NORTHBROOK, IL—This month, Lane Hospitality officially converted a Crowne Plaza in its portfolio in Clark, NJ, to the Holiday Inn brand, installing Holiday Inn’s new lobby-as-social-hub concept, among other changes. Similarly, Lane recently finished refreshing the lobby of its Courtyard by Marriott in Durham, NC, installing the new prototype recommended by Marriott International.
Both CapEx improvements are examples of what has been Lane’s major focus the past two years. “We’ve done a lot of work getting our existing assets into good condition, completing a number of brand-led initiatives,” explained Bill DeForrest, president & CEO. DeForrest estimated the company spent $8 million on these efforts in 2011 across the portfolio and plans to spend an additional $6 million this year. With that work done, the focus now shifts to expansion.
Lane Hospitality currently has 17 hotels. The company owns nine, seven of which it owns 100%. The remaining two it owns with partners. One of these is 50% ownership, the other is 25%. The remaining eight hotels are straight third-party management.
“As an owner ourselves, when we approach a property about third-party management, it helps that we see things through the eyes of an owner,” DeForrest noted. “Our owners look at everything from a real estate investment standpoint. Other owners can appreciate this.”
Across the portfolio, Lane Hospitality has always had a preference for branded versus independent hotels, though “it’s a market-by-market decision,” he said.
“We believe in brands when it’s appropriate and that the customer today is still a brand buyer,” he continued, citing Lane’s strong relationship with Hilton, Marriott and IHG brands. “They’re relevant to the customer and we like the products they offer,” he added. The portfolio is a mix of full-service and select-service hotels.
Given the number of distressed properties industry-wide right now, there is a trend today for management companies to position themselves as turnaround specialists, particularly adept at working with these assets. “It’s sort of what we’ve always done, particularly in secondary markets,” said DeForrest. “We look at markets like Grand Rapids, MI, or Jackson, MS, where we have Hiltons in both cities, or Durham, NC, where we have the Courtyard. We compete very well there.”
DeForrest and his team look for hotels that can be leaders in these markets, assets that have been undercapitalized or possibly not branded appropriately. “We’ll go in and rebrand. In our Annapolis, MD, property, for example, we converted that hotel to a DoubleTree, completely repositioned the asset, and committed capital to it, which the prior owner wasn’t prepared to do,” he recalled. Annapolis is close to the Washington, DC area, a primary market, but not in that market, allowing Lane to benefit from its proximity to DC, but not compete in it.
Some secondary markets are growing at 9% to 11% a year. They’re less dependent on economic cycles. In a down cycle of 10%, a secondary market will be down 5%. Little new supply has come into these markets. “Business didn’t go away during the downturn. It just retrenched. So we’ve now seen a nice recovery in demand,” he added. Growth in 2012 is expected to occur on both the owned and third-party management sides of the business.
DeForrest praised the brands’ performance during the downturn for prioritizing what upgrades in brand standards they would require their properties’ owners and managers to make. In his opinion, the brands never really relaxed their requirements. Instead, they put some priorities in place and adjusted some timing.
“They chose to do the high-impact improvements first, making sure we used whatever financial resources were available because they recognized the fact that these resources were limited,” he said. Necessary amenities today include HSIA improvements, the flat-screen TV requirement and the high-definition signals.
Improvements that could be delayed without noticeable effect in 2010 can become more critical in 2012. At the end of 2011, for example, Lane finished renovating a select number of guestroom floors in its Grand Rapids Hilton. “The work had originally been scheduled for completion a year earlier. The hotel was performing well and guest comment scores were still strong. The brand was flexible on timing, but we didn’t want to wait any longer,” DeForrest said, noting that management never knows for sure what the tipping point will be, the moment when guests determine the hotel is starting to look rundown and decide they’ll stay elsewhere.
Lane supports the brands’ goal of keeping “the product and experience right for the guest.” DeForrest sees new brand standards as the brands continue to fine-tune their versions of multi-purpose lobbies and then cast their eyes on a feature like the executive level club lounge, both of which have the potential to be big initiatives.
As he starts concentrating on how best to expand the portfolio, DeForrest is aware of the stakes. “The best time to be a strong operator is not when you’re trying to protect your downside, but when you’re trying to maximize your upside,” he concluded. “We need to make sure we do whatever we can to get the best performance from each of our assets. We owe it to our owners, our associates and the brands we work with.”
