With its new brand identity, a bigger focus on the upscale segment, and a fresh crop of developers looking to build product, Choice Hotels has a lot of momentum behind it. David Pepper, chief development officer, recently sat down with LODGING to discuss the growth of Choice’s brands, the strength of secondary and tertiary markets, opportunities in Europe, and more.
How is expansion of the Cambria brand going? The momentum behind Cambria right now is at an all-time high. I could not be happier and having more fun with that brand. We announced a couple of openings, in Chelsea (New York City) and Rockville (Md.), which is right by our headquarters. White Plains, D.C., and Plano are performing well, we broke ground in LAX, and Time Square is opening soon. And Downtown Miami Brickell, New Orleans, Nashville, and Philadelphia are breaking ground shortly.
We relaunched the brand a year ago as Cambria Hotel and Suites, so it’s no longer just pure suites. That really opened up a lot of these urban locations. We’re doing a couple office retrofits, and it’s also opened us up to allow some conversions. We’re going to do our first conversion in Chicago, where we’re partnering with Fillmore Capital to convert the MileNorth Hotel into a Cambria. In downtown L.A. and Chicago, we’re looking at existing office buildings to convert to Cambrias. So it’s really opened up a lot more opportunities for us as well, because it allows us to get into some markets more quickly than your ground-up opportunity.
Why type of developer is Cambria attracting? The brand has a lot of momentum behind it. Now we have this new type of developer coming to Choice—all these institutional-type owners. They want to do programmatic development, and they know Cambria is a great opportunity for them because we have a clean slate. There are only 24 open, and there is already a Courtyard or Hilton Garden Inn in every one of these markets they want to go into. We come to them saying, here are the top 50 RevPAR markets in the country, we’re here to help you by using our balance sheet, and we can also show you what type of demand we have in these markets. With 5,300 hotels across the country, we have a lot of eyeballs going on ChoiceHotels.com looking for urban locations, and we just don’t have any product. Because who is going to build a midscale product with the land and development costs in those locations? So between high RevPAR markets showing our demand and using our balance sheet, and all these institutional developers looking to build product, it’s like a perfect match for us right now.
Speaking of upscale, how is Ascend doing? Ascend is this hidden treasure. We have 150 already open, and we’ve proven we can fill those hotels. It was a distribution play for these boutique hotels in urban locations, where we’re filling them with demand but we’re also filling them at the rate people were expecting. So it really proved our thesis that we have pent-up demand for these urban locations.
What does the success of the upscale segment mean for Choice as a whole? Because of the success with upscale, we’re bringing more business travelers to the company. We’re going into markets like White Plains, where MasterCard is next door, and in Plano, Frito-Lay and Pepsi are there. Business travelers are now staying at a Cambria hotel, and it’s also their first experience with Choice Hotels. So it’s driving more midweek and business customers to all of our brands.
And Comfort is still on a roll? As we move more to the upscale and we bring in more business customers, Comfort has always been a super upper midscale brand. We have really reinvigorated the brand over the last two years. You’re starting to see hotels with the new prototype open, and the ADRs, performance, and guest satisfaction are at all-time highs. We’ve also removed a lot Comforts from the system, so a lot of these are going back and replacing older Comforts with the new prototype. ADRs and occupancies are all increasing, we’re gaining share from our competitors. It really ties in nicely with what we’re doing with the upscale—providing a really great experience for a lot more business customers. We’re always strong with leisure, and we’ve always been a dominant player on the weekends. And what we’re seeing now are the increases of that mid-week travel.
Are you being careful not to lose midmarket customers? You’ve seen everyone—Hampton, Holiday Inn Express, Comfort—all move up into that $110 ADR range, and where does that $85 traveler go? Sleep Inn has really filled that gap. We redesigned the interiors with the Design to Dream package, and it’s a great product people are out there building. We’ve got construction costs down enough where you can make a nice return on investment in this $85 to $90 ADR range. It’s doubly increased because now we’re doing a dual brand with Sleep Inn and MainStay. Dual brand is mostly in the upscale business, but no one is doing it in that midscale space, so that’s where Sleep/Mainstay has caught a lot of interest from developers. You can go into a lot more locations, in these secondary and tertiary markets.
Is Choice still looking to grow in Europe? Europe is a major focus for the company, more so than Asia. The reason why is, new construction is difficult in Europe. The best locations were taken 500 years ago. It’s a really good conversion opportunity for us, and franchising and branding is really starting to take off in Europe. Their economies have struggled as compared to ours and people are looking for help. Choice has brands that will allow them to convert their hotels. So there’s a huge opportunity, and we’re putting our balance sheet to use there as well. You’re going to see some major announcements from our company shortly about the great things we’re working on over there.
