MADRID — The success of the luxury and budget hotel segments post-pandemic has led to chatter about what might happen to every hotel segment in between.
But hoteliers with brands and properties in the middle say there are ways to survive and thrive apart from mergers and acquisitions.
The first strategic decision for hotels and hotel brands “in the middle” is to decide exactly what management wants them to be, said Daniel L. Rossell Massachs, CEO of Spain-based Senator Hotels & Resorts.
“We want to be the best operators, so the next question that arises is, ‘Which is the brand that is adding more value for each project?’” he said on a panel at the Atlantic Ocean Hotel Investors’ Summit. “Sometimes that is one of your brands, but not always. For me, you can survive with your own brand, even with independent brands, depending on the target [guest] that you are willing to work with and also the location and size of the hotel.”
But deciding to partner with a global hotel brand also comes with its advantages, Massachs said.
“The big brands have value because of their loyalty programs and the [marketing] conversations that they have,” he said.
Taking the right steps
Smaller hotel companies have stayed focused on keeping their businesses evolving. These include operating their own branded hotels, expanding their management portfolio to operate other international brands or aligning themselves with international distribution and loyalty platforms while keeping their hotels’ individual identities.
Christian Hribar, head of development at Germany-based Arabella Hospitality, said his firm has formed joint ventures to take advantage of the power of international hotel brands. He added finding the right joint-venture partner is just as important as the type of hotel involved in a project.
“Perhaps unusual for a German hotel firm, but we have three hotel management agreements, one with Marriott [International], with the St. Regis brand, and two with Rosewood [Hotels & Resorts],” he said. “[Rosewood] would only operate through HMAs because of keeping the promises the brand brings in … but we also would like and are planning to be in the white-label operator segment in Spain, for instance, with management and one of the brands on the franchise side.
“It is more a matter of project and what brand’s fit is best for the hotel in order to deliver what the owner wants,” he added.
Hesperia Hotels & Resorts has a portfolio of 4,600 rooms, total real estate investment of approximately €1 billion ($1.04 billion) and franchise agreements with Accor and Hyatt Hotels Corp., among other companies, said CEO Jordi Ferrer Graupera. Growing the company's portfolio to include other hotel brands has been a major win, he added.
“If you look at the value chain of the hotel business and then you slice it more in different pieces … it is not one business. That doesn't exist anymore. You can be an owner, you can be a developer, you can be a manager, you can have a brand,” he said.
Brian Williams, senior adviser at Swire Hotels, said the Hong Kong-based firm specializes in investments in mixed-use developments. But in his experience, hotels in mixed-use developments typically return the lowest profit.
“That said, we will look at redeploying capital. We own a lot of hotels. We own hotels we self-operate, and we own another eight hotels that are operated by companies such as Mandarin Oriental,” he said. “But what is our strategy? Do we recycle more capital by selling assets that we own but at the same time putting in our own brand. … I think there comes a point where you do have enough critical mass that there might be an opportunity for [Swire] to do one of those exits.”
While Swire’s investment is mostly in China, Southeast Asia and Miami, the company is interested in entering Europe, Williams added. Regardless of the market, hotels in they types of mixed-use developments Swire is interested in must be high-class, “one with some buzz,” he said.
“As we’ve grown and developed, [such hotels] have turned out to be quite profitable as we didn’t fill them with numerous meeting rooms, too many restaurants. The return on the real estate is very good. … but in terms of the metrics if we were looking to come into Europe, it is a different ballgame,” Williams said. “Obviously, [European hotels] have very high rates but very high costs. I’ve had a look at a number of projects, mostly in London, and they are very complicated.”
Name recognition
The world has become a different place for midscale hotels, panelists said.
Arabella Hospitality has concentrated on hotel management agreements since about 2016 when Marriott acquired Starwood Hotels & Resorts Worldwide, Hribar said. Before the deal, Arabella had a relationship with Starwood and its brands.
“That changed in December 2023 when we decided to move back into franchising to give us as a hotel company the ability to grow. … We see a lot of benefit in moving on our own but remaining a partner with Marriott, plus we have added the Rosewood partnership. Both work very well. They key is the relationship,” he said.
Such relationships provide comfort for both Arabella’s investors and financial partners, Hribar added.
Senator Hotels & Resorts is family-owned with two brands and 41 hotels located mostly in Spain and the Dominican Republic. The company recently formed a franchise division, and Massachs said that developing comes with fewer headaches if a well-known brand’s name is above the door.
“What we are looking for is that the piece the [international brand] is going to take is less than the equity to us, because otherwise you are taking from your own business. … but in markets such as Madrid, Valencia, Sevilla, the rates paid by international travelers are much higher,” so an international brand works better, he said.
Working with a new generation
For family-owned hotel groups such as Senator and Arabella, the equation can be more complicated once one generation of leaders retires and the next generation takes over.
“There are long-term issues here, different issues, emotional things,” Massachs said. “You have to prepare the framing, which is very complicated and complex. We still have the first generation that is still very active and will be for the next 10 years.”
Hribar said that framework requires very strong governance and senior management.
“You will be more competitive when things change,” he said, adding the next generation at Arabella took over the reins last October, who are actively looking at finding a buyer for certain parts of the business.
Graupera said he worries about passing his firm to its third generation.
“For my father, the founder, the brands were like his third child. The first step was to make him understand that it is not healthy to have such high levels of debt … and the most difficult to have him understand that we would operate the hotels of other brands,” Graupera said. “But of course, he was very clever. He saw it very quick. 'If the other brand has more value, then let’s go with it,' he said.”