Davidson moving into luxury, exploring Europe

LOS ANGELES – In an interview with Davidson Hospitality Group CEO Thom Geshay during ALIS, he said the upper upscale-focused third-party manager is setting its sights on the luxury space and is starting to look further afield to Europe for expansion.

Under its new owner Nautic Partners, Geshay said Davidson, currently with 85 hotels and about 23,000 rooms, will attempt to launch a luxury division toward the end of this year or early in 2026. “We’re going to have to get very smart in the residential space so we can service the whole stack as every luxury project today also has a residential component that goes with it,” he said. “Nautic Partners already has that [they own a luxury residential management company], and they can help guide us through.”

There’s going to need to be an alternative to the brands, and no one does that in the third-party space. So, we want to get ahead of it and put the resources in place so we can have that credibility.

Thom Geshay

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Geshay sees more opportunity for third-party operators in the luxury space as more brands bring in outside operators.

“It’s my belief that maybe not today, maybe not tomorrow, but if we look back 10 or 15 years, the vast majority of brand growth will be on the franchise side, not the managed side,” Geshay said. “In five years, we’ll have a small portfolio of luxury assets, and I think you’ll see other players enter the luxury management space, as well. There just needs to be an alternative to the 30- and 50-year management contract given the sophistication of the investors coming into the space... There’s going to need to be an alternative to the brands, and no one does that in the third-party space. So, we want to get ahead of it and put the resources in place so we can have that credibility.”

As for a move into Europe, Geshay said they are “sniffing around the U.K. a little bit and trying to get smart.” He added that there is no big announcement about launching a European Division pending as they need to crawl before they walk. “You need boots on the ground,” he said. “So, we’ve moved some team members there to get smart about the markets, learning places to be and not to be, building the relationships, spending some time seeing if it makes sense for us to do that.”

Again, Geshay first pointed to the Iberian Peninsula and U.K. as potential landing spots. “We want to make sure we can do it well. If we can’t, then we’re not going to do it,” he said, adding that they think there is a huge opportunity. “It’s a very bifurcated industry there and a lot of the same equity groups that own assets in the U.S., that we manage for, also own assets in Europe.”

Forever the bull

Just about 90 days in with its new owner, Nautic Partners, after being owned for 10 years by KSL Capital Partners, Geshay said his initial perception is great.

He said Nautic is about 40 years old and just finished the close of its 11th fund at an oversubscribed $4.5 billion. They are first-time players in the hotel space and Geshay said they formed a search committee four years ago to study the business before making a move.

The current growth plan will be largely the same after doubling the company organically in the last five years. “We’ll continue to do that, continue to push up the upper upscale to the luxury space. They give us a strong balance sheet, and they want to support the business,” Geshay added.

Davidson Hospitality recently took management of the Asher Adams in Salt Lake City, Utah.

Davidson just did their first deal in the Caribbean with the Westin Frenchman’s Reef and will continue to push there. It is also opening a new Margaritaville in Kansas City after just having opened the Asher Adams, an Autograph Collection hotel in Salt Lake City, Utah.

Geshay also said while they never say ‘no,’ there are no immediate strategic plans to acquire a competitor. “Selectively, we’d be open to it, but it’d have to be the right fit.”

When it was recapitalizing, they specifically went after a financial buyer as opposed to trying to combine with another management platform. “We felt like combining with another company wasn’t right at the time, not that it won’t ever be. There may be a time, and I have a new partner that wants to grow.”

Looking at performance, Geshay was very bullish, suggesting the industry is due for a surprise on the upside.

“Everybody’s projecting 1% to 2% RevPAR growth. But the consumer is strong. The spending stats are still very good with the consumer and corporate earnings are as strong as ever,” he said, also pointing to more workers coming back to the office and continued strength in group business.

“Group rate is actually strong. We’re up $9 in rate across all of our forward bookings year-over-year,” Geshay continued. “On the transient side, we’re up in room nights, but we’re down in rate. That’s where I think the upside is… We also have to do a better job of offering things at the hotels besides just rate. We have to get them in the spa and restaurants. All the ancillary growth is way up and we’re budgeting for that ancillary revenue growth to be higher again. So, I wouldn't be surprised if this summer is a better travel season than we’re expecting… We may end up 3% to 4% on RevPAR instead of 1% to 2%. That’d be a win, especially as tight as margins are.”