Dedicated hotel management companies are looking forward to an uplift in business, as they grapple with operational changes at re-opening hotels.
A move to more third-party operation is another market trend that is set to accelerate post-covid, as owners and investors look to find improved returns. Individual hotels, and whole portfolios are up for grabs in the process.
One recent major appointment has seen Bespoke Hotels take over the former Shearings hotel portfolio, giving it an additional 40 hotels to manage. The properties, which closed in March and then saw their operating group Specialist Leisure Group go into administration in May, will see a gradual reopening over the coming months. Bespoke will brand the hotels, under a five-year management agreement.
Specialist Leisure Group, as Shearings had been rebranded, operated 44 hotels under the Bay, Coast & Country and Country Living brands, alongside the Shearings coach tour business which fed a good portion of hotel guests. The opco entering administration had ownership interests in just two properties – a freehold and a leasehold – which are being marketed by agents. It is the separately held assets of the propco that Bespoke will take on.
“We’ve had portfolio workouts in the past,” Bespoke CEO Haydn Fentum told Hotel Analyst, “but the owners have been quite clear that they have a medium-term commitment.”
With the Shearings brand having been sold separately, Bespoke will brand the properties, and run them alongside their existing portfolio that also includes some similarly positioned country hotels, notably in Scotland. Until lockdown, around 85% of guests at some of the SLG hotels were delivered via Shearings coach holidays, while around 30% of Shearings coach travellers stayed in group hotels. “We’re in a fairly reasonable position, as we had a good relationship with the coach operators.”
Fentum described the current market “as very much a game of two halves. Leisure destinations are doing well, business hotels are proving to be difficult.” He said Bespoke’s hotel in Chester has been performing above expectations, while its Hotel Gotham in Manchester has been very busy, with recent occupancy peaking at close to 90% as a strong repeat clientele return.
“As operators, we provide a management solution,” said Fentum, expecting further interest from owners in due course. “I think next March to April will be when the wave breaks.”
Nick Northam, executive vice president international at Interstate Hotels & Resorts told Hotel Analyst: “I don’t know that our pipeline has ever been stronger – we’re seeing a lot of inquiries.”
He said there were two main sources of potential additions to the portfolio Interstate manages in the UK. “Administrators are gearing themselves up for what they think will happen later in the year,” with an expected wave of further distressed hotel assets coming their way. “And we’ve had owners saying they really want to look at the third-party model.” In addition, Interstate is also continuing to pick a number of new build hotels to manage from the outset.
A key attraction for owners, said Northam, is that Interstate can replace fixed overheads with a flexible model that ensures they are “completely incentivised”. He said: “Our fees are based on a percentage of revenue, and of profit – so if you’re an owner, it’s a variable cost depending on how your hotel is performing.”
“We’re tremendously excited,” said Frank Croston of Hamilton Hotel Partners, the combined asset manager and hotel operator who completed a merger with US partner Pyramid, ahead of the Covid closedown. He sees opportunities to take on additional inventory, but added: “I still think the real opportunities will come in the early part of 2021.” As subsidies, payment holidays and debt roll-ups unwind across European markets, “you’ll see clear winners and losers.”
Croston is also expecting some degree of consolidation in the whilte label marketplace: “I fear that some of the third-party management companies may be undercapitalised. We hope to have a white knight opportunity.”
HA Perspective [by Andrew Sangster]: The rise and rise of third-party operators is giving options to owners that have not existed in the market in previous recessions. While administrators have run large portfolios before – the joke during the early 1990s was that Deloitte was the UK’s biggest hotelier – the current situation is new.
There are today large, specialist firms aligning themselves with the interests of owners to grow businesses rather than act as short-term caretakers until buyers are found. While it is true that many of today’s third-party managers have their origins as managers of distressed assets for banks, their current positioning is more strategic and longer-term.
This gives options not just to owners but also to the debt providers of these owners. If the banks hold their nerve – and it appears they have the will and desire to do so – then the rash of distressed sales being anticipated by private equity opportunity are unlikely to happen. The fabled “dry powder” being held in reserve for bargain buying might never get used on the battlefield.