Owners vs. brands: Part II plays out at Hunter

ATLANTA — Last year, at the “Wall Street Talks” panel during the Hunter Hotel Conference, hotel owners at Blackstone, Brookfield and Noble leveled some bold statements at the biggest hotel brands. This year, the brands had a voice at the table, too.

During the panel in 2024, Scott Trebilco, senior managing director of real estate for Blackstone, said he ultimately thought loyalty programs would drive the big brands to the point that Marriott might be renamed Bonvoy because it was a travel ecosystem and not a hotel business. Shai Zelering, managing partner of real estate for Brookfield, said, “We should start referring to [the big hotel brands] as credit cards because you’re going to have your credit card that gets you points… and that’s the ecosystem that we have.”

This year, Kevin Jacobs, CFO and president of global development for Hilton, joined Trebilco, Zelering and Mit Shah, founder and CEO of Atlanta-based Noble Investment Group on the panel. Suril Shah, CEO and managing partner for Venice, California-based Riller Capital moderated (though he temporarily ceded his duties for about 15 minutes as Trebilco, Zelering and Mit Shah peppered Jacobs with questions).  

Suril Shah reminded Trebilco about his comments from a year ago about the misalignment between hotel owners and brands.

“I’m not sure exactly what I said last year, but I’ll share my views anyway,” Trebilco said. “It was really a great ploy to get [Kevin Jacobs] to come and join us so we can upgrade this panel.”

They’ve focused on their brands, they have focused on growing for their own benefit, for their shareholders and they’ve done a tremendous job. But what does it mean for the real estate owner? It hasn’t, in my view, been totally aligned.

Scott Trebilco

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Trebilco started by talking about the biggest hotel brands like Marriott and Hilton, massively expanding their stock value compared to the S&P 500 since the '90s and how that value hasn’t necessarily translated to their owners. 

“What’s happened with these businesses as they’ve separated [from their non-hotel businesses]… They’ve focused on their brands, they have focused on growing for their own benefit, for their shareholders and they’ve done a tremendous job,” he said. “But what does it mean for the real estate owner? It hasn’t, in my view, been totally aligned.”

Trebilco cited the example of Great Wolf Resorts, where Blackstone is a majority owner. Great Wolf has doubled the size of its business, largely through expansion of its existing hotels.

“In doing that, we haven’t grown our corporate overhead or our marketing and sales budget… throughout the entire period of time. What that means is, when we go and develop these Great Wolf Resorts, the economies of scale that we’re transferring to the owner for that property is immeasurably improved, and it just makes more sense to go ahead and do it.”

When he compares that example to the big hotel brands, that’s where Trebilco said he sees the misalignment.

“When I look at how much Hilton and the other brands have grown over the last decade in multiples in terms of size of the system, size of the revenue pool… and all of you [franchisees and owners] in the crowd still pay the 4% marketing fund, which is clearly much bigger today,” he said.

“What I would ask is: where is the partnership in that? Why are we not transferring some of that growth and scale and economies of scale and efficiencies to the owners who are feeling the pain when revenues and top lines aren’t growing the way they want them to and expense ratios are all over the board? It feels like [the brands’] best position is to try and help us make this a little bit better.”

We’re actually working on a bunch of things internally at the moment to do just that, to try to use the benefits of our scale to drive some cost savings to owners. So, stay tuned.

Kevin Jacobs

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Jacobs, who at one point jokingly admitted doing this panel might have been a mistake, countered by… agreeing with Trebilco’s premise.

“I think we would agree with that,” he said. “We’re actually working on a bunch of things internally at the moment to do just that, to try to use the benefits of our scale to drive some cost savings to owners. So, stay tuned.”

Jacobs said both he and Hilton CEO Chris Nassetta came up on the real estate side of the business, so he gets the criticism.

“I would say it’s the ultimate symbiotic relationship. Meaning we understand that there is no us without [owners and franchisees]. At the end of the day, 100% of the capital for our growth comes from third-party real estate investors who are choosing to allocate their capital first to lodging,” he said. “We can talk about the benefits of our industry as a whole. As you know, needing to be an attractive place for capital to find a home and then having us grow the way we’re growing, you all have to continue to choose us more often if we’re going to have a premium growth rate, which we do, and if we’re going to have a premium growth rate, you all have to choose us more than you choose our competitors.”

The relationship is clear, Jacobs said: “We fully understand that if we don’t continue to drive returns, you’re not going to choose to allocate your capital.”

Pressures on profitability

When pressed on the fact that profit margins are under pressure, Zelering said the challenge is in the execution.

“We’re still a people’s business. You’re still going to have that interaction,” he said. “The business is getting more fragmented… We’re getting away from the hospitality business. Let’s focus on the craft. Let’s ensure you run the best hotels, getting the customers and satisfying them so they want to come back. That builds the business. I feel that there is a gap in talent, talent cultivation and talent growth, and that will be a real change because then we’ve commoditized the business.”

When asked where he sees profitability challenges, Mit Shah said labor is still the driving force.

“We continue to find ways to be more and more efficient with the actual labor that exists in our hotels,” he said. “Whether it’s a midscale extended-stay hotel, where you’ve launched a brand that you can operate with one full-time employee for every 10 rooms, to the Conrad in Seoul (South Korea) that [Brookfield] recently sold at a great value. It’s just the model of that business continuing to get more efficient and allowing us to be more profitable.”

Mit Shah admitted labor continues to be a struggle in the industry.

“In COVID, this was an all-hands-on-deck [situation], and we came together — brands and owners came together. We’ll keep continuing to do that. That’s the most important thing that we can do today.”