduces the risk of the investment when you can appeal to a wider set of guests in the same asset.”
Squeezing into Urban Markets
For Greg L. Steinhauer, chief operating officer at American Life Inc., developing a dual-branded hotel in downtown Los Angeles made the most economic sense. The full-service, Seattle-based development company is building a 23-story Courtyard by Marriott and Residence Inn on the L.A. Live site—a high-traffic, central location in the city.
“In looking at the marketplace, it was [Marriott’s] analysis that the area could support two more brands,” he says. “Since land is very expensive, we decided to do a project that incorporated both brands. We felt like it was a good opportunity to cover two different market segments in a location where neither one existed.” The $168 million hotel project, which is scheduled to open in July 2014, is being constructed directly across from the JW Marriott and Ritz Carlton and will feature 175 Courtyard rooms and 218 Residence Inn rooms. The property will share a fitness facility, pool deck, and a restaurant that will be operated by a third party. But unlike several other dual-branded projects, this hotel will feature only one front desk and a shared elevator court. Hotel rooms from each brand will also occupy the same floors.
Steinhauer explains that there are challenges to building a dual-branded property in an urban market because it requires more planning than a traditional project. Developers need to configure the proper room layouts and make sure they have the right parcel of land to support all the requirements needed for two brands. But Steinhauer believes that an urban location is where dual-branded hotels will thrive. “You need a high density, high-traffic location,” he says. “It is a strategy for a dense urban market where land is at such a premium and the demand can support this type of thing.” Chase agrees. “Anytime you have an urban market, hotel development is a little more challenging because your footprint is limited,” he says. “You have to have the right site and the right products to be successful.”
Although the majority of dual-branded hotel projects are new builds, some companies are utilizing uninhabited urban buildings for two-pack adaptive reuse projects. Mance says Hilton is always on the lookout for buildings that could accommodate two brands in a particular market. “We look for adaptive reuse projects all the time, especially in urban areas where the office market might be down,” he says. “If it’s a historic building with some personality and two brands can fit into it, we’re all about doing that.”
Here to Stay
Most hotel companies are investing in dual-branded initiatives and believe these properties will fill a need for owners and developers as the industry moves into the future—especially since there are few financial drawbacks to dual-branded projects. “There’s not much of a downside,” says Mance, “but one thing that you absolutely need to understand is that when you decide to sell one hotel, you’re selling both. You can’t sell half a building.”
While single-brand hotels will continue to dominate the lodging landscape, the industry is likely to see more and more dual-branded projects popping up and becoming more prevalent. “I think that dual-branded properties are going to be an application that is site-specific and niche-related,” says Chase. “It offers an interesting opportunity for specific locations and markets that could not support separate properties because of the cost of construction and the demand generators.”
Holthouser believes that as the financial outlook for hotel development improves, land prices and construction prices will spike, making dual-branded properties an appealing option for investors. “As more hotels are being built and the real estate market rebounds, my guess is that we’ll see a lot of hotel owners thinking along these lines,” he says. “It just makes a lot of economic sense to do it this way.”
READER COMMENTS
|