Owner/operator/developer Hotel Equities has grown exponentially through strategic partnerships with several hotel groups around the U.S. This has allowed the company to add properties to its portfolio in regions where it was absent and to strengthen its executive team and on-site staff across the board. Hotel Business spoke with Joe Reardon, chief development officer, about the decision to partner with like-minded companies and what happens after they become part of the Hotel Equities family.
Why did Hotel Equities decide to do strategic partnerships instead of a merger or an acquisition?
Coming out of COVID, I think everyone was looking for an innovative way to continue to do business and scale, and we felt like partnerships were the right way to do it. The end result is a diverse group of partners with a diverse skill set who feel valued, respected and empowered to contribute to making our overall hospitality platform the best it can be.
We felt that each strategic partnership needed to have alignment in values, core principles and culture, and we simply need to like the people that we’re going to be doing business with. Once you get through those things, then you start identifying ways of how you can really complement each other, and identify what the synergistic values of the relationship are.
Naming rights are important to the strategic partnerships, and having the principals staying in long term is not only extremely important to us but is a dealbreaker for us. Then, rolling in the corporate staff and finding the right place for them within the organization is a key component. There has been very little slippage—it’s always between 95% and 98% of the corporate staff that has stayed on, and in most cases, elevated in their positions—and we’ve always found a great home for strong leaders in the organization.
We are open to mergers, but it would act and feel similar to a strategic partnership in many ways. The metrics would be a little different as it relates to recognition money and length of the agreement, but it’s still imperative that all players are highly involved and aligned—unlike any other mergers you’ve seen in the industry.
We know the alignment of company culture plays a large role in the partnership. Can you tell us about that?
It’s mission critical. We want prospective partners to understand our families and our culture, and vice versa. Here’s who we are, and here’s who we’re not. There needs to be a good understanding of what we stand for and what our values are, and we want to understand that about our partners. If those things aren’t really lined up, then we are OK to just part as friends, and look at it as we made another great friend in the industry. But if those things align, then we continue conversations, and that’s where it starts. We have to be aligned. If we are going to join forces for a long-term partnership, culture matters and we must mesh in that area.
Does anything change for the employees of the strategic partner?
In most cases, everybody stays. In some cases, there are elevation opportunities, and it’s really refreshing to see people taking on new roles within the collective organization. I remember going back to the second or third one we did. It was budgeting time around October, and I went by the boardroom and there’s four different companies working on budgets together. I think that is the beauty of it—getting bright people together from different companies. Everybody brings a different perspective, and the result is better because of it.
Regardless of a person’s position, it’s really invigorating to see the onboarding processes and introducing them to the culture of the larger enterprise and organization.
Once a strategic partnership is formed, what involvement does Hotel Equities have with each partner as they go on with their business?
We become a massive support resource. During the first couple of months, we’re onboarding and there’s a lot of learning through indoctrination of meshing our systems, our BI tools, what our KPI metrics are and understanding how we look at everything from an owner-centric lens. When you go through post-due-diligence transition, one of the exercises is reviewing vendor relationships, and you start identifying pricing models for every asset as they transition to our platform, and you quickly see your margins improve in the middle of the P&L because of scale. You also start seeing items like your breakfast costs go down and your insurance costs go down, among other things. One of the immediate benefits is through our industry-best procurement program where we can push savings out to our partners. We start doing this exercise where we literally are going line by line in the P&Ls, and we dissect them, really making sure that Hotel Equities’ overall pricing is in effect.
Our COO, Bryan DeCort, is heavily involved with the principals of our strategic partnerships on the operations side, making sure that they have all the tools and resources they need. I am also extremely involved with the principals on the development side. There’s a real incentive for our partners to continue to grow within their respective regions and segments of the business, and we help propel that growth. We work very closely together on their deal flow, working together to show the breadth of what hoteliers can take advantage of by doing business with the collective group.
Can you give us a rundown of the strategic partners, what made them a good fit for Hotel Equities and what part do they play in the larger organization?
Greenwood Hospitality: We’d been active in the full-service sector but never had a strong foothold into lifestyle or upper-upscale full-service. The establishment of our partnership with Greenwood enabled us to do just that. With our combined F&B teams, we are operating F&B outlets with revenues of approximately $120 million. The partnership also allows us to venture into new markets, like the Caribbean and Latin America, with a focus on independent and lifestyle hotels and projects.
The Hotel Group: The partnership with The Hotel Group has solidified our strong presence in the Northwest. Their extensive experience and successful development deals not only enhance our collaboration but also provide a crucial Northwest regional office, supporting our expansion efforts in both the Northwest and Canada. It’s a great portfolio of full-service and upper-upscale full-service properties with both Hilton & Marriott brands and is led by principals Doug Dreher and Randy Meyer.
Witness Investment (formerly The Witness Group): With about 30 assets in the Midwest, Witness is our original strategic partner. We had an opportunity to put a deal together during COVID with these second-generation hoteliers, and they are some of the smartest developers I’ve seen. Since the partnership, they’ve been able to shift their focus to hospitality investing versus operating.
Coakley & Williams: This one evolved from a short-term collaboration. and our partnership with Coakley & Williams transformed into a long-term alliance. Mark Williams, the company’s president, originally involved in operations, has transitioned to our business development team, overseeing the Mid-Atlantic region and spearheading our focus on emerging trends in the apartment-hotel area, particularly the new basic extended-stay brands.
National Hospitality Services: NHS is based in the Midwest and is associated with a group called Legendary Capital, which is an UPREIT, and we have been able to work with his operational team and sales and marketing team to drive the top line. We’ve had the opportunity to help them rebrand some of their properties, and we’ve expanded their platform tremendously together. I think you’ll see a massive amount of growth in that portfolio.
Maximum Hospitality: Maximum is our newest partner and is based in Memphis with a diverse portfolio, healthy pipeline of hotels in development and massive opportunity for growth.
(Editor’s Note: In January, Hotel Equities formed a partnership with private equity firm PPC Enterprises. Learn more about that partnership, as well as Hotel Equities’ expansion plans, in the cover story of the April issue of Hotel Business.)
Do you think your company will announce a new strategic partner this year?
We plan to announce the first strategic partnership of 2024 at the Hunter Conference next week and possibly one more soon that we couldn’t be more excited about. Hotel groups continue to thrive through this collaborative model. Steel sharpens steel.
