While a military base can seem like a different world to many outsiders, visitors to 39 U.S. Army installations throughout the United States and Puerto Rico are now apt to find themselves staying overnight in a somewhat familiar environment. With the third phase of the Privatization of Army Lodging (PAL) program now underway, asset manager and developer Lend Lease and hotel operator IHG (InterContinental Hotels Group) are continuing, through an Army-led public-private partnership, to upgrade on-base Army hotels into modern facilities that meet the same brand standards as hotels you’d find in any civilian outpost.
The hotels are operating under the name IHG Army Hotels but are branded under IHG’s Holiday Inn Express, Candlewood Suites, and, in one instance, Staybridge Suites brands. “What we’re doing is evaluating the hotels the Army operates and deciding if they’re worth the investment to renovate into a Holiday Inn Express,” says Elizabeth Lloyd, vice president, director of asset management at Lend Lease. “If not, we’ll construct a new hotel and that will be a Candlewood Suites.”
The primary customers of the hotels include many soldiers, their families, those traveling on official
military business, military retirees, and foreign dignitaries. Only individuals with proper access to military posts can stay in the hotels.
The deal is not without its critics, even from within the ranks of existing IHG franchisees who have expressed concerns to Lodging that the on-base hotels directly compete with IHG branded properties already operating near Army bases that are reliant upon base business to fill their rooms.
“There is no directive advising IHG guests where to stay,” says IHG’s Vice President of Operations Arthur Holst. “IHG Army Hotels are not listed on IHG’s reservation website or on the brand reservation websites.” He also notes that IHG Army Hotels has already provided a strong brand awareness and guest loyalty opportunity for IHG’s 4,600 hotels, awarding nearly 450 million loyalty points to on-post guests.
The latest phase added 18 Army installations to the IHG Army Hotels portfolio. There are now 76 hotels and more than 11,000 rooms in the portfolio. All 1,800-plus employees in the 76 hotels are recruited and employed by IHG. And many of the hotels are quite large. They include the world’s largest Holiday Inn Express by room count (540) at Fort Sill, Okla., and what will be, when completed, the world’s largest Candlewood Suites by room count (310) at Joint Base San Antonio.
Lend Lease, a property developer and builder based in Australia, and IHG have been on board with the PAL program since its initial phase in 2009, when the Army put the hotels up for bid in an effort to improve the quality of its lodging facilities. Lend Lease, which had worked with the Army on a similar program to upgrade housing on bases in the past, teamed up with IHG to win what became a very competitive bidding process that also involved several other major hotel developers and brands.
“The whole program was built to improve the quality of life for service members and their families. The Army realized that the existing hotels needed to be renovated and wanted to bring in private-sector expertise,” Lloyd says. “It was a competitive process. We believe we were selected because of our reputation working with the Army on the housing side.
“We realized we needed a branded solution,” she continues, “so bringing IHG to the table as the operator created what set us apart.”
With recent financing from Bank of America Merrill Lynch, Lend Lease is set to steamroll forward on the development plan. According to Jamie Fox, a commercial real estate banking executive who manages the program for Bank of America Merrill Lynch, the bank is providing Lend Lease with $465 million in long-term financing for the renovations. An Army veteran himself, Fox says the bank’s strong relationship with the U.S. military and Lend Lease made the deal attractive for the company. “These higher standards will mean a lot to service members that may be visiting a post for training or to families that are making a transition to permanent housing,” he says.
As developer and asset manager, Lend Lease has a 50-year lease deal with the Army and IHG has a 25-year management agreement with options to extend. Lloyd points out that it’s not a traditional hotel ownership model where the two companies are looking to maximize the value of the hotel. “All of the excess profit goes into a reinvestment account to ensure that these hotels are maintained and renovated over the life of the deal,” she says. During the length of the deal with each company, the Army has oversight over all funds and actions associated with the hotels. The hotels revert back to full Army control when the deal expires.