The Chesapeake Point of View

Chesapeake Hospitality Leverages Deep Turnaround, F&B Expertise

Chesapeake Hospitality Leverages Deep Turnaround, F&B Expertise

May 21, 2014

GREENBELT, MD—While hotel companies seem to be lining up to get involved with select-service properties, the full-service sector still offers plenty of opportunity for growth. In fact, a reputation for bringing profitability to such properties, particularly as it relates to the food & beverage operations, has helped propel Chesapeake Hospitality, based here, to accelerate growth.
EVP Joseph Smith specifically measured the company’s 2013 growth from the perspective of the annual Hotel Business management survey published in the April 7 issue. “We took a pretty big jump [this year], which we were very pleased with. Last year, we were number 42 and we made the leap all the way up to 33 based on an increase in hotels from 21 to 27,” he said.
The third-party management company’s portfolio includes some branded, selectservice properties, as well as a few independents, but the majority of its hotels are of the full-service variety. Smith noted he was hopeful that Chesapeake—which had already added three properties in 2014 as of press time—could potentially add as many as eight this year with a few more in the current pipeline. “Our aim is not be the biggest but if we can find that spot between 30 and 50, we’ll be real happy with that,” he said.
The company just recently took over management of the Georgian Terrace in Atlanta, which was purchased by SoTHERLY Hotels. Built in 1911, the property has been dubbed the “Grande Dame of Atlanta,” and includes 326 oversized guestrooms and suites and 16,000 sq. ft. of meeting space. Smith noted Chesapeake’s track record with SoTHERLY ultimately helped it secure the management deal.
“I think based on the performance they’d seen from us at the other hotels we manage for them, that we were the logistical choice. We see a lot of upside there; it’s really an iconic hotel,” said Smith.
However, he added that the company just recently took over operations last month and is still assessing what needs to be done to what is “an older property. You have to be flexible in the way you look at it and deal with it to make it work.”
Chesapeake also assumed operations of the newly converted Crowne Plaza in Danbury, CT. The hotel, which underwent a $12-million renovation in 2013 includes 242 guestrooms and 26,000 sq. ft. of meeting space. The Homewood Suites by Hilton Houston Kingwood Parc has also been added to the company’s portfolio and includes 75 one and two-bedroom suites. The company is also expected to add the Hotel Indigo in Baltimore and the Milwaukee Hilton, which is being converted to a Holiday Inn, this month, as well. In addition, four properties changed hands earlier this year that Chesapeake did not retain management on.
But while the company, which was founded in 1957 by Edgar and Jeanette Sims, has been focused on growing its management portfolio, Smith said Chesapeake has discussed plans to put some more skin in the game. “We’re in the process of deciding whether it’s the best time to raise a fund and how we would go about it,” he said, adding another option is to go to local investors.
Smith explained the company’s evolution. “We’re so convinced of what we can now do with a hotel and how we can make it profitable that I think ownership, or at least partnership, was inevitable. I do see that as the next step, and I think our hope would be to have one of those deals done by the end of the year,” he said, adding any deal would likely be a select-service property at least initially because of the lower cost of entry.
Meanwhile, Chris Sims, Chesapeake principal and EVP, further noted that sliver equity could be a possibility as well. “That is definitely something that we will consider and look forward to pushing in the future,” he said.
Smith elaborated on the company’s ability as “turnaround specialist” and its knack for making a hotel profitable. He reflected back on when he joined the company in March 2010 and it had a mere 11 hotels in its portfolio.
“We were looking at how do we expand the company? What is our sweet spot in the industry and how do we go about it? Basically, what we’ve found is that our sweet spot in the industry is the deep turnaround hotel. Those hotels that maybe have been on their second management group, or just have struggles with the management team in place. And for whatever reasons, either low profitability or low service scores or just physical challenges of the hotel, have not met what the rest of the industry’s been doing at any one time,” he said.
Smith cited the Holiday Inn Palm Beach-Airport Conference Center as a prime example of the company’s ability to turn a property around quickly. He notes Chesapeake had taken over operations during a financial crisis and ownership had virtually no capital to invest. However, he noted the company “turned around the entire hotel, food & beverage included.”
Sims added the turnaround was so successful that ownership eventually shifted its strategy. “Initially, when we came in, ownership was putting it up for sale and they were losing money. Their whole focus was just lets get rid of the asset. But we’ve been able to show them that we could make money and now they’re reinvesting to go forward and be in it for the long term,” he said.
Smith underscored the importance of making food and beverage profitable in helping turn properties around. He said it is a clear point of differentiation for the company. “We’ve found over the past 10, 15 years, more and more hotel companies have gotten away from really focusing on the F&B side of the industry; everything’s gone to the grab-and-go and so forth,” he said. “Some hotels from a physical plant standpoint or ownership standpoint just can’t make those physical changes so you have to make the most of what you have.”
For example, Chesapeake Hospitality’s Hilton Savannah DeSoto property was awarded the 2013 Food & Beverage Most Improved Award by Hilton Hotels Worldwide. Smith further emphasized the potential impact of F&B. “While others have maybe passed on it, we focus on it. The hotels in our portfolio will average food and beverage profitability alone above 35% in most cases,” he said.
The company’s properties include such brands companies as Hilton, IHG, Starwood, Choice, Best Western and Wyndham. Smith added that another factor contributing to the company’s growth is some positive word of mouth from some of the aforementioned brands. “We have a couple of brands that have afforded us opportunities just based on what they’ve seen us do at some of these other hotels,” he said.
But Smith added the company can make a pretty compelling case without any referrals. “I think owners, even if they haven’t heard about a turnaround, when they talk to us and with what we share with them information-wise, they’re quickly convinced,” he said.