The branded-is-better argument between major hotel companies and smaller, boutique brands heated up during the pandemic. If a hip brand like Virgin Hotels sees some merit in at least an occasional branded partnership, the global giants clearly have a winning argument at the negotiating table.
Virgin Hotels tapped into a one-off branding deal with Hilton for its latest property in Las Vegas. It’s an unexpected arrangement for the brand that launched in 2010 — and didn’t open a hotel until five years later — with the intention of disrupting the hotel industry and its biggest operators.
The Virgin brand isn’t abandoning plans for disruption or cool factor, but a selective link-up with a company like Hilton and its Curio Collection soft brand can help fuel growth, Virgin’s new top boss says.
“There is value in the bigger chain and distribution, but I also know from firsthand experience there is great value and great market penetration available for smaller companies that are crystal clear on their positioning, their target audience, and really effective on the execution side,” said James Bermingham, who became CEO of Virgin Hotels in March following more than 35 years in the industry at companies like Montage International and ITT Sheraton.
Formerly a Hard Rock Hotel & Casino, the 1,500-room Virgin Hotels Las Vegas is home to two major brand partnerships: the Hilton one on the hotel side as well as one with Mohegan Gaming & Entertainment — the developer of the Mohegan Sun resort in Connecticut — to operate the casino floor.
The Vegas property is unique given its clientele, which relies more on convention guests than a typical Virgin hotel. A branded agreement with a bigger company like Hilton helps raise awareness for the renovated property located two blocks off the Las Vegas Strip. The Las Vegas hotel now has access to Hilton’s distribution network, reservations system, and meetings and events platform.
“It’s a little bit outside our normal portfolio,” Bermingham said about the higher room count and event space. “We thought it was very important that we bring in a partner like Curio that could really support the large meeting side and the convention services that goes along with that.”
While the partnership is “perfect for Las Vegas,” Bermingham didn’t indicate any further Hilton or other big-brand deals on the horizon. He still sees value in operating Virgin as a lifestyle brand.
“I know from firsthand experience that not only can we compete with the bigger boys, but we can very often get market premium,” Bermingham added.
Fueling Long-Awaited Growth
Virgin Hotels has been slow to grow since Virgin Group founder Sir Richard Branson first announced the brand in 2010. Branson promised to make it be a leader in the so-called lifestyle hotel sector, an often-debated term that generally means a more personalized experience and heightened food and beverage offerings.
Virgin’s first hotel in Chicago opened in 2015 followed by properties in Dallas, Nashville, and now Las Vegas. A San Francisco location temporarily closed because of the pandemic last year, and all mention of it was scrubbed from the company’s website. But Bermingham sees growth opportunities ahead.
“I’m excited about the new development that we have in our current pipeline, and, of course, the conversion opportunities that we know are coming our way,” he added.
New Orleans and New York City are slated to get their own Virgin Hotels later this year, and more are planned for Miami as well as Edinburgh and Glasgow in Scotland in the next few years.
Most of Virgin’s pipeline involves new construction properties, but the company also recognizes the lending market for ground-up construction projects is tight due to the pandemic.
Financing a new hotel over the last 12 months has been harder than any point in the last 10 years, Bermingham said. Construction costs are also soaring. Instead of new-build, Virgin Hotels — like many of its competitors — will look to conversions, where an existing hotel gets renovated and takes on a new brand affiliation.
The Las Vegas property was a conversion, and Bermingham anticipates more deals like it will emerge over the next two years. The argument may sound familiar: The company planned to grow rapidly following the last economic downturn by existing hotels at bargain prices. That didn’t pan out.
But Bermingham isn’t completely discounting a recovery in the new-build sector, either. Analysts expect financing to loosen up and construction costs to come down — eventually.
“I think our industry is really going to respond better than we all thought two to three months ago,” Bermingham said. “If that proves true, and we’re already beginning to see it, then I think that will change the view on new development.”
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Photo credit: Virgin Hotels isn't abandoning plans to be a competing, independent lifestyle brand. But a Hilton partnership helps the company gain customers in Las Vegas. Virgin Hotels