RAJEEV SAXENA IS not trained in hotel management, but he and his business partner, Suresh Patel, for several years made a successful go of their La Quinta Inn & Suites in Dublin, Georgia.
Two years ago, they sold that property and looked for a new project. Saxena wanted to bring a Marriott-branded hotel to his hometown.
A lawyer by trade, Saxena called Marriott International and spoke to Tim Sponsler, a vice president of lodging development for Marriott’s east region. Sponsler said the men did not have enough management experience to qualify for a Marriott franchise.
Rather than dismiss their dream, Sponsler introduced them to Hotel Equities, an Atlanta-based third-party management company.
A couple of weeks later, Joe Reardon, senior vice president of marketing and business development at Hotel Equities, came to Dublin to meet the Marriott-franchise wannabees. He toured Dublin and visited Saxena’s other ventures, including an assisted living home for senior citizens.
In March, Saxena and Patel opened their $8 million, 75-unit Fairfield Inn by Marriott in Dublin. The hotel’s other investors include brothers Dinesh and Minesh Patel, both physicians.
Saxena and Suresh Patel are in the next phase of their hotel investment journey as they prepare to build a Holiday Inn next door. They also have other plans with Hotel Equities, which helped them launch a fund to raise capital to develop five more Marriott-branded properties in central Georgia.
Hotel Equities, founded 30 years ago by Fred Cerrone, has recently expanded its mission to go beyond basic property management and help small ventures grow into larger, sustainable businesses.
Hotel Equities’ own growth is fueled by Asian American hoteliers’ voracious appetite in investing and developing hotels. Of the 110 hotels in its management portfolio, approximately 60 percent are Asian American owned.
Bringing in an outside company to manage a hotel is a relatively new phenomenon for the Asian American hotelier community. The entrepreneurial spirit has long stoked the do-it-yourself attitude of first-generation of owners. They did it all – ran the front desk, paid the bills, cleaned the rooms, fixed the plumbing, and on and on.
But it’s a new era. “The industry has gotten so complicated. There are so many facets to operating a hotel,” said Nina Chudasama, a managing partner at Kriya Hotels in Irving, Texas.
“It’s gotten to the point where Asian Americans who have made money outside the hospitality industry are wanting to invest in hotels without having to spend their time running them,” said Raj Chudasama, Nina’s husband and business partner. “They are looking for an ownership partnership.”
Kriya Hotels manages seven of the 13 hotels in its portfolio for other owners. The company has an ownership stake – anywhere from 15 percent to 60 percent – in each of the remaining six.
Some of Kriya’s clients own other hotels but need help in managing one or two assets. “The owners who used to have one or two hotels now have three to five,” Raj said. “Now they need to make a decision. They may not want to grow beyond this point, but they either need to create a management platform of their own or they need to bring in a third party.”
In some cases, older-generation owners do not want to be involved in the day-to-day operations any longer, said Raj. In other situations, the next generation wants to grow the business, so they need a partner. Or they want to focus on one aspect of the industry, either development, construction or technology and leave the rest to a management company.
“Business in general has changed because of the way we consume goods and services,” Raj said. “The industry is more segmented. You can add whatever you need – a consultant, a manager, a trainer.” Kriya has been hired simply to train a new hotel staff on the finer points in management. Those contracts are short term, about a year, Raj said. “That’s where a lot of people are finding value in third-party managers.”
Kriya’s third-party management division grew organically through referrals from owners as well as brands, said Nina.
While Marriott and Hilton require franchisees to have dedicated management departments or bring in third-party contractors, other brands are following suit, said Raj. “Choice requires it for their Comfort brand and La Quinta Inns & Suites has begun to do the same.”
As with Raj Saxena, it’s a dream of many Asian hoteliers to add a premium-branded hotel to their family business portfolio.
Hotel Equities is the only management company that has partnered with Marriott’s owners coaching program. “Not every hotelier will be approved for a premium brand,” Reardon said. “Marriott allows us to work with them specifically to train the owner. Meanwhile, we will parallel run the asset for the hotelier because they are not ready to do it.”
Prakash Ahuja of OM Hospitality in Katy, Texas, began developing his 134-room Four Points by Sheraton in 2014. He was already an accomplished hotelier who had acquired and managed two hotels on his own. But Ahuja looked for a third-party manager to help him with the new-construction project. He searched among his fellow Asian American hoteliers but came up wanting. He plodded along on his own, but a turn of events forced him to relaunch his search.
“We started construction when oil was at an all-time high,” Ahuja said. “Early indicators said we would be doing an awesome business.” A year later, the oil industry’s boom was spiraling toward a bust.
Ahuja knew the worst was yet to come but he could not stop construction. He was washed with worry about how to get the job completed and how to make money when the hotel opened. A fellow Asian hotelier advised him to contact Hotel Equities. OM Hospitality and the management company signed a deal in December 2015. “Hotel Equities helped me get the construction finished. But by the time we opened in October 2016, the oil market had tanked,” Ahuja said. “It was a very tough market to open in.”
Still, the management team Hotel Equities put in place did not back down from the challenge. They put their sales and marketing and revenue management expertise to work and kept the business going. The hotel met budget its first year, and the impact of Hurricane Harvey last summer boosted the hotel’s business.
“We see the oil market beginning to turn,” Ahuja said. “Our RevPAR index is over 100, and we rank second in quality among all Four Points hotels in the U.S. and fifth in the world.”
Like most Asian American hoteliers, Ahuja’s passion is making deals and developing the hotels. Managing the day-to-day is not his forte, he discovered. “Hotel Equities frees me up to do development work,” he said.
During his search for a third-party manager, Ahuja said he interviewed at least half a dozen firms, many of them Asian American owned. “I like Hotel Equities’ approach to business. These are the guys I want as my long-term partners.”
Hotel Equities also helped Ahuja land a licensing contract for a Fairfield Inn. Although he had easily acquired the land, Prakash said, “I would not have gotten that flag by myself.” He will build the Fairfield after he opens a Staybridge Suites, an extended-stay brand by InterContinental Hotels Group.
“I just started construction on the Staybridge Suites. I will be bringing Hotel Equities on board to help with that.”
That’s as it should be, said Reardon.
When it comes to hotel construction, Hotel Equities gets involved early. Its rule of thumb is to be at work on a project with an owner at least eight months before opening deadline. “There is a lot to building a hotel and we need to be engaged early or it’s not the right kind of deal for us,” Reardon said.
Many owners of small companies are quickly overwhelmed by the construction process, Reardon said. “They don’t fully understand the construction side of it, and it causes so many delays.
“We get heavily involved in the pre-construction phase. We are a strong management company that understands construction and what the brand is really requiring. Many owners use architects who aren’t fully approved by the brand and their drawings do not match the construction plans. The pre-construction side of it is so important to us we have brought in a vice president of construction facilities.”
“It’s critically important to have a partner that you work with from beginning,” said Quinn Palomino, a principal with Virtua Partners, a private equity firm, and its affiliate, Quyp Hospitality in Austin, Texas. Palomino first hired Hotel Equities in March 2017 to oversee the construction of a SpringHill Suites and a Fairfield Inn in metro-Phoenix, Arizona.
“I would not have it any other way,” she said. “The hotel industry was so fragmented in the past. You would build and find out later the market was over-built or you built the wrong hotel. I want the expertise to identify those things before I even select a brand. The hotel must suit the business drivers and the needs of the market. You have to find the most accretive financing possible and make sure it pencils out. And you have to have the right management company. It’s important that all of those things align.”
Palomino co-owns the SpringHill Suites Houston Medical Center. Quyp Hospitality acquired the hotel on Aug. 25, the day before Hurricane Harvey hit. Palomino saw first-hand Hotel Equities’ culture play out. “They really do care about the people who staff their hotels. It shows in their work and in how they treat the people who walk through your doors. It highlighted the importance of having the right management team.”
The hotel will undergo a $5.8 million renovation. Hotel Equities will oversee the project and it will work with Palomino’s company on developing three other hotels on the West Coast. “Hotel Equities operates very efficiently,” she said.
The goal is to get a hotel built, opened and generating revenue as quickly as possible and get a foothold over the competition. It’s the fundamental stratagem of most hotel investors, especially owners of branded select-service properties.
The Hotel Equities team, headed by Brad Rahinsky, CEO and president, has learned significant lessons through developing hotels with Cerrone’s Hotel Development Partners as well as becoming equity partners in other hotels.
“What we offer has changed immensely over the past four or five years,” said Reardon. “We are not just a third-party management company. We are part owners in 16 hotels. We develop hotels. We have more than 30 years of brand relations and relationships with general contractors and subcontractors. We do everything we can to get a project done.”
The company has in development more than 30 hotels, select- and full-service projects and mostly upper midscale and upscale Hilton and Marriott brands but also a few IHG flags and top-tier brands with Wyndham, such as Tryp and Wyndham Garden.
Hotel Equities also is a consultant of sorts. Its team invites owners to think beyond getting one hotel built and opened. “We ask owners in the beginning, ‘Share your strategy, your vision. Not only with this asset, but where do you want to take your company?’” said Reardon. “We want to help owners grow their portfolios.”
Months before a hotel opens, Hotel Equities has its team in place, managing costs and pre-selling rooms. To ramp up business as quickly as possible, a new hotel must have a certain amount of business on the books.
Quite often, enlisting a third-party manager is a hard sell to traditional owners. “So many owners look at a third-party management company as a cost. But it’s not a cost, it’s a real value in how much we bring to their ROI,” Reardon said.
Some owners in the Asian American community have gotten burned by a management company, said Reardon. “That makes it a tough sell for us. We come in and say, ‘We are sorry that happened to you, but we are not that company.’”
Like Kriya Hotels, Hotel Equities will train owners and their staff on the finer points of managing a property. But there are some things it just won’t do. In one case, the owner wanted to also be the general manager. “That’s an absolute recipe for disaster,” said Reardon.
In other cases, the patriarch of the family business wants to micro-manage the staff. “There are occasions where after we take over the management, Pops still wants to come in and tell the housekeepers their shift is over. You can’t have two bosses.”
To gain the trust of Asian American owners, Hotel Equities had to re-examine the way it did business. “We took over the management of several assets for one company last fall, but the owner continued to call me and sales and management every day. Shame on us for letting that happen,” said Reardon.
“The one thing we had to work on was communication. Rather than allow owners to come onto the property and discuss the business in front of the associates, we had to devise a strategy that included transparent and proper communication.
“We rolled it out and said, ‘Here is the information you will get daily, weekly, quarterly and so on. If you want to see anything different tell us now.’” The changes “are making a world of difference” at those once-micro-managed hotels, Reardon said.
Reardon said a good third-party manager leads by the hotel’s data. “It’s all about results.”
Saxena said he likes coming to the Fairfield Inn in Dublin to greet the staff but he spends most of his work day in the meeting room. “I don’t ask them about the business or anything like that. I don’t have to.”