GLOBAL REPORT—As hotel brand companies expand globally, they increasingly turn to local partners to help them with development efforts. According to sources, it’s especially important to work with local experts in new and emerging markets.
“Doing business in a country where you’ve never done business in is dangerous at best, not just from the standpoint of what amenities your hotels have, but from the standpoint of relationships, legalities and how you get things done in the local jurisdiction,” said Andrew Alexander, president of Red Roof Inn. “In these situations, a partner is invaluable.”
Red Roof last month partnered with Brazil-based Nobile Hotels to expand to Brazil, the economy chain’s first location outside the United States. According to the agreement, Nobile as master franchiser for Red Roof will open between 35 and 40 Red Roof hotels in the country during the next 25 years. The first, a conversion of an existing property, is scheduled to open this year in Brasilia.
Alexander said the decision to expand to Brazil was more opportunistic than part of a larger strategy.
“We’re prepared and ready to grow internationally, but because of the growth opportunities we have domestically we’re not forced to grow (outside of North America),” he said. “We have the luxury of waiting for the right opportunity and the right partner, and we found it in Brazil.”
Phil Hugh, chief development officer for Red Roof, said it’s important to follow the advice of all development and franchise partners.
“We look at international growth a little differently,” he said. “We view a franchisee relationship in Albuquerque (New Mexico) the same way we do in Brazil. If we pick the wrong franchisee in the U.S. who doesn’t understand the power of operating a quality hotel and embracing our brand, then it is just as bad as doing the same thing internationally.”
Further global growth for Red Roof depends on partnership opportunities, Hugh said.
“We’re looking at strategic parts of the world to grow the brand, but it comes down to being opportunistic and strategic in finding the right partner,” he said. “If we find the right partner to help us grow, we will be aggressive. It’s all about finding the right partnership, the right group that understands what the brand offers and exactly where it needs to be positioned.”
In the meantime, Alexander said, the company will focus on Canada for expansion outside the U.S. Last year, the brand signed 80 franchisee agreements and opened 50 properties in the U.S.
Executives at Starwood Hotels & Resorts Worldwide rely on both their own development teams and in-country partners to find and execute projects around the globe.
“We have development people on the ground all around the world who are usually local themselves, but even for those people it’s challenging to know each and every market and city,” said Matthew Fry, senior VP of global development. “So we rely a lot on local developers’ expertise as to whether a specific location is right to build a hotel. It’s a matter of following the capital. If these guys who are local and are local experts think it is a good place to build a hotel, most of the time they are right.”
How they help
Working with a local partner is especially important in developing regions such as Africa, said Trevor Ward, managing director of W Hospitality Group, a consulting firm based in Lagos, Nigeria.
“Getting things done in emerging markets tends to depend more on relationships than on process, although there are exceptions, such as in Rwanda,” he said in an email message. “You need to know and deal with the right people, and you need to know how to relate to those people. In my experience, a local partner who is a vital part of a development can save enormous amounts of time and money.”
Ward said local companies can help developers and brands understand laws and customs.
“Land issues tend to be a minefield, so having an architect and/or lawyer who understands how the official and unofficial processes work is essential,” Ward said.
Fry of Starwood said the intricacies of real estate development are a universal issue but becomes more crucial in unfamiliar markets.
“Real estate development has been and always will be a local game, and (local partners) can help navigate through those waters,” he said. “Even though we’re a big international company, trying to develop hotels in a hundred countries without local partners would be impossible.”
Finding local partners
Red Roof’s Alexander said a chance meeting at an investment conference eventually led to the company’s Brazilian partnership with Nobile Hotels. Even so, the deal took nearly a year to come to fruition.
Fry said consultants are a source of referrals when looking for local partnerships. He said referrals from existing owners of Starwood properties are another avenue.
“The halo effect from our high-profile brands such as W and St. Regis help us from a development perspective as potential developers may have stayed in one of these hotels and are looking to grow, even if it is with one of our select-service products,” he said. “As example, a developer in Mexico loved the Ws in Mexico City and South Beach, so when he was looking at opportunities to develop he decided to do an Aloft because he was a fan of W.”
Ward said getting recommendations from trusted sources is the best way to find a partner.
“Your embassy can assist, as well as investors and consultants from your own country already working in the market,” he said. “But always have an iron-clad contract in place and an understanding of the legal processes to follow if things go wrong. Sometimes one must understand that as a foreigner any recourse to law might be a futile exercise.”
Fry said there are other challenges to working with local companies on development projects.
“We often work with experienced real estate developers who may have developed residential, office or retail but this may be their first foray into the hotel world, and that can be very challenging,” he said. “It requires a lot of education on our side, both in terms of how hotel management works and what our role is versus their role. And on the development side, it is a matter of holding their hand and trying to share with them our knowledge around hotel development. That can be challenging.”
Fry said it’s important to verify the credentials, experience and financial backgrounds of potential partners.
“We do a tremendous amount of diligence on every partner in which we enter into a relationship,” he said. “That runs the gamut from reputational to financial. We hire third-party companies to do detailed background checks on people in light of anti-corruption issues happening with the U.S. government, and we take that very seriously and have very strong programs to make sure we comply with all those rules.”