LOS ANGELES—Loews Hotels & Co. is in the process of increasing its portfolio size by 25% by doubling down on a strategy that has given it a prominent presence in the Orlando market.
“We call that strategy ‘immersive destinations’—where the demand generator isn’t really the city,” said Alex Tisch, EVP of commercial and business development of Loews Hotels & Co. “It’s the project or who we’re building in conjunction with.”
New York-based Loews has 24 hotels in its portfolio with six in various phases of development: three in Orlando, one in Arlington, Texas, one in St. Louis and one in Kansas City.
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“We found this white space where we find a lot of interesting construction development projects as a result of saying we want to be a great partner,” Tisch said during a break at the recent Americas Lodging Investment Summit. “We want to embrace the owner-operator model.”
The Orlando projects will add to the five hotels the company already owns and/or manages in the market. The 600-room Aventura Hotel is scheduled to open in August. Loews’ two other hotels—which are being built on the site of the former Wet ’n Wild water park—will have a combined 2,800 rooms are scheduled to open in summer 2019.
The assets at the 50-acre former water park site will be more value-oriented, and like some of the other hotels in Loews’ portfolio, they will not carry the Loews name.
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“We have a name, but there’s a copyright associated with it,” Tisch said. “This will be unbranded because we don’t want to create brand confusion with people think they’re going to a Loews Hotel.”
Once the projects are open, Loews will have more than 9,000 guestrooms available in Orlando. The city continues to be a big part of Loews’ expansion strategy because of its 22-year partnership with Comcast NBC Universal, the parent company of Universal Orlando Resort.
The value-oriented hotels play directly into Universal’s strategy to attract a wide variety of demographics to its theme parks in the market, Tisch said.
“The Universal partnership in general, I think you’ll start to see it working like Disney, where they’ll have 5-star, 4-star, 3-star, 2-star keys,” Tisch said. “We’ll be their partner in them, but to put a brand associated with them is a bit difficult for consumer differentiation.”
One relationship leads to a Live! one
The relationship with Universal has provided somewhat of a blueprint for the company’s other expansion projects, Tisch said.
“How do we take what we’ve done well with them and replicate that business model with others?” he said. “(It) is a difficult task. When we did that work, we found out that there’s all different kinds of demand generators.”
Tisch, who is a cousin of Loews Hotels & Co. Chairman and CEO Jon Tisch, said the company has had contact over the years with members of The Cordish Companies, and until 2017 couldn’t find a project to work on together. Cordish is a real estate developer that during the past few years has turned to building entertainment complexes that have a hotel component.
Loews officials quickly agreed to join forces with Baltimore-based Cordish on its Texas Live! project to develop a 300-room Live! by Loews Hotel near the Dallas Cowboys’ and Texas Rangers’ stadiums in Arlington, Texas.
“We basically fell in love with the project,” Tisch said.
Loews will own 50% and the Texas Rangers MLB club will own the other half, he added.
“The built-in demand generator is obviously the team, and my hope is that we’ll be able to leverage the team and their partners’ database to market directly,” Tisch said. “I can’t say how many accounts they have, but it’s a significant amount with a 60,000-square-foot stadium.”
The largest Six Flags amusement park also is located nearby.
But the collaboration wasn’t finished, according to the Loews executive.
“An hour later (Cordish) called me up and said, ‘Hey, why don’t you see what we’re doing in St. Louis?’” Tisch said.
Loews officials went to see the project at St. Louis’ Ballpark Village surrounding Busch Stadium—home of the St. Louis Cardinals—and was sold on joining that project as well. It will include a 220-room Live! by Loews property. Loews will own 50% of the hotel and Cordish and the Cardinals will own the other 50%, Tisch said.
“Those two teams are very much like demand generators at Universal,” Tisch said. “We’re a bit more limited in what we can do. We can’t have nine hotels, 9,000 keys like Universal, but certainly the project is worthy.”
Kansas City project also takes off
Loews’ other big project in the works is the $320-million, 800-room Loews Kansas City, which will be attached to the city’s convention center. Tisch said the city was struggling to put financing in place with another operator before Loews stepped in.
“Our owner-operator story resonated pretty quickly with the city—the fact that we had the money to close and didn’t have to go look for it,” Tisch said.
There are a number of subsidies involved in the project, Tisch said. However, the fact that it will create 2,000 jobs and Loews has an infinite hold period sold the city on the deal. Tisch said the project will allow the city to compete for conventions with markets such as Austin, Texas; Nashville, Tennessee; and Indianapolis.
“The way we’re going to be able to compete with them is on price,” Tisch said. “The convention center is not getting a lot of business now. They’re getting local … because they don’t have a great hotel with them. Now they have a great hotel that’s subsidized by the city, we’re going to go and compete on price for the best business.”
Loews contributed $60 million in equity, according to Tisch, and plans to have the hotel open in two years.
Overall strategy includes being ‘asset heavy’
While Loews is focusing on these megaprojects, Tisch said the company still likes the third-party management model.
“We love those assets, but as far as running as fast as we can to go get more, for a few hundred thousand dollars, it’s not a great use of our time,” Tisch said. “This is where we’re a pretty lean organization.
“If we can make $20 million on one hotel or $20 million managing 100, it’s a much better use of time and capital for our business model to do that one,” he added. “Even if we have those 100, it still won’t really increase our distribution or have that much leverage over the OTAs or competitors.”
That mindset is a result of the changing market conditions that have dominated the hotel industry.
“What we’ve seen in the past few years is that the bifurcation of owner and operator has created a huge void in aligned investment,” Tisch said. “There are very few hotel deals around the world where no one has any partners and it’s just a hotel.”
That trend has led Loews to be a contrarian in the brand world as it continues to be asset-heavy in an era when most brands prefer to not own real estate.
“We don’t ever want to model an IRR based on selling the hotel at cost that we’re owning forever,” Tisch said. “Our best transaction we’ve done in our life, or done 20 or 30 years ago, Miami or partnership in Orlando, the Regency in New York. Those are basically just annuities to us at this point just because they’re on a longer hold period than everyone else, than most, certainly than most of our peers.”