NEW YORK CITY—With Blackstone Group’s $1.9-billion acquisition of G6 Hospitality celebrating its third anniversary in October, executives from the two companies provided an update on G6’s two brands in the United States and Canada: economy-tier Motel 6 and extended-stay Studio 6.
Like Blackstone’s earlier acquisition of the La Quinta brand, G6’s portfolio includes both company-owned and franchise units. As with La Quinta, which Blackstone owned from 2006 to its 2014 initial public offering, the private equity firm has opted to invest in upgrading the existing company-owned units, though not grow that part of the portfolio, concentrating instead on growing the franchise component.
“We acquired two iconic brands but knew then that the hotels had been unloved by their previous owner. In the three years since, we’ve spent $300 million on our owned units,” said William Stein, Blackstone’s senior managing director and global head of asset management in the firm’s real estate group.
With the two brands combined, there are roughly 1,200 hotels, about 60% of which are franchised. Revenue-per-available-room growth has been strong, up 10% in 2014 and on track to grow approximately 9% this year, Stein noted.
“We have 100 hotels in the pipeline and expect—in three more years—to have 500 hotels open between the two brands,” he said, adding that G6 also has begun actively franchising the brands in Mexico and South America for the first time.
Blackstone remains bullish on the hotel industry overall, Stein said.
“We see an upside opportunity going forward in 2016 and beyond, what with strong fundamentals, limited new supply growth and steady growth in demand,” he said.
Over time, the number of Blackstone-owned hotels—stable up to now—is likely to decrease.
“We’ve identified certain properties that we don’t consider core assets. We will offer them for sale to existing franchisees. In cases where we don’t find a buyer, the hotels will be de-flagged and leave the system,” said G6 President and CEO Jim Amorosia.
Blackstone rationalized its owned inventory at La Quinta in the same way.
Rise of the ‘Phoenix’
The G6 renovation program, known as the Phoenix Project after the mythical bird associated with rebirth, has been key to G6’s expansion plans.
“Prospective franchisees for both new builds and conversions see the improvements we’re making and want to sign on,” Amorosia said.
While sticking with its core economy-tier positioning, upgrades include pillow-top mattresses on pedestal beds, 32-inch flat-screen televisions with multimedia panels, granite bathroom countertops with vessel sinks and walk-in showers. New back-of-the-house systems have been installed, the branded website has been rebuilt and a mobile app introduced.
The Phoenix Project is ongoing. Amorosia expects 75% of hotels systemwide to be renovated by next year.
With a mix of 70% leisure and 30% business travel, G6’s brands host a large number of families with children. As a result, the company has adjusted its positioning for Studio 6 to accommodate transient as well as extended-stay travelers.
“With a full kitchen and somewhat larger guestroom, Studio 6 is well suited for families that are very value-oriented,” Amorosia said.
Like other economy and limited-service chains, G6 is eager to expand Motel 6 and Studio 6 into major urban markets in the U.S. There are already deals underway in the Greater New York and Chicago markets. But Amorosia cautioned that specific locations aren’t likely to be in the city center. The cost of land and other barriers to entry make these locations unrealistic for franchisees at the economy-tier price points.
“The (average daily rate) we’d have to charge would be out of reach for our target customer,” he said.
More likely, sites would be in submarkets of the MSAs. In New York, that means Long Island City, sections of Brooklyn not already gentrified, the Bronx and still-emerging neighborhoods of Manhattan such as Times Square South.
“Even there, ADRs would be at the high end of our hotels, which typically are in secondary and tertiary markets,” he said.
G6 abroad
The global expansion has focused on Mexico and South America because there’s significant unmet demand there for branded economy lodging, according to Dean Savas, executive VP for franchise and international development.
In 2014, G6 signed a master developer agreement in Mexico with Latina Promohoteles, a division of Promodesa Commercial, that calls for the development of 55 hotels throughout the country by 2020.
“So far, ground has been broken on properties in Salamanca and Puerto Vallarta with Guadalajara and Monterey, among other locations, to follow,” Savas said. “Deals are also in the works in Bolivia and Ecuador with Colombia and Brazil to follow.” In these markets, the brands are known as Hotel 6 and Estudio 6.
Where possible, G6 will work with master developers in South America as well.
“We consider ourselves experts when developing in the U.S., but we recognize that’s not necessarily the case elsewhere, so it makes sense to seek out partners who know the local market,” Amorosia said.
Charging for amenities
One area where G6 differs markedly from its competitors is when it comes to complimentary amenities, specifically breakfast and Wi-Fi.
“We offer coffee in the morning, but no breakfast and there’s a modest charge for Wi-Fi. Other brands call them ‘complimentary,’ but, in fact, they’re not free. They’re just adding the cost to the room rate,” said Lance Miceli, executive VP and chief marketing officer.
“Our travelers consistently tell us that affordability is a high priority for them. So that’s what we’re providing,” Miceli said.