It's the worst time to launch a new hotel brand, right? Maybe not, if you're banking on a low-cost conversion model for operators struggling to meet bigger brand standards.
It may be a bizarre time to launch a new hotel brand. But it’s also never too soon to start looking for opportunities, according to the My Place Hotels of America executive team.
My Place just launched Trend Hotels & Suites, a new collection of extended stay and upper-midscale and upscale hotels, earlier this month. It might seem like an awful time to introduce a hotel brand in the U.S., with industry groups like the American Hotel & Lodging Association saying the coronavirus pandemic will make 2020 the worst year for hoteliers in recorded history.
But the Trend Hotels & Suites parent company expects the brand, a conversion opportunity for independent hotel owners or those operating with a competing flag, to throttle forward in the current economic climate.
“As we were evaluating what might change in the future for us and what we’ve developed as resources and infrastructure over the last few years from My Place, I think we had the confidence to see a pandemic, a global economic crisis, and all the other things you could characterize our world as at the moment as a catalyst for growth and development for our company,” My Place Hotels CEO Ryan Rivett said. “There’s some external factors that are considered, but the confidence comes from within.”
The economy-scale My Place brand launched in 2012 and has grown to 56 hotels in 27 states, with an additional 120 properties in the pipeline. The company’s executive team has been openly discussing launching Trend Hotels & Suites since 2017, said My Place Executive Vice President of Franchise Sales Terry Kline. The brand is expected to appeal to owners and operators of other hotel flags coming off a long-term agreement.
“We’ve received lots of inquiries over the course of time with My Place about conversions,” Kline said. “But My Place is a totally new construction prototypical building, so we’ve always had to say no and move on.”
Fueling a Conversion Engine
Brand conversions, where an owner changes flag affiliation, were the talk of most major hotel company first quarter earnings calls. The coronavirus pandemic, while not yet impacting the hotel construction pipeline, is largely expected to dampen new construction pipelines. Many of the big brands expect brand conversions to fuel growth instead over the next few years.
But the My Place team claims the introduction of Trend isn’t just about jumping into what is shaping to be a competitive conversion environment.
“When you look at all the franchisors out there and the large stable of brands they are representing, sometimes it’s hard to find the differentiation between all these brands,” Kline said.
Brands like Marriott and Wyndham — the latter of which now owns the Super 8 brand of hotels Rivett’s grandfather founded in 1974 — expect travelers to crave familiarity when they return to hotels following coronavirus shutdowns. That means hoteliers would be on better footing if they were flag-affiliated and had access to the marketing budgets and distribution channels of the bigger companies, the thinking goes.
But there has been industry pushback against the conversion projections. Conversions still take money to renovate a property to meet brand standards, and many vulnerable hotel operators are cash-strapped during the catastrophic downturn in travel.
Trend Hotels will focus on newer hotels, typically open for no more than 15 years, that don’t require as much capital improvement to adhere to the Trend brand but would to maintain affiliation with a bigger brand.
“We know the major brands well enough to where they may give a year-long reprieve for a renovation plan, but that franchisee is still going to be looking at a $1 million to $1.5 million renovation to keep that asset in that particular system,” Kline said. “We’ll have something important for them to look at.”
Sweetening the Conversion Pot
Hotel companies plan to deploy conversion incentives to potential franchisees.
Wyndham earmarked $30 million for development opportunities with the potential to increase the budget, Wyndham Chief Financial Officer Michele Allen said on the company’s first quarter earnings call.
Hyatt considered the possibility of key money, or upfront payments to new owners, in its own conversion strategy, Hyatt CEO Mark Hoplamazian said during a first quarter earnings call.
Trend Hotels, which plans to take a 5 percent franchise royalty fee from gross room revenue, has its own early deals. New franchise agreements made before Sept. 1 will have waived royalty fees for 30 days after Sept. 1, then raised to 2.5 percent for 60 days, and finally hit the normal 5 percent for day 61 through the remainder of the franchise agreement.
Kline, recognizing all the conversion talk in the industry, said there is no set conversion target to build the Trend Hotels brand in its first few years and that the company will be selective on what operators it works with.
“Again, we’re not a public company and reporting quarterly to Wall Street. ‘If we don’t have x number of franchise sales this quarter,’ — the big brands and public companies, that’s really all they’re concerned about,” Kline said. “The relationship and real meaning of why a franchisee or asset owner will have to make this decision is lost in that scenario.”
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Photo credit: Trend Hotels & Suites just launched and plans to capitalize on an expected increase in brand conversions (pictured: a rendering of a Holiday Inn Express-to-Trend Hotels conversion). Trend Hotels & Suites