ALIS Executive Suite Q&A: Keith Pierce, EVP & President of Franchise & Development, Sonesta International Hotels Corporation

As part of the Americas Lodging Investment Summit’s Patron sponsorship program, ALIS organizers asked Sonesta’s Keith Pierce eight timely questions as we prepare for the 22^nd annual event January 23-25, 2023, at the JW Marriott/Ritz-Carlton Los Angeles L.A. LIVE. Following are his responses.

ALIS: How has inflation and the threat of a recession affected the U.S. hotel franchising and development segments?

 

PIERCE: Inflation drives cost – and as owners and operators as our raw costs increase you either have to pass those costs on to the consumer through an increased rate or adjust your service levels to attempt to maintain margin. During recessionary periods the consumer’s buying strength is negatively impacted, and when coupled with high inflation, the performance of the industry as a whole will be negatively impacted.

ALIS: Most forecasts show supply growth checking in at about 1% each year for the next two or three years. How do you see it playing out based on Sonesta’s pipeline?

 

PIERCE: Sonesta’s near-term new supply growth forecast is projected to be +5%, of which 80% of the new growth will come from conversion opportunities and the remainder will be new inventory introduced to the market.

 

ALIS: What’s the message to hotel owners, investors, and developers from the lending community in general as 2023 approaches?

 

PIERCE: We’re seeing continued pressure on interest rates from the traditional debt providers. Loan to Value ratios are beginning to normalize back to pre-pandemic levels. We have experienced an improvement in underwriting portfolio deals as well as extended stay investment opportunities.

ALIS: How have guest expectations evolved over the past year, and how do you expect them to change going forward?

 

PIERCE: During the pandemic, owners/operators/brands made material adjustments to operating models, for example shifting from daily housekeeping and heavy F&B initiatives. Post-pandemic these modifications have remained, and consumers have accepted them as a new normal they wouldn’t have considered reasonable previously. At Sonesta we’re exploring no-touch, light service, self-service and evaluating guest touch points within each brand to explore new ways to meet guest expatiations versus simply returning to what we’ve always done.  

ALIS: Based on your portfolio and what you’re seeing throughout the industry, what segments are performing best, and what segments will lead expansion efforts? Why?

 

PIERCE: The mid-level extended stay segment is absolutely the best performing for Sonesta – specifically Sonesta Simply Suites brand. The pandemic highlighted and heightened awareness of the resilience of this segment, and it continues to perform well. It’s no surprise that Sonesta Simply Suites has been met with a great deal of interest and enthusiasm in the franchise community. 

ALIS: How has Sonesta helped owners process through the labor crunch? Is it something that the industry will deal with going forward?

 

PIERCE: The best anyone can do in a labor crunch like we’re experiencing in the industry post-pandemic is to be thoughtful about brand standards as they are impacted by human capital constraints. At Sonesta, we’re owners and operators too, so we are living with those same challenges day in and day out. Our franchisees appreciate that as it leads us to be flexible in ways others may not think to be.

ALIS: What’s the most under-estimated challenge the hotel industry faces, and why?

 

PIERCE: The long-term impact of high inflation in a recessionary period is really concerning and a continued challenge to the industry. It typically leads to rate increases, which leads to consumer pushback and a spiral that is hard for hotel owners to see beyond the day-to-day. We need to take a page from history and look to stay the course with delivering an experience that the customer wants, knowing this too is cyclical and will pass, but consumers will remember.

ALIS: What’s the most under-estimated opportunity for the hotel industry, and why?

 

PIERCE: I think our opportunity is the same as the challenge – but with the right response, it leads to a different outcome. Don’t fold up your tent and go home, cutting all “unnecessary” expenses like marketing and outreach… instead be bold! Look for opportunities in times of distress. Sonesta has made a name for itself as the 8^th largest hotel company created during the pandemic. From our unprecedented management company growth to the creation of our franchise organization to the continued momentum we’re seeing in our “year one” as a joined-up company – Sonesta has really made the most out of a distressing time and come out on top.