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Dual-Branded Hotels Present New Opportunities

Dual-Branded Hotels Present New Opportunities

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.”

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