GULF BREEZE, FL— Innisfree Hotels has owned as many as 15 hotels at one time stretching from Arizona to San Antonio to Miami. But such a wide-ranging and sizable portfolio strategy has now been replaced by a more narrow-focused one, through which Innisfree is heavily concentrating on beach-based, condo hotel-related projects within its own Gulf Coast headquarters area here. Not The Right Fit “I’ve looked at strategic plans driven by geographic goals and also thought about financial goals, but for me and my company they just don’t seem to fit,” explained Julian MacQueen, the CEO of Innisfree, which is based here, near Pensacola. “Our success is setting our goals based on the market and having them market driven. So we’ve gone from 15 hotels down to seven, but we’ve also increased our revenue in that time by, for example, selling our Best Western in Nashville and then taking that money and buying a hotel on the beach. We’ve become highly focused on beach property and, consequently, our revenue has increased dramatically. We’ve been as far a field as Arizona, but it really makes us a lot more efficient to have properties on the Gulf Coast that are seasonal. That’s our sweet spot. Between Pensacola, FL, and Gulf Shores, AL, we own 35% of all of the hotels on the beach.” Innisfree’s Gulf Coast properties include a Hilton Garden Inn in Pensacola Beach, FL; a Holiday Inn Express and a Hilton Garden Inn in Orange Beach, AL; and a Family Inns of America in Mobile, AL. Among those assets, the Hilton Garden Inn in Pensacola Beach is of particular interest to Innisfree because it will eventually be a part of a 1,000-plus-unit condo hotel, mixed-use complex that the company is currently developing in Pensacola Beach. In addition to the Hilton Garden Inn, MacQueen said that the development currently includes the Beachside Resort, which was destroyed by Hurricane Ivan two years ago, and the 270-unit Surf and Sand Resort, both of which are currently closed and are being renovated. A new 206-unit condo hotel will replace the Beachside Resort. The project will also encompass a Hampton Inn that Innisfree acquired in December of 2005. Another 20 rooms will be added to the Hampton Inn as part of the overall project. Furthermore, the Hilton Garden Inn will eventually be converted into a Hilton condo hotel, and a 92-suite, 18-story tower will be added to it. MacQueen noted that the property was built with such a conversion in mind, and so it already features three pools, two bars and a theme restaurant. “With this project, we’ve got about 6,000 sf of retail space on the boardwalk and marina,” said MacQueen, who also noted that Innisfree has $500 million worth of projects in its total pipeline. “And what’s unique about this project is since we own both sides of the road, it provides people who stay on the quiet marina side access to the Gulf and people who stay on the Gulf side access to the marina. To my knowledge it’s the only place on the Gulf where you can walk between both sides. This is all a part of the new urbanism that’s geared toward people friendly environments versus car friendly. So you’ll park here once and not have to get in the car again.” Innisfree’s pursuit of the condo hotel model goes back about three years now, according to MacQueen, who added that the model’s intrinsic ability to secure financing as a result of unit presales makes it an even more desirable product type. But when asked if the condo hotel market could be setting itself up for an overdevelopment-related crash, he admitted he was concerned about such a possibility. Condo Concerns “I’m worried about condo hotel development because a buyer must buy a condo hotel unit based on the desired experience and not on hard investment criteria,” he said. “Provided that units are sold in that manner, I think the model will work out fine. We don’t want to make a quick buck on somebody only to find ourselves with egg on our face with future projects. If you sell the unit as an experience, you’ll be fine. But I’m very leery of people who are not hoteliers in the marketplace that take their product and retool it as a condo hotel just to offload inventory. That worries me a lot. A condo hotel needs to be feasible as a hotel first, period. That’s the first step in moving forward with a condo hotel. If you ignore that step, it’s a recipe for ruining the condo hotel environment for developers, and that is happening in some markets.” Despite the fact that condo hotels are quite operations-intensive, MacQueen is confident in Innisfree’s capabilities in that department because of its proprietary hotel management software formula. That formula centers on “managing rates by the hour,” he said, and has produced 20% RevPAR increases in every hotel Innisfree has taken over. Of course, considering most of Innisfree’s assets are located on the Gulf, no manner of management expertise can prevent the problems and dangers associated with hurricanes. But when posed with the issue, MacQueen calmly asserted that Innisfree is not fearful of the annual storms. “We think the new building code is really the best insurance we’ve got for it,” he said. “Hurricane Ivan came here two years ago and was the most devastating hurricane to strike here in 10 years, but we reopened our Hilton Garden Inn in two months. And since we’ve been in this marketplace for more than 20 years, we’ve become experts at mitigating our related insurance claims. We have spent so much time in the process of rebuilding after hurricanes that we really are experts in the field. We’ve been tested. We’ve become very efficient in catastrophe mitigation. We don’t get into lawsuits; we get properties open, and we’ve spent millions learning the wrong ways. We consider it all part of doing business. There’s a risk-reward there.” But MacQueen also quickly added, ”Pray for no more hurricanes this year.”