For fairly obvious reasons, those of us in the lodging industry strongly dislike downturns. Watching overall U.S. occupancy and RevPAR decline in a meaningful way makes many hoteliers start to twitch a little. In fact, we spend a good amount of time at every major event debating how much longer we have until the next downturn or more accurately exactly ‘what inning we’re in’?
As an industry I’m sure we’re not alone. After all downturns bring financial pain, worry and effectively challenge the business model on a go-forward basis. But they also do something else, they provide real opportunity for those savvy business owners who realize sometimes it’s a good idea to zig when everyone else is zagging.
For example, I can’t even count on two hands the number of executives I’ve met with over the years who told me they either outright started their business or at the least significantly expanded it during the Great Recession of ’08 and ’09. With financing virtually non-existent, those that were well capitalized and had good balance sheets were in position to acquire distressed properties for 50 cents on the dollar or less. Generally speaking, those types of bargains don’t seem to be out there as much this time around but that hasn’t stopped at least one company.
The most obvious example of a hotel company using the downturn to change its growth trajectory is Sonesta International Hotels Corporation. The Boston-based company recently made a big splash with its acquisition of RLH Corp. for some $90 million, which seems to be a very reasonable price for a company with more than 900 hotels and eight brands, including Red Lion and Americas Best Value Inns.
The aforementioned deal follows Sonesta’s decision earlier in the year to take over and rebrand 103 properties previously managed by IHG as well as 122 properties that were managed by Marriott International. As a result of the pandemic, both major brand companies had gone into default on the hotels with owner Service Properties Trust, which also owns some 34 percent of Sonesta.
So does Sonesta represent the next big brand company? Don’t look now but after starting 2020 with a little more than 50 hotels the company all of a sudden has more than 1,200 hotels and some 13 brands in its portfolio. In addition, the RLH deal brings the company into the franchising game where growth can occur much more rapidly even in this kind of environment.
To further build up its pipeline, Sonesta also announced the addition of Keith Peirce, the long-time Wyndham executive who most recently worked with Passionality Group. Joining the company as EVP and president of franchise and development, Pierce will be focused on helping to get Sonesta to the next level.
The executives at Hilton and Marriott can likely sleep well for a while, but the brand landscape could look a whole lot different when we emerge from this pandemic. Meanwhile, I would encourage you to embrace the downturn as much as possible by keeping a close eye on potential growth opportunities to grow and a closer eye on what your competitive set is doing. You’ll be glad you did when things turnaround.