Reintroduction of expensive hotel branding standards threatens owners with just a taste of recovery – Skift
The US hotel industry, driven by summer leisure travel, has exceeded expectations in recent months and even exceeded pre-pandemic performance levels last week. But if another aspect of hotel operations quickly returns to normal, hotel owners could be in trouble.
Most hotel companies have relaxed brand standards, which range from the type of cereal served in a continental breakfast buffet to expensive renovations to rooms and public spaces, during the pandemic to help owners save money for a long time. minimum demand.
If the U.S. hotel recovery momentum continues into the fall, enforcement of brand standards will likely be back on the table. It could spark a wave of long-awaited hotel property sales.
“Perhaps it is the looming capital spending and property improvement plans and lack of cash that could cause the capitulation,” said Alan Benjamin, founder and president of the hotel furniture and equipment supply company Benjamin West.
The combination of more than a year of deferred maintenance and renovations combined with hotel companies seeking to avoid bad reviews from travelers emerging from the pandemic will push capital spending to record levels between 2022 and 2024, West estimates.
The overwhelming demand is coming both from hotels that deferred these costs during the pandemic as well as from the normal maintenance and renovation schedules of hotels that have opened or been renovated in the past seven years. But some homeowners may not be able to afford to stay long enough to go through a renovation cycle.
Hotel owners are generally expected to have cash reserves of 4 to 5 percent of gross income readily available for capital expenditure in order to comply with brand standards. But the owners have obtained permission to mine these reserves to stay afloat during the pandemic.
“For the first time ever, lenders have given the green light by taking this money to hang on to control of the asset,” Benjamin said.
Many analysts doubt that these reserves have been replenished in recent months, especially in hotels outside the leisure markets which are still struggling to recover. Revenues for U.S. city hotels in May were still down 52% from the same month in 2019, the American Hotel & Lodging Association reported this week.
Impatient investors have salivated on the opportunities and bargains associated with the pandemic to emerge from the hospitality sector, given its disproportionate impact of the health crisis. While some owners cannot reduce the price of their hotel, many may decide to sell instead of pumping money into an asset after a year of accumulated income and an uncertain recovery trajectory in the years to come.
A long simmering debate
Owners and investors have maligned the brand’s standards for years because of their perceived excessive costs and limited return on investment.
Starwood Capital has spent $ 250 million on property improvement plans on a portfolio, and the CEO of the investment firm, Barry Sternlicht, said last year at the Saudi Tourism Ministry’s Future Hospitality Summit that the company had gained no market share after the investment.
“If you own a Courtyard and it is number one in its [competitive] together they’ll ask you to spend $ 7 million when it changes brands, and none of that money was worth it, ”he added. “It’s like throwing money into the ocean.”
Sternlicht and Starwood Capital are more in the buy mode camp, but analysts believe other owners may be in a more vulnerable position.
“Upgrades and renovations to brand standards can either crush a hotel or help it reposition itself in a ‘great place’ in the market,” said Chekitan Dev, Singapore Distinguished Tourism Professor at the Cornell University and hospitality branding expert. “Bringing back a full set of pre-pandemic standards is going to be a tough sell for brands and a tough job for owners trying to recoup lost profits.”
There was already pre-pandemic tension around branding standards issued by hotel companies to owners responsible for paying them. Brands are keen to add improved equipment and design in the hopes that more customers will choose their property over a competitor’s. Homeowners are generally more focused on cutting costs to increase profits.
Both positions are expected to continue during the pandemic recovery. Brands are likely to do what they can to differentiate a property in a more competitive market with limited travel demand – such as urban markets that rely more on business travel – while owners will want to find savings. efficiency to save money.
The developer sees four options for hotel owners: revert to pre-pandemic branding standards, convert to another brand with different standards, completely change brands and become an independent hotel, or sell.
“Ultimately, the decision will be driven by a multitude of factors, including the cost of renovation per key versus the ability to increase the rate, the owner’s negotiating position with the brand, the brand’s desirability. , availability of other brands, owner’s marketing and operational expertise, availability of third-party management companies, hotel location and buyers for the hotel, ”he added.
Solutions beyond a sale
Not all hotel owners necessarily need to panic about a quick return to brand standards.
Hotel executives have indicated in recent months that there are at least some conversations about how to reintroduce these measures without breaking the bank for owners who are just starting to see occupancy rates rise.
“We are currently evaluating the post-COVID renovation of brand standards with a view to finding other ways to improve hotel profitability while maintaining the quality and experiences that customers expect from our brands when they stay with us. “, Leeny Oberg, chief financial officer of Marriott, said during the call for the company’s first quarter results before adding later:” We need to make sure that we take into consideration the considerably lower cash reserves which have hotel owners and that we choose our locations and that we choose the renovations that are essential to the customer experience.
Although she did not provide details, Oberg noted that she expected the company to have a finalized approach on the brand’s standards next year.
For homeowners who need to go back to costly renovations, there are other options. The Curator Hotel & Resort Collection launched last year aimed to appeal to hotel owners wanting a little more autonomy than they would get by partnering with a bigger brand, including around the standards of the Mark.
Global hotel companies would be wise to note that they are not the only option for owners emerging from the pandemic.
“Many brands have allowed hotels to gut the brand standard to help hotels stay alive. The consequence of this is that hotels have learned to operate with much less and differently than before the pandemic, ”said Dev. “To preserve the brand-hotel relationship and bring back the standards that define the raison d’être of brands, brands must learn from the lessons of the pandemic and be creative in helping hotels meet their standards. “
Photo credit: Brand standards are still a costly struggle between hotel companies and owners, but tension is especially high as the pandemic emerges (Photo: A Marriott in Boston awaits new signage with the revised logo of the Mark). Cameron Sperance / Skift