Skift Take

Omni's strategy for convention hotels is stuffing the ground floor with local restaurants and bars, offering a revenue lift in tough times. But it also costs a lot of money to develop. If you build it, it better be cool enough to motivate local residents to show up.

Series: Early Check-In

Early Check-In

Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.

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It’s a Friday night in Boston, and Coquette, one of the city’s hottest new restaurants, is buzzing with a local crowd sipping cocktails and devouring French fare like clams gratiné around the cozy, brick- and mural-adorned dining room. 

But perhaps the more striking hospitality detail of this new French-inspired restaurant is that it isn’t some hidden gem on one of Boston’s typical high streets. It’s attached to a 1,054-room convention hotel in a neighborhood once described as having “all the charm of an office park in a suburb of Dallas.”

Omni’s $550 million Omni Boston Hotel at the Seaport was one of two new convention hotels the company opened last year — not exactly the best time to cater rooms to the meetings and events industry. The pandemic wasn’t exactly ushering in the kind of major events that kept rooms occupied at Omni’s extensive mix of hotels in the vicinity of major convention centers. 

But company leaders have made several plays in recent years, including prior to the pandemic, to make their brand a more durable business. Omni even sold off five hotels, four in Texas and one in Florida, last August, noting the properties no longer aligned with the new direction of the company. 

A company release last month noted Omni would reinvest the money made off the sale into the convention center and resort market space — a sign there is still optimism around the eventual return of the convention business. The company’s new take on convention hotels works more at courting weekend business just as much as they would normally cater to major events that typically occur during the week. That means these massive hotels started having a similar ground-floor experience as significantly smaller boutique properties.

“From a from a financial perspective, a third of [our portfolio of more than 50 hotels] are resorts … It really kept the company profitable and doing very well,” Peter Strebel, president of Omni Hotels & Resorts, said in an interview with Skift at the Americas Lodging Investment Summit late last month. “Our convention hotels, even though we lost the convention business, because we over-programmed them like what you saw in Boston, people use it as a quick weekend escape.”

A Convention Redo: Omni may have seemed like precisely the hotel company one wouldn’t want to own at the beginning of the pandemic, given that two-thirds of its portfolio is tied to convention hotels and those in the heart of major cities. But the company’s new direction for convention hotels set in place prior to the pandemic can make these giant boxes somewhat more resilient when leisure travel is a bulk of the demand environment. 

The Oklahoma City and Boston convention hotels each have seven food and beverage outlets, and many of those aren’t just chain restaurants that are the typical convention hotel fare. The Omni Nashville Hotel is attached to the Country Music Hall of Fame and Museum.

Think of it as a marriage of lifestyle hotels and the convention business. Just as Accor leaders say their lifestyle hotels make at least half their revenue from food and beverage, Strebel said half the revenue at Omni doesn’t come from guest room rates. Spas, restaurants, bars, and resort offerings like golf courses are major revenue streams.

Unlike Marriot and Hilton, which operate on a franchise model, Omni owns its own hotels — thus, it has greater interest in a guest’s “total spend.”

“The way for us to compete has to be very different,” Strebel said while acknowledging Omni is smaller than its convention hotel competitors. “We don’t compete on scale. We don’t compete on price. We compete on [local flavor and local color]. Covid has been hard on the Boston market. We’ve had a lot of cancellations. There was a lot of medical groups that canceled that were coming, but we’ve done really well in food and beverage there.”

If it works for Omni, why aren’t more competitors entering into this model of highly programmed convention hotels? Many convention hotels focus on mid-week business and often took the longest to reopen from pandemic suspensions, so something like this could introduce a new demand generator. It often comes down to how much money a company is willing to park in one of these developments.

“It’s capital intensive,” Strebel said. “We’re not going to disclose what we spend per guest room, but it’s a lot more than most of the brands. It’s not what Ritz-Carlton or a Four Seasons spends, but it’s close.”

Big City Problems: Things still aren’t perfect at Omni. Strebel admits the remaining third of the company’s overall business comes from city center hotels in the heart of major markets like New York City, Chicago, Montreal, and San Francisco: “…tough markets because the business travelers are gone. The group is gone, and the city has so many restrictions that the leisure traveler can’t come either,” he said. 

The Omni Berkshire Place in New York City only reopened from a temporary pandemic shutdown in November. While Omni hoped it could tap into promising signs of holiday travel demand into New York, the Omicron variant surge cancelling shows by the Radio City Rockettes at nearby Radio City Music Hall was the latest round of bad news for one of the company’s city center hotels. 

“We saw our business cancelled, but every day we see new leads, and we see this is getting stronger,” Strebel said. “So, I think the worst is over.”

The Inflationary Case for Choice Hotels to Get Into High-End Hotels

The head of development at Choice Hotels made a surprising admission during the quiet period ahead of fourth quarter earnings later this month: The company is looking for ways to further elbow into the high-end hotel sector. 

Choice currently operates Cambria Hotels and the Ascend Hotel Collection in the high-end space above its typical mix of drive-to hotels geared toward leisure travels and road warrior business travel (healthcare workers, infrastructure teams, and other groups typically unable to work remotely). The existing portfolio is widely seen as what made Choice the first major hotel company to outperform pre-pandemic performance levels. 

So why would the company move outside that resilient zone into full-service, upscale hotels? Analysts see it as a logical move to tap into what is expected to be a growing demand environment for nicer hotels. But there is also an inflationary case. 

“We’re in an inflationary environment where your costs are going up. You want to own hotels where you can raise those prices to match that,” Richard Clarke, a managing director covering global leisure and hotels at Bernstein, told Skift. “That’s quite difficult in a very commoditized, economy end of the market. It’s much easier if you’ve got a more standout luxury brand.”

In short: It’s easier to raise rates — and have guests accept it — at an InterContinental than a Comfort Inn.

Investor Interests Soars for Hotels

Last year was the year of the hotel investor comeback, according to JLL’s recently released Hotel Investment Outlook

The nearly $69 billion in global hotel investment volume was up 131 percent from 2020 levels. Much of the demand was in the Americas, which held 60 percent of global volume. 

While it is worth noting the prior year was catastrophic for the hotel industry, there were still signs of strength over pre-pandemic numbers. Investment in luxury, resort, and leisure assets was up 17 percent from 2019 levels. 

This year is likely to usher in a further wave of investor dollars. 

“With an increasing number of investors eagerly seeking assets that can generate income and simultaneously serve as a formidable hedge against inflation, the lodging industry will benefit from the plentiful capital on hand ready for deployment,” JLL reported.

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Tags: choice hotels, conventions, coronavirus, Early Check-In, omni hotels, Skift Pro Columns

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