Skift Take

Independent hoteliers don't have a level playing field with the big brands when it comes to attracting direct bookings. But a savvy use of social media can improve things a lot.

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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I’ve reported frequently on branded hotel companies, and last week I interviewed the CEOs of Marriott and IHG on-stage at Skift Global Forum.

So I wanted to switch gears and take the pulse of the independent hotel sector.

I spoke with Andrew Benioff, who knows as much about independent hotels in the U.S. as anyone I know.

  • Benioff is a Philadelphia-based founder and managing partner of Llenrock Realty Partners, a firm that invests in and develops independent hotels.
  • He’s busy preparing for the Independent Lodging Congress happening next month in Los Angeles.
  • It’s the largest U.S. festival for independent hoteliers and designers, and he founded it about 15 years ago.

Benioff told me that independent hotel ownership isn’t for everyone.

  • “If you’re a developer and you want to invest in lodging, the easiest and least-risky option is to find a location, put up a select-service product from a major brand, hire one of the few hundred management companies in the U.S. or maybe hire a brand to manage it,” Benioff said.
  • “For the most part, depending on how much attention you or your asset manager pays to it, you’ll make somewhere between a pretty good amount of money and a lot of money,” Benioff said.
  • “Independent hotels are harder to finance than branded ones, as a rule,” Benioff said. “I came from the mortgage banking industry, and I have worked on transactions for both branded and unbranded. It’s a gatekeeping thing. The gate is opening more often to independent hoteliers than it did before but it still doesn’t open as often.”
  • “Some banks and lenders don’t realize that between 90 percent and 95 percent of the advantage that the big brands have can be mitigated through many other means,” he said.
  • “Investing or developing independent hotels is mainly something you do when you want to leave a legacy that’s more than, say, dozens of buildings and a pile of money,” Benioff said.
  • “Independent hotels can be lucrative, but they can also be a headache,” Benioff said. “You do it so you can say, ‘I created something really compelling and meaningful to people that they’ll remember for years.'”

Social media can be a “game changer” for independent hotels when it comes to driving direct distribution.

  • “The big brands do have loyalty programs that are amazing at driving direct bookings,” Benioff said. “They have an edge there, though there are some loyalty programs for independents, too.”
  • “Independents can offset the rest by creating a hospitality experience that guests will talk about with everyone they know,” Benioff said.
  • Social media can help independent hoteliers drive more direct bookings and avoid the commissions that online travel agencies charge.
  • “Social media can be a game changer if you have an inspirational and impressive design with delicious beverage craft cocktails,” Benioff said.
  • “If you hire someone accountable for social media marketing at an associate level, you might make back their compensation within a month thanks to an enhanced flow to the bottom line, depending on your property and location,” he said.

Rising interest rates have complicated dealmaking for independent hotels.

  • There’s a disconnect between capitalization rates — a measure of property returns — and financing rates — or the cost of debt.
  • Capitalization rates have fallen since before the pandemic. In some U.S. markets, they’re at roughly 4 percent, down from roughly 5 percent before.
  • Yet the industry’s cost of debt is rising well above 6 percent.
  • The situation will correct itself. Capitalization rates should rise over time.
  • “But right now, owners still want sky-high valuations,” Benioff said. “Yet buyers can’t finance purchases because the deals don’t make sense, generally speaking.”

I always read tips and feedback. Contact me at [email protected] or via my LinkedIn profile.

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Tags: boutique hotels, direct bookings, Early Check-In, future of lodging, hotel distribution, independent hotels, Skift Pro Columns, social media, social media marketing

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