Hospitality Midwest

For hotels, it’s all about the experience

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Brand loyalty used to drive hotel guests’ decisions, but there’s been a shift toward experience. In order to balance guests’ desires for convenience and exclusivity, the hospitality industry has had to transform, offering the loyalty points, booking expediency and other features of a chain hotel with the hip feel and cutting-edge amenities of a one-off boutique.

That’s an approach that more and more hoteliers are taking, according to Vamsi Bonthala who is chief executive officer and co-founder, along with long-time friend Sheenal Patel, of Arbor Lodging Partners and Arbor Lodging Management. Based in Chicago, Arbor Lodging Management is a national owner and operator of hotels while Arbor Lodging Partners serves as a debt and equity investor in the hospitality industry.

“Once the internet became commonplace for everybody, we went from a world that values cookie-cutter and safety and knowing what you’re going to get to basically filling in that information void,” Bonthala said. “Now you can do full research on a property before you get there and you can end up booking with a high level of confidence about what you’re going to get.”

Hotels essentially have two personalities, serving corporate travelers and trade show attendees in the middle of the week and tourists on the weekends. The trick is trying to indulge both types of guests.

“For power travelers that are on the road all the time, they want to accumulate their points,” said Bonthala. “On the weekends we are probably having to fight a little bit more because it is people who are spending their own dime and there is a different value proposition. They are going for their own experience and they want to make sure they are fulfilled in a different way than if you are traveling for business.”

One success that Arbor Lodging was involved in was the Hotel Phillips in Kansas City. The 216-key hotel is in a restored Art Deco icon, listed on the National Register of Historic Places and once the tallest building in the city.

Following a significant renovation, the new hotel has a cool vibe and offers upscale food and beverage options to guests and the community. The property was soft branded within Hilton’s Curio Collection, so to the outside world it looks and feels like and independent hotel, but Hilton rewards members can stay there and get the perks they’d find at a branded property.

“Hilton gave us a lot of leeway on operational plans and design. They were definitely lighter on the touch versus other renovations for branded hotels that we’ve done,” said Bonthala. “The benefit is that the traveler can come in and still earn or redeem their Hilton honors points. To us, it feels like the best of both worlds.”

Acquisition phase

When looking for a hotel property to acquire, the deal metrics change on a case by case basis. The one thing that always stays the same are good fundamentals.

“We are looking for opportunities where we can add some value, where we think an asset is underperforming for what might be a variety of reasons,” said Bonthala.

Those reasons could include inattentive ownership and/or management, deferred maintenance or even prolonged construction on the nearby street or at adjacent properties. But identifying the transgressions that have led to a potential asset’s decline aren’t enough. The best value-add opportunities, according to Bonthala, are those with more intangible qualities.

“We’re always looking for a story,” Bonthala said. “We always want to make sure it’s great real estate and the general fundamentals are sound in the market. But even after a deal underwrites well and looks attractive on paper, we need to have a higher level of conviction beyond that, that there is something unique going on at that property where we feel we can come in and create value and offer a different take on operations.”

This approach is even more prudent given the expected levelling off of the overall economy and the implications the will have on real estate as well as business and leisure travel. It’s prudent at this stage to seek out assets that are exceptionally attractive.

“We fully recognize that we are late cycle, so if we are looking at a deal, we’re pretty conservative about underwriting because we know there isn’t going to be a lot of tailwind behind us in terms of general macro growth,” Bonthala said.

Where we’re headed

When a music group rolls into a venue’s green room, they can expect a bowl of ripe mangoes, a refrigerator full of European spring water or any number of other amenities drawn up in their contract rider. It’s the industry standard—for that industry. But what if that same level of bespoke offerings were applied to hospitality? According to Bonthala, that might be where things are headed.

“On the customer-facing side, where we see technology and operational focus going to is the hyper-personalization of stays for guests, and that applies to everything from a mid-market hotel up to an upscale boutique,” said Bonthala. “As we continue to have more data available to us, we can make that stay really unique to that guest.”

Hotel booking sites already generally provide a suite of options: firm or soft pillow, near or far from the elevator, high or low floor. Going forward, customer information will be just as valuable as it is in other sectors as hospitality providers look for more ways to customize the stay.

Behind the scenes, expect better operations and revenue management. Hotel guests have too many options available to them for an operator to cut corners and hope that rooms stay filled. Therefore, more effort will go toward optimizing opportunities to either make or save money.

“We’ve put a lot of resources into it and we think we’re really good right now, but it is a part of the business that we will never accept that we are there yet on,” said Bonthala. “We will continue to invest in more technology and more people on the team because it is such a dynamic part of the business.”