April 6, 2010
By Jeff Higley
 

REPORT FROM THE U.S. — Hilton Worldwide’s niche strategy of housing two brands under one roof has earned high marks in the development community and at the properties themselves.

There are about a half dozen projects along the eastern seaboard of the U.S. that have two brands from the Hilton family under one roof, and several others are in the works. One common denominator for all of the projects is that one of the brands involved is Homewood Suites.

The Homewood Suites extended-stay strategy is what attracts developers to the concept, said Bill Duncan, global head of Hilton Worldwide’s Homewood Suites and Home2Suites brands. It’s an all-suite product that lends itself to a shotgun-style layout if needed.

“Where the success is at is being able to seal the deal in extended-stay,” Duncan said.

And that is felt all the way to the property level.

“We got to build a better facility for both hotels than we have built for either if they were stand-alone hotels,” said T.J. Howard, director of operations for the Hilton Garden Inn Jacksonville (Florida) Downtown-Southbank. The hotel shares its space with a Homewood Suites.

Mason Mednick, executive VP of Milestone Hospitality, which owns and manages a Homewood Suites/Hampton Inn dualtel in Silver Spring, Maryland, said the extended-stay aspect of it isn’t mandatory for success, but it helps.

“It’s important that you have differentiated product types when you’re putting these types of projects together,” Mednick said. “We’re big fans of the extended-stay model, and we’re looking to develop those assets in a number of markets.”

The dualtel concept also lends itself to urban areas that have high barriers to entry.

“It’s best served in a high-barrier-to-entry market with a small, tight setting,” said Hank Fonde, president of Baymeadows Management Corporation, the Jacksonville-based owner of the complex that has done about 60 hotel deals during the past 25 years.

“It lends itself to stuff like that. It works well in urban areas, but you could do it in any market,” he said.

“It’s a very efficient model if barriers to entry are high, land is tough to come by and where you may not have the opportunity expand horizontally and have to go vertically,” Mednick  said.

The dual-branded property in Silver Spring is a converted 153,000-square-foot office building.

“That’s too large to house a Homewood Suites on its own in that market, and it’s too large to house a Hampton Inn on its own,” Mednick said. “We looked at combining a hotel with office, a hotel with residential and hotel with a hotel.”

Meeting expectations

The Silver Spring property, which has 239 guestrooms, opened in January 2009. Mednick said it has met expectations, even as the hotel industry’s economic freefall was going full speed.

“The operating model certainly is what we expected—it’s extremely efficient,” Mednick said. “It’s a great model for urban development.

“Before we can get rate going, (we) have to get occupancy up,” Duncan said. “Primarily it’s an occupancy play that brings operational efficiency.”

Fonde’s company previously owned a 118-room Hampton Inn in downtown Jacksonville and wanted to get back into the market once it sold that property.

“We knew there was plenty of transient demand, and we knew there was no extended-stay product down there,” said Fonde, whose company has five hotels in its portfolio. “Extended-stay is usually our first choice (when it comes to developing).

“We kept trying to decide which one we would do, then one day it dawned on us to do both,” he said. “Our site was so small it wouldn’t allow separate products.”

The site is owned by the Jacksonville Transit Authority, which has plans to build an adjacent shopping area.

Cost savings

The Jacksonville complex’s 221 guestrooms gives it enough scale to support separate sales teams, but many leadership functions are combined with one person.

There’s one executive housekeeper, one chief engineer, one director of sales and one sales manager devoted to each property.

“We’re probably looking at 40 (percent) to 45 percent savings in those areas,” Howard said.

“From a construction standpoint, we probably saved between 20 (percent) and 30 percent on those shared items,” Fonde said.

There are labor savings, Fonde said, but it’s too early to calculate exactly how much because the properties have yet to hit their full strides.Both hotels are green-certified by Florida.

“It was built with simplicity and efficiency in mind,” Howard said, noting the engineering office is located directly above the laundry area.

“The designers put a lot in a small footprint building-wise, but they put it in the right places.”

Milestone owns a 260-room full-service Hilton hotel across the street from the Silver Spring dualtel, and the dual-branded facility ties in nicely with that property, Mednick said.

The result is a streamlined sales and marketing team, engineering department and back office staff, he said.

“At the same time, we’re able to devote more resources to putting bodies in front of the guest and delivering guest expectations,” Mednick said.

Construction costs, zoning efforts, permitting, sharing commercial services and speed to market are advantages of putting two brands under one roof, Duncan said.