EDMONDS, WA—Many factors can help management companies survive the ups and downs of the lodging industry; however, there’s one in particular that stands out for The Hotel Group (THG), and that’s something that hasn’t changed in more than two decades.
“One of the nice things that sets us apart is that all of our partners really understand the business, from the standpoint of it being real estate, yes, on the one hand, but on the other hand, we’re in the hospitality business, and it’s a unique distinction,” said Douglas Dreher, president and CEO of THG, a longtime provider of operational, marketing and asset management services for properties in the industry.
Currently, there are 32 properties with 5,039 rooms in THG’s management portfolio. Since 1984, the hotel management and investment company has managed and owned more than 125 properties in 25 states. Over the years, THG has represented more than 18 brands. THG has also directed the design and construction of nearly 50 new hotels.
“Our mission is to serve our people and properties; inspire a culture of hospitality greatness; and deliver maximum investment value for our partners,” he said. “Our partners really understand that [unique] distinction, and many of them are investors.”
THG’s sweet spot has evolved since its inception. “Over the past 10 years, we’ve cycled through some of the smaller properties in the portfolio that were under 100 rooms,” Dreher said.
Typically, the company looks at opportunities between 120-400 rooms; however, THG’s ideal property size is about 200 rooms or so.
As far as brands, THG mainly works with Hilton (the management company has seven of Hilton’s brands in its portfolio) and Marriott (THG would like to see continued growth with the latter, too); THG also has properties with both IHG and Radisson Hotel Group.
When it comes to THG’s geographic growth on the management side of its portfolio, “it tends to be organic,” Dreher said. Connecting with the right partners enables THG to spread its geographic reach, especially when opportunities arise with existing regional partners.
“I think you see this with other companies, but we’ve had a lot of growth in the Puget Sound, so it just tends to feed on itself,” Dreher said. “At present, we’re one of the more notable Hilton management companies in the Puget Sound—with a number of different partners. On the management front, it tends to be where you are or where you’ve been.”
For example, THG picked up a couple of management agreements from partners in Montana. The kicker is the management company also owns a property in Billings, MT.
THG’s strategy on the ownership front is a tad bit different: Opportunities are endless. “On the ownership front, we’ll go wherever we can find a great opportunity,” he said. “We’ve been in a number of different markets. We really like to find properties that are broken one way or another. It could be that they require quite a bit of renovation, or it could be the branding isn’t [right], or it could be that operationally there [are] a lot of upsides. We really look for value-add opportunities wherever we can find them.”
Despite the landscape being “pretty challenging and competitive,” THG has its team out and about, sorting through potential opportunities. Typically, the hotel management company acquires one property every year, but it considers more than 100 properties.
“In some cases…we’ll take our investment model through 25-30 different iterations—it’s a very complicated model but very impressive, which we have developed over the years. [It] breaks down the investment opportunity in all aspects, all the way down to, of course, the IRR, and we really get under the weeds,” Dreher said.
But not every project THG examines requires this much detail. “It could be we’re contacting the broker, getting pricing guidance, and then we have a proprietary database that our team inputs—the variables and all the attributes of the opportunity,” he said. Sometimes the company will find better deals on properties it was reviewing years prior.
“Our database is a huge thing, and we call it the ‘Initial Purchase Evaluation,’” Dreher said. “It’s a nice component for us as we look at opportunities.”
While THG makes it a point to review the market for potential acquisition opportunities every year, there doesn’t always have to be one worthy of purchasing. “Sometimes, not buying can be a strategy,” he said. “We’re an investor, of course, but we have a fiduciary responsibility to other investors, and they’re relying on our expertise. Being bold is great, and we can do that and have done that, but I’d say we tend to be a bit more conservative on the underwriting because there’s a lot that can go well in an investment, but there’s a lot that can’t go well.” It’s because of this view that THG tends to lean a bit more on the conservative side when buying.
After picking up a number of properties in the 1990s, THG accelerated its purchasing in 2002, when it formed its first opportunity fund. “We see it as a good means to complement our managed properties, and for the first part of our existence, we did a lot of new-build work with developers and a lot of management transitions; we saw it as a good means to create some good stability for the company, so it’s been a big part of what we have done for the past couple of decades,” Dreher said. Within that same time frame, The Hotel Group has raised and deployed nearly $200 million in total.
To many, the management space is becoming cluttered—similar to what’s going on with brands. “It’s similar to branding, where you have over 250 brands,” he said. “It’s always changing, and to some extent, that’s been a real challenge for us—with some of the threats the industry has looking ahead, like Airbnb.” Fortunately for THG, it hasn’t seen much of an impact on its properties resulting from the home-sharing platform’s growing presence; however, that may eventually change.
“You have several management companies that have one, two or three hotels and then a few that are well over 100, but if you look at it when we hit a downturn—and it is when, not if—as well as just the new supply in certain markets, it’s almost inevitable for [Airbnb] to be an impact,” Dreher said.
For example, THG has a couple of hotels in Seattle: one under construction and one the company opened a couple of years ago. “You can very much see, with all the new supply coming online as well what already has come online in Seattle, [Airbnb] can have an impact,” he said. He also made note of hearing more and more stories about companies using Airbnb as their sole provider for lodging for travel.
Through the ups and downs, THG has survived because of its people. “We have an ingrained service culture,” he said. “We call it hospitality greatness, whereby we expect our team to do what we call the key three: acknowledge and smile; anticipate and deliver; and sincerely thank. Then the overarching theme of it all is to delight and surprise our guests as well as our fellow associates.
“The best part of my travel is going out to our properties, and you just get a feeling it’s a THG hotel,” Dreher continued. “It doesn’t matter what the brand is or where it’s located, but there’s a certain culture that comes with having a great team.”
THG’s corporate team has a total of 25 members; overall, the hotel management company currently has more than 1,000 employees, and there are openings throughout.
“The main thing we ask ourselves daily is: ‘Are we really a company of value and culture?’” he said. “As long as we do that, we have a reason for being.” HB