ATLANTA—OTO Development is finding new ways to grow its hotel portfolio.
The Spartanburg, South Carolina-based company’s portfolio comprises about 70 hotels and 8,000 rooms, and although traditionally a developer of new-build hotels in primarily high-barrier-to-entry markets, the company has expanded to acquiring existing properties and renovating them.
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“We crossed $450 million in managed revenues (in 2018), and this year we’ll be north of $500 million, so pretty good growth from that standpoint,” said Corry Oakes, founder, president and CEO of OTO Development during an interview with Hotel News Now at the Hunter Hotel Conference. “We purchased a couple hotels towards the end of the calendar year, which is new for us—historically we’ve been a developer. So we purchased three hotels last year, and then we’re continuing our normal development process.”
In September, OTO Development announced it acquired the 100-room Best Western Key Ambassador Inn in Key West, Florida, as part of its purchase-and-repurpose strategy. The company also closed on a Holiday Inn Express & Suites property in Marathon, Florida, while the acquisition of a third Florida hotel is still in the due-diligence phase.
As part of its development efforts, OTO Development recently broke ground on the 156-room Hyatt Place National Harbor in National Harbor, Maryland, which is due to open in 2020. The company also has five additional projects under construction, including the 167-room Hyatt Centric Mountain View in Mountain View, California; the 238-room Hilton Garden Inn Sunnyvale in California; the 163-room Residence Inn Garden City in New York; the 219-room AC Hotel by Marriott Washington D.C.; and the 219-room AC Hotel by Marriott Bethesda in Bethesda, Maryland.
OTO Development already has four AC Hotels properties in its portfolio, which are located in Times Square; Chapel Hill, North Carolina; San Francisco; and the company’s hometown of Spartanburg.
Oakes said there’s a lot to like about the AC Hotels brand.
“We are very excited about the AC brand; we see that as something that was not available in the market, but the consumer is really reacting to,” he said.
Oakes added that the rest of OTO Development’s pipeline has some exciting hotel projects in the works.
“We have a handful of our typical new-development (projects) that we’re doing on both the (U.S.) East and West coasts in some really dynamic markets that are very difficult to penetrate,” he said. “A couple of those will open this year, a couple will start this year, and they all should be really outstanding additions to our portfolio.”
Industry outlook
While some Hunter Conference attendees warned of the possible end to the hotel industry’s cycle and an economic downturn around the corner, Oakes said he’s more worried about oversupply.
“Twenty years ago you could open a Hilton- or a Marriott-branded hotel, and you were going to really do well. … There’s a lot more capital in the industry, the customer has a lot more options, and because of that, you have to be more thoughtful,” he said.
It’s easy to look at the overall picture of U.S. supply and demand and not feel too worried, but since the hotel industry is a street-corner business, hoteliers can’t ignore what’s happening in individual markets, he said.
“Historically I think our industry has made extrapolations about past market performance and not really contemplated what might happen in the broader economy, what might have been caused by supply—I think today you have to take those things into account,” Oakes said. “And in a lot of markets, while supply nationally is muted, in a lot of markets it’s pretty extreme. Statistics are funny; nationally if your head’s in the oven and your feet are in the freezer, on average you’re comfortable. But if you’re in the oven or the freezer, it’s pretty uncomfortable, so I think you have to be careful about markets.”
Adapting from other industries
As part of the opening general session, Oakes suggested new ways of pricing the hotel business model that could help the industry generate additional revenue.
“I think we have to change the way we approach the business, the service model,” Oakes said on “The Presidents Panel.” “Why we are always the last to change is beyond me. When we buy a plane ticket, we pay for it. Why are we waiting until 24 hours before somebody is supposed to show up to let them make another decision about paying for the room or not?”
During his interview with Hotel News Now, Oakes said giving guests more personalized options can improve the overall hotel experience and help owners save on costs.
“I think the consumer today is all about customization, personalization,” he said. “We’re trying to do some of that, the brands are trying to do some of that through affinity programs and remembering your pillow preference or your floor preference, but we can do so much more.”
He added that not every guest wants the same amenities, and there should be a push to charge the guests that want those amenities.
“We should give the customer options—if they want certain amenities, if they want certain services, they should pay for them, and if they don’t, they shouldn’t be forced to pay for them,” Oakes said. “Housekeeping is an easy example, but there are other options, other aspects of the business that I just think we have to look at changing.
“The airline industry has evolved dramatically, and it’s meant a lot more profitability. Today we are faced with lower returns, shrinking margins, and we need to try to recapture some of that lost ground.”