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January 23-25, 2023
JW Marriott/Ritz-Carlton Los Angeles L.A. LIVE
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ALIS Summer Update
As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked Sonesta’s Keith Pierce eight timely questions as we prepare for the 21st annual event January 24-26, 2022, at the JW Marriott/Ritz-Carlton Los Angeles L.A. LIVE. Following are his responses.
In September you launched a franchising program for four brands in the U.S. Describe how things have been going in the quest to get the franchising program off the ground.
We’re encouraged by the interest in all 12 Sonesta brands available to franchise which now includes Sonesta Hotels & Resorts, Sonesta Select, Sonesta ES Suites and Sonesta Simply Suites.
The hotel business has seen quite a bit of consolidation over the past few years, and we’re pleased by the demand and interest for a new offering that Sonesta provides—in both our new brands and our revitalized brands like Red Lion and Signature Inns.
Sonesta has made significant investments in our development team during the second half of 2021, and we are eager to see strategic growth in the Americas as a result.
Sonesta manages 280+ hotels, and we believe that Sonesta’s proximity to hotel operations, hotel employees & guests, coupled with the RLHC legacy regarding franchising gives us a unique come-to-market message. We think like an owner and operator—and that drives our owner-centric approach to franchising.
What are the most common question franchisees/owners are asking you during your conversations with them—and what is your response to the question?
As we have come to market, we continue to get questions about who we are and what our approach is going to be—and that’s great because it gives us the chance to tell the Sonesta story. Reflecting on the pitches we’ve done, we’re focused on Sonesta’s competitive point of difference in a crowded marketplace. Our approach to franchising comes with a solid understanding of the challenges hotel owners and operators face, as we’re owners and operators ourselves. I think you’ll find us uniquely collaborative, flexible, and supportive.
Sonesta has an 80+ year history as a management company and with the March acquisition of RLHC, we’ve delivered on our intention to have a franchise platform to grow our legacy RLH family of brands and introduce the Sonesta brands to market. Sonesta now has 15 brands from Upper Upscale to Economy with a franchise effort supporting 12 of those brands.
How do you see the hotel industry’s expansion in the U.S. shaping up through 2022, and specifically what is Sonesta’s plan to grow its footprint during that time?
At Sonesta we expect a good year in 2022 and we expect to grow as the business fundamentals and performance of the industry improve.
We are hopeful with the international borders reopening we will see an immediate increase in pent-up hotel demand from foreign travelers. As an industry we need to see the return of business travel mid-week and group/convention activity as we move into 2022.
As we continue to focus on franchising, Sonesta expects strong demand for its brands with the majority being conversions through end of 2022 and then increasing demand for new construction in ‘23.
A growing number of owners are open to making brand changes as they combat oversaturation in crowded marketplaces; we’ve set out to be their brand of choice and are making conversions as seamless as possible.
Some are calling this the “Age of Conversion” as the hotel industry recovers from the pandemic. How is the conversion trend resetting the hotel industry’s development landscape?
Post pandemic, new construction continues to be a challenge as a result of supply chain, labor, etc., so conversions remain front and center as the growth opportunity for our portfolio of Sonesta brands. At Sonesta we know conversions. We have done more than 200 conversions within our managed portfolio during the Pandemic across all segments from Upper Upscale, Upscale, Extend Stay and Economy.
We know owners are seeking opportunities to differentiate within their market while engaging new audiences. Conversions and repositioning can include going upmarket, make a brand change in the same space or down market on occasion when it makes sense.
How are increasing costs—from raw materials to shipping to labor—affecting the overall industry development pipeline, and how long do you expect those higher costs to remain an issue?
The industry’s new construction development pipeline has slowed as a result of the supply chain, labor, lending. That said, as the industry continues to rebound, and international and business travel comes back, the demand will accelerate new construction.
The supply chain is a short to medium term issue and we’re hopeful that inflation is as well.
What’s the one word that best describes the current hotel lending environment in the U.S., and why did you choose that word?
Our owner community has been sharing lending information regarding debt for both for hotel conversions and even some new construction financing—they note the lending environment continues to stabilize.
Input costs are easing. Lending has loosened. (But it always comes down to the market, brand, debt level and the financial power of the sponsor.) LTV in the 65%-70% range, rates in the 4.5%-6% range and CMBS has reformed.
How will the evolution of brand standards and amenities combined with consumer expectations affect developers and investors—is that evolution a silver lining from the pandemic?
Our owner community is keen to lock in learnings regarding the changing guest needs and wants post-COVID. Example: Housekeeping requests on demand, as well as complimentary breakfast and F&B modifications. Reinventing breakfast, looking at a la carte services, new approaches to housekeeping and an awareness of sustainability sensitivity (LEED/plastics, etc.), and in-room tech are all opportunities to evolve brand standards and amenities.
We’ll see continued innovation and implementation of best practices regarding health & safety for guests and associates. The assistance with maximizing remaining industry supports from government and lenders could be another silver lining.
What’s the most relevant bit of business advice that you would give to hotel developers as they look to continue along the path to recovery?
“Remember.” What I mean is we have all been through an incredible experience with the pandemic.
All of us in our great industry had to use the skills of resilience, agility, creativity, and empathy. Remember these skills, don’t forget them—and continue to keep these leadership skills in place as we move toward healing and see the lodging market improve. Having an expanded view of external stakeholders and always including guests, employees, franchisees and franchisors and the wider community in decision making is another key takeaway.
* Posted on November 15, 2021