Taking issue with Sternlicht’s NYU comment

FAYETTEVILLE, West Virginia – Mountain Shore Properties CEO Stephen Wendell agrees with about 99% of what industry oracle Barry Sternlicht has to say about the hotel industry and where it is heading. But when the chairman of Starwood Capital spoke at the NYU Investment Conference in June, one of Sternlicht’s bigger, broader statements fell into that 1% space where Wendell disagreed.

Sternlicht said the rise of independents are hurting older brands. “It’s not about your million-dollar marketing budget,” he said. “It’s about connecting to the right people with a tight mission and then drawing that group into your property.”

Stephen Wendell

Wendell, with all due respect and knowing Starwood has bigger budgets than he, begged to differ with Sternlicht’s brand versus independent perspective. In fact, Wendell just went through a rebranding process that led to him taking umbrage with Sternlicht.

In late June, the Fayetteville, West Virginia-based company converted the more or less independent Bunkhouse-branded Hotel Genevieve in downtown Louisville into a JdV by Hyatt. The move came after the big corporation, Hyatt, swallowed the smaller Standard group of brands and hotels that included a small group of Bunkhouse properties. Why did Wendell do it? Simply because he really needed the weekday business usually only generated by a powerful distribution engine.

The national real estate developer’s 122-room Hotel Genevieve opened in May 2023 and wasn’t getting the mid-week traction he needed under Bunkhouse and was willing to make the investment for the repositioning.

“I took for granted the reach and the need for a brand behind midweek traffic in a city where group and corporate is a very big factor of the occupancy picture,” Wendell said. “I thought that if you just build this beautiful thing, they’ll just come, and it’ll be super easy. And that just wasn’t the case.”

Today, a week into the JdV switch being flipped with Olympia Hospitality taking over management [Bunkhouse managed previously], Wendell said he already has weekend World of Hyatt redemptions and World of Hyatt members booking through the app. Some of the reward redemptions will come when Hotel Genevieve is almost 100% occupied. So, those should be reimbursed by Hyatt at close to full ADR, he added.

I took for granted the reach and the need for a brand behind midweek traffic in a city where group and corporate is a very big factor of the occupancy picture. I thought that if you just build this beautiful thing, they’ll just come, and it’ll be super easy. And that just wasn’t the case.

Stephen Wendell

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“What we’re seeing early on is that we are visible on day one,” Wendell continued. “We're visible to these people in the Hyatt ecosystem. “Bunkhouse [also part of Hyatt after the Standard deal] couldn’t do this. They don’t have the reach… We’re talking about a whole different degree of leverage and ability to work with the brand going out to their customer base, to their loyalists.”

Wendell said he is less concerned about his ability to drive rate and more concerned about driving occupancy during midweek. “I will then be able to drive rate because if I have 40 to 50 rooms booked by a group, I can be more aggressive in my rate strategy for my last 60 to 70 rooms. I think we’re going to get a 10% rate premium, but I think our occupancy could go up as much as 15 percentage points.”

While Wendell thinks there is a place for independents – and he is building one in Fayetteville, West Virginia, with 40 rooms at the foot of a national park – he believes the hard brands that are more lifestyle, as well as the soft brands, are set up to crush independents.

On top of that, he added, while franchise fees can be high, credit card fees are lower and he’s paying less to OTAs because brand.com is generating more profitable business.

Making the conversion work

When Wendell built Hotel Genevieve, the best value that he saw in Bunkhouse was their ability to concept, design and create. He thought they would wave their magic wand and the same thing they were doing with smaller hotels in Texas would happen in Kentucky. And some of it did happen such as having the only Michelin key hotel in the state.

“But Joe Business Traveler looking for two rooms on a Tuesday, Wednesday doesn’t care about that,” Wendell said. “They want repeatability. They want to collect points… If we had 47 rooms on Market Street, it would have been a different story. But we have 122 rooms and that’s a lot. We have Sunday, Monday, Tuesday, Wednesday and Thursday. And last I checked that was five out of the seven nights of the week. You really need to run 60% to 75% then, and it just wasn’t happening with our existing framework.”

To make the conversion succeed, a lot of attention was paid to the back-end technology, and that’s where the pain points were found, according to Wendell. He lauded the effort of Hyatt, Bunkhouse and Olympia to collaborate and be resourceful during the conversion process.

You can’t really go that far outside of your lane. Now, one of the beautiful parts of the marriage between Hyatt, Bunkhouse and Standard is to figure out when you can go outside the lane and when it makes sense to do that.

Stephen Wendell

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“My biggest takeaway is that the backend systems that go into a hotel are too numerous to think about,” Wendell said. “And if you are contemplating the transition from an independent hotel to a brand you really would do yourself a service to hire consultants or third-party managers that have done this multiple times over because there were 100 different times if someone didn’t know what they were doing the whole thing would have gotten messed up.”

While Wendell, whose company has more than $400 million in hotel project value, would not share the investment made in Hotel Genevieve's conversion, he said it was fair. “Everyone played ball to do this, make it right and make sure that we did right by this hotel,” he said.

He added that a full recoup of the investment will only happen when Mountain Shore sells the asset. “But we’re going to be in a much in a stabilized state by next year,” he said. “I think we’re going to be in a very profitable year-over -year situation and growing. This asset is in an Opportunity Zone. So, we were planning on holding it for at least 10 years. So, we have time.”

When it comes to working with Standard versus Hyatt, Wendell said the biggest difference is more rules or “bumpers.”

“You can’t really go that far outside of your lane,” Wendell explained. “Now, one of the beautiful parts of the marriage between Hyatt, Bunkhouse and Standard is to figure out when you can go outside the lane and when it makes sense to do that.”

Wendell offered an example: Whereas Bunkhouse and Standard did direct email market, property by property, Hyatt does not want its owners sending direct emails to guests. “I think that’s incorrect. So, I hope they figure out a way to allow the boutique hotels, the more independent lifestyle hotels, to continue talking directly to their guests without skirting any of the security and privacy rules. That was something Standard and Bunkhouse were amazing at doing.”