NEW YORK—In some form or another, Chesapeake Hospitality has been managing hotels for more than 50 years. Now it wants to use its expertise well outside of its own family of businesses—including more management of select-service hotels to complement its portfolio of full-service properties.
The company, began in 1957 when Edgar and Jeanette Sims bought their first hotel, renamed its management arm Chesapeake Hospitality from MHI Hotels earlier this year to hammer home the idea that it is no longer predominantly a management arm of real-estate investment trust MHI Hospitality Corporation. It hired Joe Smith to lead the business development effort for management contracts.
Smith formerly worked for Alliance Hospitality, which is heavily involved in management contracts at limited-service hotels.
“Having a balanced portfolio in select- and full-service is the way to go,” said Smith, who formerly worked for Alliance Hospitality and Boykin Management Company, and now carries the title of executive VP. “You saw with the recent downturn, the full-service hotels got hit the hardest. Group business was hammered. Having a balanced approach helps mitigate the potential for steep declines if the performance of the full-service hotels is severely hurt.”
Select-service hotels tend to be one-third to one-half the size of a full-service property, but Smith said the mentality of running the two product types is the same.
Another benefit of adding select-service properties to the portfolio is it allows for a diversified market approach, according to Smith. Adding tertiary and secondary markets to its business mix will prove to be beneficial for Chesapeake, which is based in Greenbelt, Maryland.
Of course, that doesn’t mean that Smith won’t look to add full-service hotels to Chesapeake’s portfolio. The company manages 14 hotels, including a Crowne Plaza in Madison, Wisconsin, that it added to its portfolio last month. Eleven of the hotels are owned by the real estate investment trust and three are third-party management contracts.
“The target is 25 over the next few years,” Smith said. “Once you get to 20 to 25 hotels you get the ability to do a lot more because of economies of scale.”
The company will look to invest sliver equity in select deals.
The company’s current portfolio contains only hotels east of the Mississippi River, but Smith said Chesapeake would like to expand farther west. It would fuel that growth through one-off management contracts or by working with a portfolio of hotels.
“If there’s a good portfolio out there, we would definitely jump at that,” Smith said.
Executives at Chesapeake know there’s no shortage of third-party management companies in the hotel industry, which means there’s plenty of competition for Chesapeake.
“The biggest challenge for any third-party management company is being able to get in front of those owners, those equity groups, and closing the deal because there is a lot of competition out there,” Smith said.
Breaking through that cluttered landscape is one of the chief reasons the company decided to switch its name, according to Smith. It wanted to end the perception that it only serviced hotels in the REIT.
“Going with the Chesapeake name enabled us to differentiate ourselves from the REIT,” he added. “We are our own separate entity. We are privately owned, and the REIT is publicly owned.”