'Two-Pack' Projects Become More Common as Large Hoteliers Seek Efficiency, Competitive Edge
An addition to being the tallest hotel tower in North America, the 68-story Courtyard-Residence Inn Central Park in Midtown Manhattan is also the most visible example of multi-branding, a growing trend among hotel developers to combine two and in one case, three different hotel brands owned by the same company in a single development.
The $308 million project by Marriott International and G Holdings, which combines a 378-room Courtyard hotel and 261-suite Residence Inn in a tower near Times Square and Central Park, is the second dual-branded property to open so far this year. At 750 feet, it edged above the Marriott at the Renaissance Center in Detroit as the tallest pure-play hotel on the continent.
While the first dual-branded hotel opened back in the 1980s, the concept has become increasingly more popular with developers and hotel firms over the past two years, driven by investor and traveler demand for select-service and extended-stay segments, and the cost-savings that result from sharing construction and operational expenses.
"Building a new hotel is more difficult than ever, particularly for developers looking for long-term sustainable yields in primary locations," said Eric Wright, a hotel consultant with the Vancouver, Canada office of HVS Global Hospitality Services. "The multi-branded hotel emerged from this demanding environment for development, as well as the shift among hotel firms towards greater sophistication in tailoring guest experiences and targeting specific demand segments, thereby creating less overhead and greater cost efficiency."
Also last month, Hilton Worldwide opened a dual-branded Hilton Garden Inn and Homewood Suites in Oklahoma City's Bricktown. The new project is the company's 14th dual-branded property in North America and the 13th featuring Homewood Suites, the anchor in Hilton Worldwide's multi-brand strategy.
The 11-story hotel includes 155 Hilton Garden Inn rooms and 100 Homewood Suites units. It's owned by Apple REIT Co., one of the nation's largest owners of Hilton-branded hotels, and managed by Raymond Management Co.
Last year, Hilton Worldwide opened two dual-use properties in the U.S. and one each in Calgary and the United Kingdom. A 77-suite Home2 Suites and a 98-room Hampton Inn & Suites opened in March 2013 in Huntsville, AL. The following month, the 12-story Hampton Inn & Suites and Homewood Suites opened at 550 15th St. near the convention center in downtown Denver, owned by 550 15th Owner, LLC and managed by Stonebridge Cos.
Another 18 dual-branded properties are under construction or slated for development, according to Craig Mance, senior vice president of North America development.
"The efficiencies of scale in construction and more importantly, in the hotels' ongoing operations, are remarkable," Mance said. "It’s definitely a much larger part of our development pipeline than it was a few years ago."
In additon to main players Hilton and Marriott International, Starwood Hotels and Resorts, Hyatt and Choice have all dabbled in multi-branded offerings.
Branding professionals for Hilton, a company that takes pride in the protection and promotion of its brands, found the dual strategy "a little spooky" at the outset, Mance acknowledged.
"Our brands are very clearly defined with a lot of standards and intricacies to protect brand integrity, and the thought of attaching two of these together was done very cautiously,” Mance said. “Everyone from our branding folks to our owners and the market now see how well the brands can work together and play off each other while remaining completely defined.”
Phil Cordell, global head of focused service and Hampton brand management for Hilton Worldwide, said the chain continues to see success with the dual-branded hotel model in catering to a wide array of guests, serving varying traveler needs and desires in a single location.
Private equity, REITs and suppliers of development capital are starting to take notice.
GE Capital’s Franchise Finance division recently provided a $31.6 million term loan to NewcrestImage, LLC, an Irving, TX-based hotel management and construction company, to replace short-term construction financing for a dual-branded Marriott hotel property in Grapevine, TX,, a 181-room Courtyard by Marriott and a 120-room TownePlace Suites by Marriott.
"We’re targeting two different price points and hotel segments, in this case, select service and extended stay," said NewcrestImage Chairman and CEO Mehul Patel. The two brands share van service, laundry facilities and meeting space and have a common general manager and sales force, he added.
GE Capital was able to close on NewcrestImage’s construction take-out loan immediately after they received their certificate of occupancy, said Scott Andrews, a managing director with GE Capital, Franchise Finance.
Although the concept is gaining in popularity, multiple-branded projects won’t work in every development scenario or market, and the strategy should not be viewed as a "two-for-one special" template for all new hotel developments, Wright cautioned.
He said it's crucial for the different hotel brands to maintain their own identity, including separate entrances and lobbies, and different room configurations and amenities to keep each brand distinct and unmuddled.
Most projects include brands that are within the same company, such as Marriot's Courtyard/Residence Inn and Hilton Worldwide's Homewood Suites/Hilton Garden Inn.
While one "three-pack" development opened in Chicago in 2013, which included brands from three separate brand families -- Starwood, Marriott, and Hyatt -- having hotel brands owned by different entities under a single roof presents an extra set of challenges because of competitive pressures and the resulting confusion of identities, Wright said.