Interstate Hotels & Resorts has announced a joint venture which will add nine hotels to its portfolio in Europe, taking it to more than 25 hotels open or in the pipeline in the region.
The deal brings focus on the separation between property, management and brand, and is notable for its economy segment focus.
The jv with TVHG Budget Group Beheer BV was signed through its subsidiary TVHG Budget Group Netherlands, trading under the name Dutch Hotel Partners, to invest in a portfolio of nine hotels located throughout the Netherlands.
Of the nine hotels, one was recently opened, the 112-room Holiday Inn Express Schiphol Airport in Amsterdam, and the remaining eight are expected to be open by the end of 2012. They will be converted from existing buildings to Holiday Inn, Holiday Inn Express or Hampton Inn brands. All of the hotels will be situated close to railway stations, airports or along main highways.
All nine hotels, comprising approximately 1,800 rooms, will be managed under long-term contracts with Interstate. Thomas F. Hewitt, Interstate's chairman and CEO, said: "This new alliance illustrates our commitment to aggressive growth in Europe. We have the infrastructure and an experienced management team in place to oversee our growing portfolio there."
Interstate, which is owned by a joint venture of Thayer Lodging, the US-based owner, and Jin Jiang Hotels, is not wholly a management company and has ownership interests in 56 of its 331 managed hotels and resorts, including six wholly-owned assets.
This latest deal, the financial terms of which were not revealed, marks Interstate's debut in the Netherlands and is in line with the group's current strategy, which is to expand while promoting third-party management in the sector. The company has accelerated its growth this year, adding more than 100 new hotels to its management portfolio, prior to the Dutch deal. Although the group's new partner specialises in the Netherlands, the jv is also hoping to expand further in Europe.
Last year Interstate launched what it described as the first independent hotel management company in China, Interstate China Hotels & Resorts, when it formed a jv partnership with Jin Jiang Hotels. It is thought likely that the local knowledge that it will pick up from TVHG will be fed back to the Chinese group and aid any future expansion, much as the owner will provide expertise on its home turf.
TVHG specialises in converting empty office buildings into hotels, which are then branded under international flags, the point at which Interstate, which sells itself as an independent management company, is able to come in and take advantage of its brand relationships.
For the budget market, where the jv is currently positioned, the conversion of empty office buildings is a frequently asked question. Each recession brings its own push towards taking over unused space in central locations, where the hope is that the returns will be better with beds than desks.
However, European commercial property markets now offer better value to investors than they did in the first quarter of the year, according to the latest European DTZ Fair Value Index, making conversion opportunities to hotels harder to find. Interstate will rely on TVHG's experience in the field to deliver sites.
The move is the first strategic act since Jim Abrahamson, InterContinental Hotels Group's former head of the Americas, joined the company as president and COO. He is due to take over from Hewitt as CEO and the deal indicates that, despite his previous role, he has an eye on Europe.
HA Perspective: The three pillars of value in the hotel business – property, management and brand – are becoming ever more distinct. We have already dubbed this split bricks, brawn and brain in homage to the original bricks and brains terminology.
What is perhaps most interesting in this deal is that it is in the economy segment. It opens up a new layer of potential for franchising as owners employ dedicated managers capable of looking after multiple properties.
Such a split already exists in Europe with companies like Kew Green being a prime example. But more seem set to come. Dirk Bakker of Colliers International who advised TVHG on the deal said he expects several announcements for new hotels in the course of the current year.