SPOKANE, WA— WestCoast Hospitality Corp. has decided to take a quantum leap with its Red Lion portfolio and will invest some $40 million to ensure the below-the-radar brand gains enough momentum with developers to eventually roar its way across the U.S.
Primarily known for its regional concentration in the West and Northwest, the full-service, upper-midscale brand currently offers 60 hotels in 12 states and British Columbia, with 39 of those company owned and/or leased with the remainder managed or franchised.
According to Arthur Coffey, president/CEO of WestCoast, the initiative will be fueled by the company’s decision to sell 11 hotels along with other select non-core assets, with the proceeds going toward revamping the corporate-owned properties during the next 18 months.
“We’ll be selling eight Red Lions, two WestCoast Hotels (Red Lion’s sibling) and one that’s not branded at all,” Coffey told HOTEL BUSINESS®. He noted the properties are in seven markets where— post-sale— the company will have a brand remaining, communities such as Spokane and Yakima. “In Kalispell (MT) we have three properties so we’ll sell two properties there and rebrand one to be a Red Lion,” added Coffey.
Among the non-core assets on the block is the Crescent Building in Spokane. The downtown property includes two floors of retail and five floors of commercial office space, which is owned by WestCoast Hospitality LP. “It’s over 95% full on the office portion of the building. It’s mature. It’s time to sell it,” said Coffey .Coffey expected the sales transactions that will drive the $40 million infusion will come from one-offs, with perhaps a single three- or four-asset “package” in the mix.
“Most will be one-on-one,” he said.
The financial infusion builds on the $11 million WestCoast has layered onto the brand since January 2004, largely to address guest-comfort areas, developing the “Stay Comfortable Room” that pulls in premium upgrades to enhance the brand, including its “Net4Guests” wireless Internet access program it launched last July.
“We’ve really seen great customer comments from ‘Stay Comfortable’; there’s a lot better penetration in our markets,” said Coffey, who considers the brand’s competitive set whatever the “top five competitors in the market are… we compete a lot with Doubletrees, Holiday Inn, Crowne Plaza.” He cited continuing occupancy growth to December and RevPAR growth of 7% in third-quarter 2004 that saw occupancy at 70.5% (67.3% in the year-ago period) and an ADR rise of 2% to $74.72 as an indicator of the program’s impact.
WestCoast acquired the Red Lion brand from Hilton Hotels in late 2001, and in early 2003 converted almost two dozen WestCoast hotels to the brand. Currently, there are seven WestCoast properties, with Coffey acknowledging the attention now is on Red Lion.
“We’ve really focused on putting in a lot of what we call ‘banner properties,’ like the Red Lion Fifth Avenue in Seattle,” noted Coffey. “Our strategy is to make sure that we have highly visible banner properties in high-traffic areas where we can service the region and really get the name out.”
With a solid foundation in the western and northwestern U.S., the CEO is eager for the brand to migrate south and eastward as customer demand increases, although— for now— still with a focus west of the Mississippi.
Growth is expected to come mainly from conversions. “At some point there’ll be enough demand to warrant new construction. There are some developers looking at specific markets for the brand, but right now we still feel you can buy it for less than you can to build,” said Coffey. He noted revamp costs, depending on the property, can run from $3,000 per key to $11,000 per key.
While Red Lion will look for corporate-owned footholds in key “hot” markets, franchising will be the operative growth mode, and in some cases, management of third-party assets. The current franchisee mix for the brand runs from sole proprietorships to multi-unit owners, and the executive admitted the brand hasn’t grown “very much in the last couple of years” within the franchise community.
“I think people really didn’t know— it’s changed hands a couple of times— if there was commitment to the brand; where’s it going to be 10 years from now? There’s been a hesitancy by owners to say: ‘This is where we’re going,’ and commit the dollars. Now we’re really turning that around. We’re making the commitment and we’re seeing it pay off. Once those results are clearly evident to the franchise community, then they’ll want to be on board,” said Coffey.
To also help drive the brand expansion, WestCoast has been bringing on senior-level management with a variety of industry expertise. Most recently, WestCoast hired former Best Western executive Anupam Narayan as its executive vp/CIO. Interestingly, Narayan, a 25-year industry veteran, was employed by Red Lion Hotels and rival Doubletree Corp. from 1985 to 1998, Inc., serving as senior vp/treasurer.
“He has a long history with many of he assets that we own,” noted Coffey. “He understands the markets we’re in; he understands branding, and we want to strengthen Red Lion and have it be a national brand.”
“I know the brand, I know the business of the brand and I know the markets in general in the Northwest,” Narayan told HOTEL BUSINESS®, but said he would look to the Spokane executive team to get a lock on their vision. The team includes Coffey; Anthony Dombrowik, vp/corporate controller; William Heaney, vp/sales; Thomas McKeirnan, vp/general counsel; and longtime operating officer John Taffin, who rejoined the company as executive vp/hotel operations in September 2003.
With the brand being reabsorbed via various mergers and acquisitions over the past decades— Doubletree to Promus to Hilton to WestCoast— Narayan felt Red Lion “went into a state of suspended animation for a period of time. People didn’t see much activity, much advertising, much presence…growth has been fine, but it’s been limited in the past four, five years. WestCoast has now raised the bar on the product, and has started raising the bar in terms of communication and getting the word out to franchisees and investors about [what]the company is and where it’s going.”
Meanwhile, Coffey is not locking the brand into any specific time frame, e.g., a 5- or 10-year game plan, to accomplish the growth goal. “We’re going to make sure whatever we do, we’re doing them for the long-term value for our shareholders. We’re not going to go off and think that we need to leap to Florida and leap past all of our customers just to gain a dot on a map,” he stressed. “We’re going to make sure we can link the customers and go into locations that will serve them.”