NEENAH, Wisconsin—In 2007, hotel developers Brian Wogernese and Mark Pomerenke were looking at a few small towns in Wisconsin they thought could use small, 30- to 40-room hotels to serve the needs of travelers. They wanted to flag the hotels to offer the travelers some consistency, but they couldn’t find the right midscale brand at the right cost that would drive the right rate.
So they took matters into their own hands. They created a brand—Cobblestone Inn & Suites—and immediately became a turnkey solution, offering contractor services as well as developing, owning, branding and managing hotels.
The gamble seems to have paid off for Wogernese and Pomerenke, who just five years later—by the end of 2012—will have some equity in all 16 newly built Cobblestone hotels and five hotels that were converted into Cobblestone’s sister brand, Boarders Inn and Suites.
“With an economy brand, we’d never be able to drive the rate we wanted to,” Wogernese, the company’s CEO, told HotelNewsNow.com. “So we said, ‘Let’s come up with our own brand,’ and Cobblestone was it. We’re kind of a one-stop shop.”
Five years in, that first property in Wisconsin still fetches a $75 to $78 average rate, he said.
The company opened its first two Cobblestone Inn & Suites properties in 2008, both new builds. The company opened two more in 2009, one in 2010, two in 2011 and will open nine by the end of 2012. All 16 were and will be new builds in a time when even the big franchisors are struggling to get properties out of the ground.
|
Brian Wogernese |
Cobblestone has an additional nine hotels under various stages of development that are expected to open in 2013. One in Harvey, North Dakota, recently broke ground. Conservatively, Wogernese said Cobblestone will have a total of eight hotels under construction by 2013.
“We have a large pool of investors that really like us,” Wogernese said. “It’s just because the existing properties have performed pretty well.”
Small hotels offer large benefits
If there’s any secret to Cobblestone’s success, it’s that good things come in small packages. The average Cobblestone hotel is around 36 rooms; the largest one is under construction in Marquette, Iowa, and will feature 56 rooms. All in, cost to develop a Cobblestone hotel is approximately $65,000 per unit, including financing, working capital, land and furniture, fixtures and equipment.
Wogernese and Pomerenke enter small, underserved markets with no more than 5,000 or 6,000 residents.
“We go into small markets that the larger brands just can’t afford to be in,” Wogernese said. “When you go in to a town of 5,600 people, it’s hard to justify a branded hotel going in.”
In the early days, financing was mostly coming from small, local banks, but now Wogernese said the brand has enough clout that national banks will lend on it. Investors traditionally front a significant amount of capital and are careful not to over-leverage the properties. Most loans are for approximately 50% of total cost; one is as little as 30% levered.
While the small footprint might lend itself to an independent nature, Wogernese said Cobblestone is careful to avoid the “mom and pop” connotation. It’s important for Cobblestone to have marketing power, he said.
“The logo and things of that nature make it look like a bigger brand than it is,” he said. “Anyone can build a hotel and put a name on it, but are you going to attract the customer? If I’m driving down the road I’m typically not going to stay at a mom and pop. We did spend a lot of time on the brand.”
He said the goal for each property is to have good curb appeal and a decent-sized presence on the Internet. The company partners with global travel technology company Sabre to assist with distribution challenges.
“Distribution is a big (issue),” he said. “It’s a struggle and we’re invested, so we’re watching this closely.”
Efficient operations
On the operating side, Wogernese said Cobblestone “is about as efficient of an operation as you’ll get.” When Cobblestone was born, he and Pomerenke, who is now the president of acquisition and development, took a look at hotel operations 20 years ago and tracked how operating profits have declined since then.
“The major brands are requiring breakfast attendants and full-time maintenance guys,” Wogernese said. “The amenity creep has taken over. All of a sudden your net drops when the franchise requires we do all of that stuff.”
At Cobblestone, the property manager works three to four desk shifts per week. If there are fewer than 10 rooms to clean, the front-desk clerk does the cleaning rather than bringing in a housekeeper.
Communicating those efficiencies to the Cobblestone properties that aren’t managed by Cobblestone—which is about half—is important. Cobblestone executives will bring those managers into its corporate office, train them and hope they take those efficiencies with them.
While many brands are focusing on North Dakota because of its rich oil demand, Wogernese said Cobblestone’s North Dakota properties have diversified demand drivers. Wogernese said what happens when oil demand dies down is a concern when evaluating brand growth.
“We talk about it on a weekly basis,” he said.