Why Hawkins Way sees Marriott’s Series as growth vehicle

Editor’s note: This is part one of a conversation with Leonard Ross, partner at Hawkins Way Capital, who talked about the company’s recent deal to convert five of its properties to the Series by Marriott soft brand. Part two will delve into the company’s other hospitality investments, including some converting away from hospitality and why it is optimistic about the current deal market.

BEVERLY HILLS, California — A “lumpy” post-COVID recovery for unbranded and branded hotels has Hawkins Ways Capital seeking a new path for growth via a Marriott soft brand.

Last week, Marriott International announced a deal with Beverly Hills, California-based Hawkins Way Capital for the launch of its latest soft brand, Series by Marriott, in the U.S. Hawkins Way over the course of the next year will convert its Found-branded properties in Miami, Santa Monica, San Francisco, Chicago and San Diego.

Branded concepts versus unbranded concepts have both recovered, but the branded hotels have recovered much quicker and continue to recover much quicker than boutique hotels. So you’re seeing that gap in performance widen.

Leonard Ross

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Leonard Ross, partner at Hawkins Way Capital, said the company with $3 billion in assets under management over approximately 27 properties in hospitality and residential has been investing consistently in the Found Hotels brand under the pre-COVID thesis that upscale, boutique hotels could compete in a compelling way without brands as long as they were operating at a discount to their branded counterparts. But over the last five years, things have changed for the company that owns 12 hospitality assets.

“What we’ve seen post-COVID is that the recovery, particularly in the markets that we operate in, has been strong, but lumpy towards branded hotels as opposed to unbranded hotels,” he said. “If you look at STR reports, branded concepts versus unbranded concepts have both recovered, but the branded hotels have recovered much quicker and continue to recover much quicker than boutique hotels. So, you’re seeing that gap in performance widen.”

The name of the game before, Ross said, was to use a hotel’s great experience to push ADR and use an acute management of expenses to increase NOI.

“Your ability to push ADR now without the backing of a substantial brand system behind you is limited and so you’re mostly constrained to expense savings, as opposed to increasing performance,” he said. “So, this is a great opportunity for us to align with the brand and to be able to feed into the network of brand loyalists in your own identity.”

So, the partnership with Marriott will allow those Found Hotels the ability to continue to not only push ADR but become an “earn and burn” location for Bonvoy members, Ross said.

Found Hotel, San Francisco is one of five properties that Hawkins Way Capital is converting to the Series by Marriott soft brand.

“Guests, both on the leisure side as well as on the group business side, have prioritized assembling their rewards points and with the limited travel that has recovered since COVID, they’re utilizing those opportunities to build up their own brand loyalty,” he said.

Ross said the Found Hotels brand identity also perfectly couples with the quality of clientele Marriott is targeting for its Series by Marriott soft brand.

“It gave us confidence that our assets will perform at their highest potential,” he said. “Marriott felt like the right partner, not just the biggest one.”

While Ross wouldn’t elaborate on the specifics of the agreement with Marriott, he said Hawkins Way was struck with the ability to set the standard for what the Series soft brand could look like in the U.S. He also said there aren’t many changes that needed to be made at the first five Found Hotels that are converting to get them ready for Marriott aside from some minor cosmetic renovations, case and soft good changes and technology infrastructure changes to be a part of Marriott’s system.

We believe that there’s currently a compelling buying opportunity to programmatically deploy capital to acquire these underutilized hotels that are in need of renovations and stronger management, and most importantly, a replicable thesis.

Leonard Ross

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“It was more of a targeted high-ROI guest experience, touchpoint-type renovations, and as the first to launch in the U.S. with Series, we were given the opportunity to set the standard for what Series could be while maintaining our unique identity within the Found brand,” he said.

Ross said Hawkins Way would love to expand its partnership with Marriott either through existing Found Hotels or new acquisitions.

“We’re in continuing conversations and we are very bullish on the current acquisition environment, and we are eager to expand this portfolio,” he said. “We’ve seen a jagged edge of recovery in the boutique hotel space markets that we track nationwide. We believe that there’s currently a compelling buying opportunity to programmatically deploy capital to acquire these underutilized hotels that are in need of renovations and stronger management, and most importantly, a replicable thesis.”

Ross said the company doesn’t have a specific number in mind as it will depend on each deal, but he said Hawkins Way is optimistic about “being active buyers for hotels that are seeking liquidity in today’s environment.” 

Today, the company owns and operates them in a multi-disciplinary way, running the gamut from value-add to full repositioning, including converting hospitality assets into residential. Its thesis is to target urban core locations and then convert the assets to the highest and best use.

It also owns FCL Management, which manages all of Hawkins Way’s properties in both hospitality and residential. FCL also does third-party management through multiple disciplines.