Independent Hotels Tap Social Media to Drive Direct Bookings

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.”

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