NEW YORK—Executives of OTO Development have their eyes on aggressively adding hotels to their portfolio. The growth won’t be as aggressive as when they built 475 Extended Stay America hotels before selling them to The Blackstone Group in 2004, but the plan is to add more properties to 6-year-old OTO’s current portfolio of 31 hotels.
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The SpringHill Suites |
“The dollar figure’s not important ... We want to make smart investments,” said Corry Oakes, CEO and president of OTO Development, during a break at the recent New York University International Hospitality Industry Investment Conference. “We like the long-term economic trends on the two coasts. We try to target markets with multiple significant demand generators, growing economies, growing populations. Right now most of that is on the East Coast and the West Coast.” The company’s map to success hasn’t always been so clear. Following the sale of the ESA brand to Blackstone, Oakes joined H. Wayne Huizenga, George D. Johnson Jr. and other executives on a search for their next hotel investment.
“We flew all over the country to try to find the next great lodging idea and do another rollout,” Oakes said. “When we started ESA there were 95 brands, today there are 330. We didn’t see a hole to fill … something that we would risk our reputation on, so we then met with all the major companies and became franchisees.”
The company immediately developed 11 hotels and sold those during the go-go days of 2007-2008. “Our timing was fortunate,” Oakes said.
Today, it manages 29 of the 31 hotels it owns, while Marriott International manages the other two. Its portfolio includes 11 SpringHill Suites properties, seven Hampton Inn & Suites hotels, four Hyatt Place properties, four Resident Inns, two Homewood Suites hotels, one Fairfield Inn & Suites, one Hyatt Summerfield Suites and one Sheraton. The company’s reach covers nine states and the District of Columbia. Oakes expects a Residence Inn in San Diego and a Hampton Inn & Suites in Mahwah, New Jersey, to open this year. The company is ready to start construction on a Hilton Garden Inn in downtown Washington.
OTO is open to adding partners for some of its ventures, Oakes said.
“We have invested our own capital up until now. We are having some discussions with folks about joining us,” he said. “We are interested in growth. At the end of the day, we’re not about having a small organization that’s not real active. There are great long-term prospects for select service.”
Oakes said OTO typically expects internal rates of return in excess of 20 percent.
OTO especially likes the select-service class of hotels because they have fewer moving parts and bigger margins, according to Oakes. “It’s an investment class we’re more comfortable developing and managing. It’s a more profitable business.”
Not just builders
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Homewood Suites by Hilton West Palm Beach |
OTO is interested in branching out from development. “We’ve made some offers on assets but have not been successful up to this point,” he said. “We also bought some debt. At the end of the day, we’re in the money-making business. This debt was opportunity that if they pay it off, we make money; if they don’t then we own a 4-year-old Hampton Inn & Suites.”
Oakes has looked at acquiring small portfolios and single assets.
“There’s a lot of money chasing deals,” he said. “It’s going to be tough competition to buy anything over the next six to 12 months.”
Service is the answer
“How you deliver great customer service is unique,” Oakes said. “You have to empower your team to do the right thing. It has to be part of your corporate DNA. It has to be talked about and get a lot of focus. We do that.”
The hands-on approach the organization takes is important to the guest-service culture.
“A hotel is like a garden; there is no greater fertilizer than the owner’s footprints,” he said.
The executives that came from ESA have learned from some things that they didn’t do well while at ESA, according to Oakes.
“We were very slow to adapt the change to electronic marketing,” he said.
So the company hired John Anderson, a former executive with the Embassy Suites brand, as its COO.
“Understanding where to go to find an answer within the brands was important,” Oakes said. “We like to be adopters of best practices where ever we find them. Getting some outside perspective was very important. We’re big believers in diversity of thought.”