NEW YORK— Recently declaring it was putting a lock on new construction development for its Sofitel brand in the U.S., Accor North America is making a point of finding alternate avenues of growth for its six North American brands. Michael Ferraro, executive vp/Real Estate and Development for Dallas, TX-based Accor North America, told HOTEL BUSINESS® growth always has been a priority for the division of France-based Accor S.A. “It becomes a question of how are you going to do it and can you react sufficiently to be effective in different cycles of the economy and of our particular business. The good thing is we’re very flexible. There are several different ways we can grow, depending on what the cycle is: We can build new, we can acquire existing, we can franchise new construction, we can franchise conversions, do management contracts, joint ventures, adaptive reuse. All these options are on the tabl,” he said. While holding off new-build domestic Sofitels, ANA plans to concentrate on expanding its Novotel and Ibis brands in Canada and Mexico. Together with Sofitel, the brands make up ANA’s Business and Leisure division. A second tier, its Economy Lodging division, is composed of Motel 6, Studio 6 and Red Roof Inns. That group has ambitious growth plans, much of which will be realized via acquisitions and conversions. “Where we are today it’s very difficult to justify new construction just because of the downturn in the economy,” said Ferraro. ANA’s President/CEO Georges Le Mener said Accor looks to get a 13% to15% unleveraged return. “When you develop a new project, this criterion has become an impossibility, which means that if you develop a new hotel today in the best scenario, you are going to get single-digit returns. This is not something Accor is willing to do, so we are going to slow down considerably our new-build development,” he said. “If you look at the pipeline of new construction in the United States, it’s declined dramatically. There’s still new construction, it’s not been stopped, it’s just declined,” said Ferraro. People who are doing it tend to be franchisees and developers. Chains aren’t doing much construction.” ANA is in the process of repositioning Red Roof Inn, and at 358 properties, intends to grow to 500 properties via a combination of franchising, company-owned projects and converting 20 Motel 6 properties to RRIs over the next few years, At 823 properties, Motel 6 will remain on track toward having 1,000 motels, mostly through franchising and conversions of RRI. Extended-stay Studio 6 with 40 properties will be grown only opportunistically through acquisition and conversion, and franchising will be pursued more aggressively. “We don’t plan to build new Studio 6s ourselves, ” said Le Mener. “One of the characteristics today of our company is allocating capital,” added Ferraro. “Companies have very significant capital requirements for renovations to keep products fresh and new and development of any kind of real estate is capital intensive; the hotel business is no different. Just by virtue of the capital requirements for renovation and development coupled with a downturn in operating results it means we’re trying to be much more cautious about how we spend and that results in a de-emphasis of new construction.” Another part of the equation is acquisitions, he said. “One of the things you have to have with an acquisition is an investment basis significantly below what it costs to build a new property, otherwise build it new and build it the way you want it.” Ferraro said there are still acquisition opportunities that ANA will look at, but it has to be the right building in the right location at the right price. “We have the ability to do that and we have a variety of brands to choose from to rebrand and convert,” he added. Ferraro noted when it comes to branding and brand growth, the decision is very financially oriented. “It’s what brand is going to make us the most money. When you ana
Michael Ferraro