The dual-branded Holiday Inn and Staybridge Suites near Chicago’s airport provides a best-practice case study in how to double the upside without doubling the costs.
SCHAUMBURG, Illinois – Hostmark Hospitality Group stepped up its presence in the dual-branded hotel market with the May 1, 2023, opening of the 284-room Holiday Inn and Staybridge Suite O’Hare Airport in Rosemont, Illinois, just minutes away from the namesake airport.
The third double-flagged property in this owner-operator’s nearly 5,000-room portfolio, the former Edward Hotel provides a case-in-point example of why mastering the complexities of this diversified business model multiplies performance potential, said Jerome Cataldo, president and CEO, Hostmark Hospitality Group, in an interview with Hotel Investment Today.
“Yes, dual branding presents a lot of challenges. And, yes, there’s a learning curve,” Cataldo said. “But it also presents substantial opportunities. Clearly, you gain economies of scale in the back-of-house operations and in the shared aspects of the public space. But you also benefit from the opportunities to leverage different rate strategies, different sales strategies and different customer demographics .You have two flags feeding the bottom line, which means you have access to broader target markets with varied needs. That business mix enables you to maximize the revenue and profit potential of the entire facility.”
Cataldo gave this walk-through of how Hostmark (as the management company) and the property’s new owner, Chicago-based Gateway Investment Partners, used the double flag to reposition this formerly shuttered eyesore (local reports quoted Rosemont Mayor Brad Stephens as saying he was “happy to have someone accept the property”) into a cross-market destination and why he thinks this segment will continue to have a place in his portfolio.
Hotel Investment Today (HIT): Gateway Investment Partners got this property for $8.75 million at auction. Deals like that don’t come along every day for property near a major airport. What’s the back story?
Jerome Cataldo (JC): This property that had been a prominent building in in Rosemont for many years. It’s gone through a long history of changes and iterations of what it was and how it served the community in the hotel space. Hostmark actually looked at buying this asset seven or eight years ago, but we couldn’t reach a successful transaction point. Before it came to auction, it was seized by U.S. marshals as part of federal court proceedings against the owner who was accused of fraud and money laundering in Canada. So, the hotel closed and the building just sat empty. Gateway Investment Partners, a company we’ve worked with for a long time, saw a good opportunity to acquire it and invest in it to bring it back to being a viable property that the community would be proud of. We agreed with their thesis, and the result was the ($18 million) transformation into the striking dual-branded hotel that debuted in May.
HIT: For a dual-branded hotel, what specific questions do owner need to ask about to make not only the right choice of brand family but also the right mix of brands within that family?
JC: Obviously, the O'Hare area is a big market. There are a lot of brands that are represented there. We saw an opportunity to bring the Holiday Inn brand back into this area in Rosemont after it lost the flag as the result of a brand conversion. Initially, it was going to be a Holiday Inn.
You also have to balance your rate differentials to maximize the performance of both properties... Sometimes it's an art.
Jerome Cataldo
Then we and Gateway looked at the box, the number of keys in the footprint and the guestroom and other space configurations and felt they’d lend themselves well to the dual-brand model – specifically a pairing of the transient Holiday Inn with the extended-stay Staybridge Suites, which was a market we wanted to be in.
The property also has some interesting catering and banquet space that the ownership leased out to a very prominent operator in the Chicago marketplace, which gave both properties something local and unique. That gave us another incremental business driver.
HIT: Are lenders buying into dual branding?
JC: We have the experience to show them the benefits if the model is executed in the right way. Not only do you the efficiencies of sharing back-of-house costs, you have lower labor costs because you don't have two different sales teams or different management teams. The segment is changing. Now, some brands allow owners and operators to combine front desks. That flexibility takes on added importance for downtown properties in markets like Chicago where the footprint may not have room for a huge lobby. We have the numbers to show lenders why having two flags in the same box is beneficial. We can demonstrate how different flags can take advantage of the varied characteristics of the demand in the market to get a greater share than we would with a single a singular brand.
HIT: What’s the biggest challenge in mastering the opportunities of dual branding
JC: There’s a learning curve for rate management and revenue management because you’re trying to balance the demand across the whole complex. And you also have to balance your rate differentials to maximize the performance of both properties. Sometimes it's an art, it could be challenging at some periods of time depending upon the seasons and demand characteristics in the marketplace. But it's also an opportunity to be able to have the options of leveraging the demand and brands that have that might meet those needs better than the competition. You’re gaining a lot of upside and efficiency from having those options under one roof rather than having two separate hotels a few blocks apart.