Choice Hotels’ Mark Shalala details the owner-focused strategy that's shaping the building blocks of this hotel giant’s eight upmarket brands.
Upper-upscale and upscale/upper-midscale assets dominate the hotel investment story for 2024. CBRE Research’s U.S. Hotel Investor Intentions Survey has the metrics to support that: 42% of respondents favored upper-upscale, followed closely by 40% who were setting their sights on upscale/upper-midscale.
Not only do these properties have more operational levers to pull to drive revenue, but many also benefit from positioning in urban markets where CBRE’s report “expects” RevPAR growth of 3.1%, largely fueled by gains in group, business and international travel.
But it’s their ongoing upside potential for value-add and opportunistic investment that is making them prime targets for hotel investors.
Mark Shalala, Choice Hotels
With all the noise surrounding this market sector, investors are looking for the right brand partner to help them identify and leverage opportunities and maximize ROI. In this exclusive interview with Hotel Investment Today, Mark Shalala, senior vice president development – upscale brands and real estate, Choice Hotels, lists the macro and micro questions investors should ask to optimize their upmarket strategy.
Hotel Investment Today (HIT): Many in the hospitality industry are saying that Choice is the challenger to watch in the upscale and upper upscale hotel segments. How is that an advantage for owners looking to expand or get into these segments?
Mark Shalala: Choice crafted itself into the challenger in upscale and upper upscale over the past five years by purpose-building the scale, team, tools and brands to compete. We’re committed and investing heavily to grow our share within these segments.
We have developed a winning strategy that provides real value to developers looking to expand their portfolio or get into this revenue-intense segment of hotels. Similar to the rapid growth of Cambria Hotels, the flag under which we’ve opened some of our best hotels this past year, Choice will use its balance sheet to grow its upscale and upper upscale brands. The company prioritizes making sure this brand’s hotels stand out in their markets by offering guests a meaningful differentiated experience from properties that currently fill the segment’s space.
HIT: With all the brands already in this market, what did Choice do to get its message heard by investors?
Shalala: Choice set out to achieve meaningful scale in this sector. The acquisition and seamless integration of the Radisson Hotels Americas portfolio increased our upscale and upper upscale offerings to more than 700 hotels and 80,000 rooms open or in the pipeline globally across eight strong brands. At the same time, we have grown Choice Privileges, our award-winning loyalty program, to include more than 66 million members.
However, while we have scale, developers have an opportunity to represent a globally relevant and well-known brand in Radisson at the top-end of our portfolio and stand out in a sea of sameness. Unlike many competitors operating in these segments who are grossly oversupplied, we have lots of white space in urban and higher-end leisure destinations for developers to get more than their fair share of business and leisure traveler bookings.
HIT: Where’s the value-add for owners?
Shalala: We’ve built a world class team of proven brand, performance, food and beverage and commercialization experts all led by Senior Vice President and General Manager, Indy Adenaw. An industry veteran, he’s best-known for the rebirth of Sheraton Hotels and the creation of Moxy Hotels while at Marriott International.
We also have the tools to support owners in all aspects of their business goals that help them thrive no matter the economic or market condition. Choice has long operated at the intersection of hospitality, franchising and technology. Innovation is in our DNA. As the competitive environment, the economy, technology and consumer behavior constantly evolve, Choice sees around corners and continuously makes smart investments in technology to provide artificial intelligence (AI)-infused, reliable, intuitive, state-of-the-art revenue management, property management and other operations tools that franchisees use to efficiently run their businesses from the palm of their hands, from anywhere around the world.
Choice Hotels offers eight strong, differentiated upper upscale and upscale hotel brands that each fills specific consumer needs and has clearly delineated swim lanes. We back them up with support services that help owners make the right branding decision.
That includes:
• Conversion capabilities: Choice has long-running expertise in conversion hotels, making it seamless and quick for owners to convert to a Radisson Hotel, Radisson Individuals or Ascend Hotel Collection so that they can start bringing in revenue to their balance sheets.
• New construction: The market environment on the surface is not the greatest for new construction financing. However, smart developers are finalizing their deals and lining up their financing now, so that when the demand rebounds and interest rates come down, they are ready to welcome guests en masse and refinance to a more optimal interest rate as rates are expected to come down. And Radisson Blu and Cambria are two great brands with tremendous new-construction opportunities. We’re very proud of the new-construction Cambria Hotels that we’ve partnered with developers to build in great markets including Denver, Nashville, Austin, Detroit and beyond. The open Cambria Hotels are performing well. With a robust pipeline we expect to continue this aggressive growth trajectory in the top 50 RevPAR markets across the country and beyond.
• New brand identities: After we finalized the acquisition and integration of the Radisson Americas Hotels portfolio, our team spent a year reimagining the Radisson and Radisson Blu brand identities. The new-look hotel brands are sharp, and they lean into the extremely high brand recognition of Radisson. This offers developers a product that clearly stands out from the competition yet is right-sized to maximize revenue and profitability.
HIT: What trends are you seeing around financing and how is that impacting conversions and new construction?
Shalala: The sum total of the last couple years will be looked back on as one of the more challenging cycles in recent memory as it relates to financing. The overall inflationary environment which drove up the cost of everything including construction and renovations, coupled with persistently high interest rates, has made it difficult for developers to make deals pencil and/or secure debt for new construction, acquisitions and property improvements. The higher interest rate environment also made it difficult for owners to refinance their existing loans as their debt matures, creating distress.
Choice will use its balance sheet to grow its upscale and upper upscale brands.
Mark Shalala
HIT: What’s the outlook for the rest of 2024 and 2025?
Shalala: The good news is we think we’ve seen the worst of it. All leading indicators are pointing towards inflation normalizing and moving closer to the preferred 2% benchmark rate. This has opened the door for the Fed to start cutting rates this fall. This should drive overall deal volume, narrowing the gap between the bid/ask and allowing more transactions to happen.
HIT: What consumer trends is Choice seeing and how are they coming to life through the new, individual Radisson, Radisson Blu and Radisson brand identities?
Shalala: There are three core areas that we are focusing on: value, authentic experiences and immediate comfort:
• Value: Guests want to get what they pay for and don’t want to pay for things they won’t use. Our customers are willing to pay more for enhanced and upscale experiences including on-site, premium food & beverage offerings, well stocked marketplaces, fitness centers and more, but only if it’s something they’ll use. That’s why we’ve built in tremendous flexibility within our brands so that we can match consumer demand and trends with the right hotel and hotel amenities in the right market.
• Authentic experiences: Guests are seeking authentic, local experiences when they travel and are willing to pay more for this. This has driven the rapid expansion of unique food & beverage offerings and the soft brand segment where developers are able to deliver the type of experiences guests are looking for. Choice is already a pioneer and leader in the soft brand space with the introduction of Ascend Collection, the first and still largest soft brand in the industry. Now, we are enhancing our offering in the soft branding space with the launch of Radisson Individuals, which will be positioned above Ascend in the upper upscale segment. This will allow us to deliver more exciting and unique experiences to our guests in top leisure and business destinations.
• Immediate comfort: Guests want to be welcomed but not intimidated when they walk into a hotel. They don’t want to feel out of place, unsure of whom to tip or feel under or overdressed or not cool enough. Our upscale brands are stylish and memorable, offer a welcoming environment without the snobbery or stuffiness that can come with other upscale and upper upscale hotel offerings.
HIT: Do you see the upscale market holding the same appeal for investors outside the United States—for example, in Canada?
Shalala: Kris Crundwell, regional vice president development – Canada Radisson Brands, Cambria Hotels, and I are focused on growing our upscale brands in top markets across the country. We recently opened a Radisson Blu in Calgary and have a healthy pipeline for all Choice upscale brands including Radisson Blu, Radisson and Cambria projects in various stages of development.
HIT: Any last comments?
Shalala: We’re really proud of what we’ve accomplished in the upscale and upper upscale segments to date, but we believe we’ve only just scratched the surface. To take this to the next level, we have a defined strategy, established, well-known brands, an experienced, dedicated team and a commitment to deploy capital with the right developers who want to be on this journey with us. I couldn’t be more excited for the future.
Mary Scoviak is custom and design content director, Hotel Investment Today by Northstar.
The views and opinions expressed in this content do not necessarily reflect the opinions of Hotel Investment Today by Northstar or Northstar Travel Group and its affiliated companies.