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Pandemic crisis fuels third-party management growth

The company added hotels amid the pandemic for a couple of reasons, says Johnathan Capps, vice president of revenue. First, independents used to fly without a compass but today technology and data analytics has armed managers with a load of information as well as the ability to gather it and make sense of it.

Operators that specialize or are built for scale may emerge stronger post-crisis, say experts

CRAFTED EXPERIENCES: A guest room at Hotel Morgan, a Wyndham hotel in Morgantown, West Virginia, that Charlestowne Hotels partnered with Thrash Group to open. The 81-room boutique property is an adaptive-reuse project that restored a 95-year-old building. Morgantown is home to West Virginia University. Collegiate markets are among Charlestowne’s specialties.

‘Swimming Naked’

Charlestowne Hotels in South Carolina manages more than 50 hotels, primarily independent or soft-branded boutique and lifestyle assets.

Everett L. Smith, CEO, founded the company 40 years ago and has led its organic growth over the decades.

The company added hotels amid the pandemic for a couple of reasons, says Johnathan Capps, vice president of revenue. First, independents used to fly without a compass but today technology and data analytics has armed managers with a load of information as well as the ability to gather it and make sense of it.

“We’ve seen independents or where a flag drop off something do well at market as the data has been out there,” Capps said.

Travel consumers also have come to value independent hotels that can curate experiences with a focus on the local market, something Charlestowne Hotels is particularly good at providing.

Capps echoes Kakarla at HHM in seeing the trend of more new hotel owners looking for third-party manager. ‘They’re looking for that experience. Brands caught on 20 years ago because they knew how to perform in a certain model with a certain hotel, but now that model has changed a little bit.” The growth of soft brands has proven the value of unique guest experiences in independent hotel, he said. “The brands are even realizing that they need to move in that direction a little bit. They got a great case for their ability to do distribution and to have loyalty, but the curation of an experience around a theme or a place may call for an operator like ourselves.”

Kalibri Labs reports of the 1,700 U.S. hotels that have closed since March 2020, nearly 600 or 4 percent are independent. Capps said perhaps among the 600 are hotels that will “change hands and need an elevation from an owner-operator. Or someone’s coming in and buying them and are going to buy four or five at a time, which we’ve heard talk of during this time.”

Capps said he has also seen lenders who used to only finance branded hotels now accept “what an independent property can do with a third-party manager attached.”

Another anticipated trend that may impact the demand for third-party managers now and post-pandemic is financially distressed hotels going into receiverships or special servicing and/or being acquired at lower than normal prices.

“We’ve had success with receivership going to a new ownership and the asset completely turning around,” Capps said. “And I do see those coming.

“I also see some money entering whether it’s private equity money or small groups of people putting some funds together to say, ‘We like these three markets. If we get all three, we’ll buy all three assets. And if we end up with one, we’ll end up with a property in the Keys or in South Carolina, in the mountains in Colorado. But we were targeting these three to differentiate and to grow as real estate opportunities.’ And we jump in there with them too, from branding to concept team, to realigning and then get it operating and get it going. I think a lot of those are going to present itself.”

He also expects some franchisees to not renew a licensing agreement and take a chance as an independent and call on a third-party manager to help with the transition.

The coronavirus crisis has changed the minds of owners, investors, lenders and developers. The severe downturn has also revealed weaknesses in business models.

Matthew Barba is vice president of operations at Charlestowne Hotels. He shared the Warren Buffet quote “Only when the tide goes out do you discover who’s been swimming naked.”

“And so the tide went out in 2020 and where people may have been successful without the assistance of third party management prior to 2020 – it may have been happenstance; it may have been pure luck; it may have just been a hot market. And I think 2020 flushed out that some of them couldn’t do it on their own and needed some assistance.

“Charlestowne has been in the business for 40 years now and we’ve navigated some other storms, and the pandemic showed us areas where we could make improvements, but also where our strengths lie.”

Barba said a lot of owners turned to Charlestowne over the past months to help them navigate out of a bad situation or help with a transaction. “They’re recognizing this is not the time to try and do something yourself it that’s not your core competency.”

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