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.
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.
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.”