Orange County Business Journal
06/13/16

Indies Rock
Hotel Owners Trade Big Brands for Local Focus
By Paul Hughes

http://www.ocbj.com/news/2016/jun/13/indies-rock/

A range of Orange County hotels are declaring independence, testing the potential and limits of a hot hotel market and foregoing the regular business a brand can bring…

…The brand-to-indie trend comes in cycles, with ebb and flow (see box, this page).

It’s flowing toward indie in today’s market.

Room rates have risen for two years—rates at Christensen’s property are up about 15% from last fall alone—and the Orange County Visitors Association in Irvine forecasts further revenue growth this year and in 2017.

A savvy consumer using technology to research and book stays adds to the growth market where hotels want to run free, said Alan Reay, president of Irvine-based broker and consultant Atlas Hotel Group.

“You don’t have to depend on the brand’s reputation anymore,” Reay said.

Hotel managers agreed.

“Why should we pay somebody money when they don’t have influence?” said Buena Park’s Christensen.

Reay said brands bring recognition, loyalty programs, buying power, and easier financing, but owners will weigh that against a loss of control and annual fees that run 8% to 11% of room revenue.

“You’re spending a lot of money here,” Reay said—and not just year-to-year.

Property improvement plans can add 20% to a hotel’s purchase price, and breaking a contract triggers “liquidated damages”—payments to a brand’s parent company to replace lost future income.

Reay said Irvine Co. Chairman Donald Bren was at “at the forefront” of OC hotels going indie.

Irvine Co. was able to leave management contracts early at two hotels in “amicable separations,” Grippo said.

“We were just establishing the resort group” as Island Hotel was emerging from the Four Seasons chain, he said, followed by a “focus on developing, building and launching Pelican Hill.”

The division then renovated Island Hotel, Grippo said, and moved on to turning the Hyatt into Hotel Irvine.

“We’re in no hurry,” he said. “We’re going to be here forever.”

He said the results over time have proven successful.

“We do better now than we’ve ever done at all three properties,” Grippo said. “We make more money.”