The partner principle: Examining the value of branding

Editor’s note: This roundtable about the impact of branding in the Caribbean and Latin America was sponsored by Hilton. Hilton participated in the curation of participants but had no influence on the final editorial content.

MIAMI – Before Covid, hotel brands had a relatively hard time getting a hearing from Caribbean and Latin American hotel owners and developers. Now, their flags are flying over a fast-growing list of properties ranging from newbuild luxury resorts paired with branded residences to chic, unique lifestyle hotels and newly renovated, family-friendly escapes.

Hotel Investment Today brought together a private round table of eight regional thought leaders representing key sectors across the hospitality investment industry to discuss the “whys” behind this paradigm shift and assess how it will impact future trends.

Speaking from their individual perspectives as investors, advisors, brands and financing decision-makers, they delved into the “how” of what owners and developers need to do to capitalize on the build-out of brands’ systems and support services – whether that means rethinking a revenue-maximizing lobby redesign or lobbying local officials for improved infrastructure.

They also talked practical strategies for making the right brand choice based on the owner’s or developer’s goals, how to work smarter once the flag is in place and what questions need to be answered to maximize the ROI for the brand investment.

Offering their insights were: Katherine Button, vice president, asset management & investments, Mullen Real Estate Capital; Isabel de Caires, director of investment banking, CIBC FirstCaribbean; Daniel Campos Lara, general director and partner, Caribe Hospitality; Neil Freeman, chairman and CEO, Aires Capital; Fernando Garcia-Chacon, executive vice president, CBRE Hotels; Carolina Lacerda, senior manager & practice leader for Latin America, EY; Pablo Maturana, vice president development, Latin America and Caribbean, Hilton and Ken Shannon, vice president, architecture & design, Playa Hotels and Resorts.

How Covid changed the branding decision

Lacerda pointed out that, before the pandemic, “There were a lot of owners deciding in-house what they were going to do and basically doing their own feasibility work and making their own decisions.” But post-Covid, “They were looking to advisors to make sure they had a plan to prevent everything that went wrong during the pandemic. They were also talking to the brands to get the strength of that distribution behind them in case of another adverse event or a major downturn. Owners came to see the comfort and trust the brands provided to guests and that guests preferred to stay in branded hotels because that brand symbolized a safe environment.”

But she cautioned that owners need to make sure the choice of brands aligns with their individual goals and that “the math still works given the brand fees. At the end of the day, everyone needs to make money.”

Here are her top questions for determining which brand will be the best fit.

Resilience, recovery and risk mitigation

Covid not only stress-tested the brand model, it also proved its resilience, said Maturana. “There was proof of the brand value when it comes to the recovery, when it comes to how you drive business into the hotel and when it comes to avoiding the reliance on one source of business versus a more diversified base. A lot changed in terms of owners’ perception of brand value. That’s even carrying over into the lending side.”

De Caires confirmed that. “COVID really was such a challenging time, but to your point, it really proved the resiliency of the industry. Banks, brands and clients all had to make what were, for the most part, very pragmatic decisions. We worked with seven regulators at the time to provide moratoriums, in some instances, up to 18 months of principal and interest so that operators and owners could focus on operating their hotels, not on the financing side.”

She predicted continued emphasis on that level of alignment at a time when she predicted underwriting will continue to be done on a relatively conservative basis to adjust to and compensate for what is still in uncertain environment. “The process will have to be very collaborative,” she said. “We’re talking more and more to the brands to understand how they're driving value for our clients because it also helps benefit our underwriting process.”

According to Freeman, the stabilizing effects are getting hotels with familiar flags to the top of the list for consumers traveling in the Caribbean and Latin America as well as the region’s owners and lenders.

“Hotels by definition are very volatile, and more volatile than other real estate because you're changing your rates every day. In the Caribbean, it's even more volatile because of climate issues, airlift issues and factors like that,” he said. “For lenders, the brand is a comforting factor; it means less risk. We've had a lot of success both in financing and owning hotels with major brands. Certainly, there are situations in which an independent can do well and maybe get higher ADR than branded hotels in the segment because they’re on the right beach or in a unique building. But in most cases, with the right brand, you're going to get better performance. If you don't have the brand backing, yes, you save some marketing money, but you're going to have to create that all yourself, and that can be more expensive and more difficult.”

Lower cost of customer acquisition, broader reach

One brand advantage that can’t be DIY is distribution. As Button pointed out, it’s not just the reach to their global loyalty program members that makes brands' distribution a key to hotel performance and a critical factor in the lending decision, it’s also the ability of those programs to drive more direct bookings which lowers the cost of the booking. Another plus is the typical rate boost among loyalty program members.

Building top- and bottom-line revenue

The value of brands goes beyond getting more guests in the door. It’s also lies in helping owners optimize both top- and bottom-line revenues through identifying incremental revenue drivers and spotting cost inefficiencies, said Maturana.

However, Garcia-Chacon cautioned that owners can’t put out a flag and expect the hotel to post steady profits. Not only do owners have to work closely with the brand, they have to take equal care in selecting the right operator.

Flexible, owner-centric support

A key factor in brands’ increased presence in the region is the evolving flexibility in terms of understanding customized concerns from the owner’s fiscal capacity to respond to PIPs by a given deadline to local regulations on fire and life safety, said Shannon.

What lies ahead

Campos Lara forecasted the possibility for some out-of-the-box changes for brands.

“What won’t change is that brands need to continue to create really personal relationships with owners. They want someone who will support them through the term of the agreement.