The Chesapeake Point of View

Hotel: New Converts, Strategy And Synergy

Hotel: New Converts, Strategy And Synergy

April 25, 2013

GREENBELT, MD-When franchise agreements expire and come up for renewal, some hotel owners find themselves at a crossroads. Do they renew their contract with their existing franchise, or do they consider moving to a new franchise flag? At a time when the competition is stiff and hotel owners are looking for any competitive edge that can help them stand out from the crowd, opting for a brand conversion is an increasingly popular option.

Getting a fresh start and launching a new brand identity is an appealing prospect, particularly for owners struggling to turn around an underperforming property. With crowded and competitive markets and a lending environment that is still less than ideal, opportunities for promising new builds are relatively few and far between. In contrast, the comparatively inexpensive proposition of a brand conversion—and its correspondingly positive ROI potential— makes strategic conversions arguably more attractive than ever. When done well, a brand conversion provides much of the marketplace punch and the perception of “newness” that you get from a new build, only without the significant investment and exposure required for a groundup development.

However, executing a successful brand conversion is not as simple as swapping out signage and printing new business cards. Hotel owners considering such a move need a trusted partner and must carefully sift through their options before selecting the right brand for their property. They also must strategically account for the costs, timelines and tactics necessary to renovate and remake their property—and then successfully launch it, setting it up for financial success.

Hotel owners looking to move forward on a hotel conversion must note the following considerations:
Heading to market If you do not choose the right brand for your property, even the most successful conversion is doomed. First, consider the brandscape of your market, and let that drive your decision-making process. Evaluate and understand which available brands best fit your physical asset, deal points and investment strategy. Based on these criteria, you can determine which brand will provide the best return on your investment.
The value proposition Selecting the right brand is only the first step: implementing the right strategies to make your conversion a successful one is absolutely essential. Remember that you are not operating in a vacuum: every step in the conversion process should bolster your ability to deliver a memorable guest experience and impactful bottom line results.

Significant savings When weighing the pros and cons of a potential conversion, expense looms large. Typically, there is a higher value-add proposition and lower total cost per room on a renovation as opposed to ground-up construction—especially if the property is in a prominent location with a strong op erating history. In addition, there may be an opportunity to enter a market where new construction is not feasible or cost prohibitive. Understand your risk With every opportunity there is associated risk; seek professional guidance to fully assess your potential exposure related to the proposed investment. It is imperative as part of your due diligence, to evaluate the condition of the major mechanical systems of the asset, including the HVAC, plumbing, electric, elevators, laundry and kitchen equipment. This knowledge will be invaluable in understanding the costs of replacement, updating a nd budgeting for the operation and maintenance of older, less efficient systems. Hotel: New Converts, Strategy and Synergy By Joseph Smith, EVP of Chesapeake Hospitality | Commentary April 25, 2013 GlobeSt.com TM Real Estate is our domain SM Opportunity knocks A hotel conversion is not just a mechanism to turn around an underperforming property: it is also an attractive option for owners looking to expand. With record numbers of hotels defaulting on their mortgage payments in recent years, purchasing and converting a hotel that is in receivership (and is often not hampered by an existing franchise agreement), renovating, converting and reopening as a “new” property is an approach that makes both strategic and financial sense. New and improved The appeal of newness to the consumer is a big part of what makes well-executed conversion strategies so effective. A renovated and converted property can make an outsized impact on a marketplace that values something new and different.

Solid management matters Understand that a conversion is not a finite process: the ribbon-cutting is just the beginning. Long-term success requires efficient and effective hotel management, and conscientious and consistent implementation of new brand service standards. Post-renovation management strategies can have a profound impact on the property’s ability to sustain its newfound momentum—and generate the necessary ROI every owner is looking for.
Professional counsel Executing a successful brand conversion can be an extraordinarily complex process. Consequently, the experience and expertise of a proven hotel management company can be a difference-maker. From making the right brand connections to setting up the operational framework and support systems, hotel management professionals are a key ingredient in the recipe for conversion success. Hotel owners, who are faced with the prospect of integrating an entirely new hospitality product—complete with new marketing and management challenges—must consider professional conversion and management assistance.

Making a splash The recent successful conversion and subsequent transition of what was formerly a historic Holiday Inn franchise to a new Doubletree by Hilton in Raleigh, North Carolina demonstrates the efficacy of a well-executed transition. Recognizing that there was no Hilton branded product in downtown Raleigh, the conversion was an attempt to capitalize on the fact that the new property would be an appealing destination for Hilton Honored Guest members who had no other downtown options.

With the property’s franchise agreement up for renewal, the owners decided to pursue a conversion strategy in hopes of reinvigorating the operation and maximizing the property’s potential. Chesapeake Hospitality was the hotel management company selected to provide operational support, implement new franchise service standards, and spearhead the transition to a new flag. Using a range of strategies, including a proactive RFP process and reservation systems management, and the introduction of a new e-commerce strategy (with targeted GDS marketing campaigns, new website development, and social media and customer relationship management strategies), Chesapeake partnered with ownership and the brand to execute a remarkable turnaround. As a Doubletree property, the hotel boosted RevPar over the market/comp set by nearly 40%. Post conversion, the hotel also saw a 22.7% average daily rate increase and a 50% increase in profit—all while achieving high customer service scores that far exceed Doubletree standards. The bottom line? A noteworthy $8-million increase in asset value.

Moving forward As hotel conversion strategies become more popular, it is clear that it is not only owners looking to boost profits that are driving this trend. A surplus of properties that are either defunct or in serious disrepair provides an abundance of post-recessionary opportunities for savvy investors. Across the country, eye-opening conversions have transformed these relics into rebranded, renovated and reopened profit centers.
Ultimately, whether you are kick-starting an existing underperforming hotel or revitalizing a run-down property, the processes and possibilities are similar. Every step in the conversion process is aimed at providing cost-effective and workable solutions to answer the fundamental question: how do you improve the value of your asset? That literal and figurative bottom line—maximizing ROI and adding value—is where strategic rebranding and successful hotel conversions are proving to have a lasting impact.