IHG’s Newest Product: The Strength of the Midscale

4 min read

After a long wait, Intercontinental Hotels Group (IHG) has finally revealed their new brand, Avid. This is an incredibly important move because it targets one of the most successful chain scales in the hospitality industry – the midscale transient travel brand. According to Intercontinental Hotel Group (IHG), the worldwide hotel company wanted to provide an excellent option for midscale travelers:

With the extended-stay Candlewood Suites as the only midscale brand in the company’s portfolio, IHG was not addressing the needs of an estimated 14 million travelers who could spend about $20 billion in roomnight revenue. – Elie Maalouf, CEO of the Americas, IHG

Did you catch that? 14 million travelers who could spend about $20 billion in room night revenue. The midscale market is extremely critical to the success of hotel companies seeking to expand their portfolio, and understanding that midscale market is incredibly important to hotel investors looking to make a smart investment move.

The new Avid product by IHG. Source: IHG

Why is the midscale market so foundational?

As mentioned in one of our vlogs, there are different types of chain scales that target different demographics of travelers.

The type of amenities and price point of a luxury hotel like the Ritz-Carlton is vastly different from the available amenities and price point of an economy property like a Red Roof Inn. At your Ritz-Carlton, you’ll have a pool and a hot tub (maybe several of each). Expectations include 24/7 concierge service, a spa, and at least one in-house restaurant. In lower chain scales, you’ll find just the basics: free wi-fi, a clean room, and maybe free breakfast. The price of a room sometimes can also reflect the amenities that it offers.

RevPAR Change - Hotel Investments

Midscale scale hotels have been on the rise faster than most other chain scales, while establishing higher long-term value than economy scale products.  Source: HVS

Here’s where midscale products come into play. Midscale hotels offer a happy medium between both ends of the hotel chain scale range. Midscale hotel assets are more resistant to declines in the national economy and downturns in the hotel cycle. When people are short on money, often the first things to go are the luxury items, or the “wants”. A family faced with a tighter budget may opt out of the Ritz Carlton, and will look to more affordable products, including midscale hotel products. On the other end, midscale hotels also offer a solid standard of quality higher than their economy hotel counterparts, and travelers (especially small business travelers) will definitely pay for that nicer midscale room as opposed to an economy room if they can afford it. This ability for midscale hotel products to do well in both thriving markets and struggling ones makes them a sturdy investment that is more resistant to fluctuations in the economy.

In addition, midscale hotels are often popular with business and corporate travelers, who make up the majority of hospitality revenue annually. Midscale products like IHG’s Avid provide the quality that many small businesses are accustomed to during business operations: wi-fi access, free breakfast, and plenty of conference and meeting space where they can meet clients and business partners.

As we’ve mentioned before, hotel investment options should always be carefully analyzed to make sure that it is an ideal investment for the market. Depending on the location, economic setting, and other market characteristics, it might be a strong option to invest in an upscale or even luxury hotel. In other markets, investing in an economy brand could be the best option. In Schaumburg, EquityRoots decided on a dual-brand model, one that combines the midscale market strength of a Holiday Inn Express combined with an amenity packed full-service Holiday Inn product with an in-house restaurant and bar component. For Schaumburg’s market, this strategy offered a strong amenity for surrounding businesses that demanded additional midscale market options.

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IHG’s launch of Avid makes this a good brand option for developers looking to offer a more consistent lodging product in markets where economy or independent properties are prevalent or in markets where Holiday Inn, Holiday Inn Express, and Staybridge products already exist and are running annual occupancy levels above 80%.  Prematurely investing in new brands before more established brands have recorded solid performance can be dangerous.  Another confusing part can be what to do if you build a new construction Avid in a market that already has older more established brands with lower cost basis.  It will be hard to sell rooms for a higher price, even if your property truly costs more to build than older properties, therefore I think it’s important to note that it is most advantageous to develop Avid only if you own the other IHG flags in the market.  Some brands like Hilton have already discovered this fact, and have created a priority method to develop newer flags like Home 2 and Tru, giving preference to the existing Hampton Inn franchisee in the market.

Sources:

Fox, Jena Tesse. “IHG launches new Avid brand to attract midscale travelers, developers.” Sep 18, 2017. Hotel Management.

“What’s driving customer loyalty for today’s hotel brands?” Consumer Intelligence Series. PwC.

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In the Hotel Industry, Brands Matter. Here’s Why!

3 min read

In the Hotel Industry, Brands Matter. Here’s Why!

Imagine the following scenario. You’ve been asked to travel out of town for a professional conference. The conference is being held in a convention center, and nearby there is a trio of nice, high-quality hotels—a Hyatt, a Marriott, and a Hilton. Your boss asks you which one you’d rather stay at; the choice, she says, is totally up to you.

If you’ve never traveled much before, you may express little preference. But assuming that you’re a seasoned vacationer, or that your work sends you to a lot of far-flung destinations, you probably know exactly which of these three hotels you want to be put up in. They may all be equal in their amenities, in their quality, even in their proximity to the convention center—but you have your brand, and you’re loyal to it.

Hotel Guests are Loyal to Their Brands

Such brand loyalty is by no means uncommon among tourists and travelers—the people who make up the hotel industry’s basic client base. Many regular travelers have brands that they stick to whenever they can, whether traveling within the country or even internationally. Hilton people tend to remain Hilton people; Hyatt people pick Hyatt hotels whenever they have a chance. And so on. In fact, many regular travelers would prove all too willing to drive an extra couple of miles to their convention center just to get the hotel of their choice.

A big part of this is consistency. People take comfort in knowing that all Hyatts are essentially the same, in much the same way that a Big Mac tastes the same at any McDonald’s in the country. Not only is there a basic level of quality that’s always going to be met, but you know whether or not there’s going to be free Wi-Fi; whether or not there will be a breakfast service; you even know what kinds of bedding to expect. For people who travel frequently, these little comforts are no small thing. They ensure an experience that is dependably posh and surprise-free.

Additionally, hotel owners actively foster this level of brand commitment. These days, most major hotel chains offer customer loyalty rewards, meaning discount points for those who consistently pick the same hotel brand. So not only do regular guests get a consistent and surprise-free experience, but the hotel chain actively makes it worth their while.

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Brands Matter for Investors, Too

All of this underscores an important point for the investor—that while no real estate investment can ever be fully guaranteed, a hotel that’s well-managed, situated in a vibrant market, and affixed to a recognizable brand certainly comes with some advantages and a greater chance of success.

Just take Marriott as an example: This is a company that has done so much to ensure a consistent guest experience and has built such an effective loyalty program, that investing in a new Marriott hotel is effectively investing in a business with a ready-made, built-in market.

All of this goes to show that, when considering a hotel investment, brand matters. And that’s one of the things that allows EquityRoots to stand out. We understand the role that brand plays in consumer behavior, and we can provide access to some of the best hotel brands in the world. This includes even the Big Three-Hilton, Marriot, and IHG—which are only attainable to the most seasoned and successful of hoteliers. (Even those with plenty of money and a few years of hotel experience are by no guaranteed a place at the Big Four table.)

Hotel guests don’t ignore brand affiliations—and hotel investors shouldn’t, either. Contact us today to learn more.

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Intrastate Crowdfunding, a Game-Changer?

Intrastate Crowdfunding, a Game-Changer?

The state of Illinois recently proposed a bill for intrastate crowdfunding. The intrastate crowdfunding law proposes the ability for unaccredited investors to participate in offerings that have a physical presence in the same jurisdiction where all investors are domiciled. For example, the intrastate crowdfunding law would allow all non-accredited investors that live or reside in Illinois to invest into a hotel crowdfunding project that is also located in Illinois.

So what’s the catch? All investors must be from Illinois. Not a single investor can reside out of state. Albeit, limitations in place— intrastate crowdfunding might be a solution for non-accredited investors that are often denied from investing into businesses. Despite being financially savvy and stable, many non-accredited investors are often prevented from investing under 506(c) public offerings. Many States are tired of waiting on the Federal Government and the SEC to finalize rules that would allow more unaccredited investors to participate, hence States have independently taken action into their own hands with State sponsored legislation.

House Bill 3429, regarding intrastate crowdfunding, in Illinois was well received by local business owners and entrepreneurs. The bill balances the needs of investors with the needs of businesses looking to raise capital. If and when the intrastate crowdfunding law becomes effective, EquityRoots.com will be on the verge of being able to allow non-accredited investors to participate in intrastate offerings. Equity crowdfunding could possibly be a workable source of capital and game-changer for Illinois small businesses and entrepreneurs. Check out the article published at crowdfundinsider.com for more information on the proposed bills regarding intrastate crowdfunding.

 

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Recent Hotel Construction Spike

Equityroots, Equityroots Inc., Blog, Recent Hotel Construction Spike

Building new-construction real estate has traditionally been viewed as a risky endeavor. Lenders reflect this opinion with higher equity thresholds and more expensive interest rates. However, the recent trend in new commercial development gives us the evidence to rebut this opinion. There are investors and developers who strongly believe the rewards of developing new-construction hotels right now outweigh the risks.

Our legal and land-use experts have studied the real estate market and believe that new-construction hotel assets are the safest bets right now. Newer hotels often boast the latest designs and modern layouts which enhance guest experience. Not only do major hotel brands prefer to see their latest designs, they often protect it— offering area of protection and financial incentives to develop their latest prototype. Don’t forget to consider substantial cost savings in maintenance expenses and energy cost when you have a new-construction hotel asset.

New-construction hotels offer amenities that older hotel designs just can’t match. With the recession over and a strengthening economy ahead of us, business travelers are back in full force and traveling often. It is important to remember that corporate travelers are not price conscious first clients, meaning they don’t have a strict budget for overnight accommodations. Corporations don’t mind spending $15-20 more to keep their employees comfortable in a newer hotel.

New-construction hotels often become high priority targets for institutional investors like REITs and funds. Institutional investors demand the highest quality properties for long-term core holdings. Investing into real-estate that is also appealing for REITs often translates into a very handsome premium at time of disposition.

 

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Schaumburg, IL Hotel Hosts Important NFL Meetings

Equityroots, Equityroots Inc., Schaumburg, IL Hotel Hosts Important NFL Meetings

Over the last three decades, the National Football league (NFL) has graced the hearts of sports fanatics across the world and has become entrenched in the homes of almost every American as evidenced by the Sunday afternoons and evenings when most Americans are glued to their TV’s.

It really is remarkable how the NFL has not just become a weekly television event but also a global brand. Everywhere we go—including outside of the U.S., there seems to be a kid or an adult wearing a sports jersey or a hat of their favorite player or football team. This speaks volumes about how the NFL has managed to expand its influence to all parts of the world in such a quick and efficient fashion. It’s neither a coincidence nor a surprise that football is starting to be considered “America’s pastime” rather than baseball nowadays.

Currently, the NFL doesn’t just market live football games on TV, but they also promote other events such as training-camps for each professional football team, the Super Bowl, and the NFL Draft. The TV ratings for each of these events are usually mind boggling—meaning they are probably going to be the most watched program of the day it’s aired. In addition, the cities, where these events are hosted, will reap the benefits because of the amount of commerce and business that will take place during the respective event. That is why cities from all over the U.S. will do “whatever is takes” to be awarded the host city of these NFL sponsored events, in particular the Super Bowl. This is no different for the NFL Draft.

During the week of August 10 to August 14, the NFL owners stayed at the Hyatt Regency Hotel in Schaumburg, IL to discuss the potential expansion of a few franchise teams, and the location of the 2015-2016 NFL Draft. The city of Chicago was the “center of attention” for the NFL community.

Schaumburg is the center of commerce for the Chicago land area. The city’s ability to offer abundant hotel conference and hotel meeting room space, paired with a fresh supply of premium branded hotel rooms is the reason why global corporations consistently pick Schaumburg to host their events and meetings. Additionally the city’s diverse accessibility to expressways and O’Hare International Airport is why businesses choose to stay in Schaumburg hotels.

From the city of Chicago’s perspective, city officials view the Draft as a major demand driver—thus providing a major boost to the local economy. For example, there will probably be a spike in the hotel occupancy and retail businesses as evidenced by the hotels filling up their rooms and clothing stores selling out their jerseys or hats.

With the global appeal and influence of the NFL brand, this will be a glorious opportunity for the City of Chicago. On Tuesday the NFL announced that Chicago would indeed be the host of the 2016 NFL Draft once again.

 

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The Truth Behind Crowdfunding

Equityroots, Equityroots Inc., Blog, The Truth Behind Crowdfunding

What is Crowdfunding?

Just recently, it seems like there has been vibrant excitement surrounding the concept of “crowdfunding” in the real estate market. Crowdfunding is on its way to upset the status quo in real estate finance, allowing savvy investors of all sizes to pool capital and participate in the investment marketplace alongside institutional investors. Crowdfunding is considered to be an advantageous, innovative, and cutting-edge practice amongst real estate professionals. However, crowdfunding has yet to stamp its footprint in mainstream America, or for that matter towards the crème de la crème of the real estate community.

Crowdfunding is the window into democratizing the investment marketplace, allowing everyday-people a chance to invest into larger assets that are thriving like franchised hotels and resorts. Let’s face it, middle class America doesn’t have a $2-3 million equity check to write. Should they be denied from earning the same returns that wealthy individuals earn in highly rewarding real estate assets? What if smaller investors were allowed to put their beans into a deal right next to the big guys and take a fractional interest in the project?

Crowdfunding aims to level the playing field, allowing people to invest that would otherwise not be able to. Critics still question whether both, the real estate market and crowdfunding market, can create a new and prosperous path for investors, both domestically and internationally, by leveraging profits from U.S. real estate investments. Well, the truth is “crowdfunding” has answered all the uncertainties and silenced the critics. Crowdfunding takes advantage of and continues to make use of the accessibility of the Internet, and the vast networks that stay connected through the technology medium. With tools like social media, it’s quite easy to discuss a new business plan while simultaneously building support and attracting investors.

EquityRoots - Hotel Real Estate Investments Platform

Where Does the Law Stand on Crowdfunding?

The Jumpstart Our Business Startups (JOBS) Act of 2012 remains the catalyst for allowing “crowdfunding” to prosper via the Internet. Absent this recent legislation, there was neither the ability to promote nor the ability to solicit investors to make investments for real estate assets. Specifically, Regulation D, Rule 506 placed heavy restrictions on fundraising efforts—namely preventing third parties from advertising private investment opportunities. However, an exemption to securities registration, Rule 506(c) allows real estate developers to raise money and to advertise private investment opportunities to accredited investors (those with a net-worth of at least $1 million USD) under certain circumstances. As a result, the JOBS Act (a.k.a. Title II) gave crowdfunding platforms access to large pools of potential investors via the Internet. Today investors have direct access to a private selection of real estate offerings, where they can browse deals and make informed decisions from the comfort of their living room.

What is the Potential of Crowdfunding?

Even though “crowdfunding” has been around for a couple years, it has just scratched the surface in terms of reaching its full potential. Currently, crowdfunding platforms tend to target mostly wealthy accredited investors. However, there is endless potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners and venture capitalists with newer legislation like Regulation A+ in place. Ideally, there should be a platform where all private offerings are open to the general public, including non-accredited investors.

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