Diversity programs smooth path to ownership

NATIONAL REPORT – For diverse ownership groups that have historically been underrepresented in the hotel industry, the bootstrap approach of gathering multiple smaller investors continues to succeed. Meanwhile, brand-based programs that assist with lender connections, incentives, education, and expertise are receiving more attention.

Hotels Investment Today talked to some of the minority developers and the brands they are working with to uncover some of the details on how deals are getting over the finish line.

Combining resources, talents

In the late 1980s, said Bill Fortier, Hilton’s senior vice president of development, Americas, Indian-American immigrants could not get loans or insurance due to discrimination. “But they kept moving forward because they teamed up as a group.” Asian-American Hotel Owners Association (AAHOA) members have excelled, he said, at bringing family members together to amass the equity required to purchase or develop hotels. Now, Fortier said, the grassroots strategy is spreading to the Black/African-American and the Latino communities as more of these investors pool their resources and talents to get deals done.

Bill Fortier, Hilton’s senior vice president of development, Americas

Amina Gilyard James, EdD, managing partner with Duke Ventures, pitched the acquisition of the Quality Inn in northeast Memphis at the 2022 She Has a Deal (SHaD) Today’s Woman competition. Dr. James lost the contest, but her company partnered with a group of 30 Black, mostly first-time hotel investors to close on the 70-room, $3.85 million property in December 2022.

“We took a collective investing approach because we hadn’t been involved in many networks that exposed us to people who had a lot of extra capital to invest,” said Dr. James. “So we tried to meet people where they were while empowering our community to invest in real estate and hospitality.”

Enticements included setting a $25,000 buy-in and allowing investors to use life insurance, IRAs, and other alternative funding options. “Our goal was to educate as well as raise capital,” she said.

Education is perhaps the biggest hurdle to hotel ownership for diverse investors, said John Lancaster, Choice Hotels International vice president, emerging markets, franchise development, and owner relations. “Many people don’t know that they have the opportunity to own a hotel. They still think that the name of the hotel is who owns it.”

To bridge the knowledge gap, all franchisors interviewed for this article take a comprehensive approach that features education, networking opportunities, and incentives such as key money and waived or reduced fees.

“This is a handholding process,” Lancaster said. “My team may meet someone this year, and the person may not move toward the opportunity to get a hotel PSA for another two years.”

Dr. Amina Gilyard James, EdD, managing partner, Duke Ventures

Dr. James said that Choice’s HERtels program provided a 50% application-fee discount and a two-year franchise-fee ramp-up for her project. Her company, Duke Ventures, had previously invested in two Hilton properties and injected about $900,000 of equity into the Quality Inn deal, which will include around $500,000 in renovations.

Another complex deal involved the purchase and conversion of a long-closed Boston property to The Rook South Boston, part of Choice’s Ascend Collection, by actor, activist, and hotelier Julian Brittano and his wife Karie Brittano, a general contractor. Because local officials were unfamiliar with the Ascend soft brand, Lancaster said, Choice had to explain everything from architectural aesthetics – reassuring officials that the hotel would maintain the historic building’s façade – to how municipal incentives could be applied. Choice also contributed an undisclosed amount of key money.

Owning the room

Since the debut of Wyndham’s Black Owners & Lodging Developers (BOLD) and Women Own the Room initiatives, Wyndham has awarded more than 60 development agreements in just over a year, said Chip Ohlsson, chief development officer, Wyndham Hotels & Resorts. “About a dozen of those hotels have opened so far,” he added.

The journey of twin brothers Dubi and Chuchu Ajukwu, co-managing partners of VANA Partners, exemplifies Wyndham’s approach. The brothers were familiar with the hospitality industry, having worked as waiters in their parents’ hotel in Nigeria, Ohlsson said, but they were more focused on traditional real estate endeavors. “Once they were introduced to the potential in the extended-stay segment, that changed.”

Along with targeting a market segment, the brothers wanted to establish a footprint throughout Florida and beyond. “While they initially ran into roadblocks when approaching other brands,” Ohlsson said, “we were steadfast in our commitment to placing them in the right markets to ensure they were successful as owners.” The brothers anticipate breaking ground on the first of 10 ECHO Suites Extended stay by Wyndham, in Daytona Beach, later this year.

Creating concierge service

Hilton’s efforts to advance underrepresented ownership groups start with identifying potential owners through groups such as the National Association of Black Hotel Owners, Operators, and Developers (NABHOOD), the Latino Hotel Association (LHA), and the AAHOA. Hilton’s approach, Fortier said, is to “get to know the owner, figure out what they’re trying to do, and create a concierge service: what will it take to get this deal done?” The company signs an average of five deals with diverse ownership groups yearly.

John Lancaster, Choice Hotels International vice president, emerging markets, franchise development and owner relations

“The problem is, you can sign a deal,” Fortier said, “but you have to get them under construction. That’s the hardest part.” Tightening of the credit market in the current economic climate presents new challenges for owners that the industry will need to continue to help address through programs that support new hotel ownership, he added.

Private equity controls significant funding, Fortier said. “But even private equity is getting a bit cautious.”

Regarding Choice, Lancaster said that of a record 38 franchises the company awarded last year, 24 came through HERtels – a 50% increase over this program’s first year. Some of the new franchises are fully financed, he said, while others are still looking.

“With the current rate environments the way they are,” Lancaster said, “getting that financing may come a little harder than before.” To help, he said, Choice has committed $25 million in incentives for contracts with underrepresented minority and women owners in the next five years.

Additional franchisor programs include Marriott’s Bridging the Gap, which in April announced its first 19 development projects. However, Marriott did not respond to Hotel Investment Today’s request for an interview.

Diversity in ownership must remain a priority across the industry, Ohlsson said. “And we are committed to working with our partners and competitors on making hospitality a more diverse community.”