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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Schaumburg, IL: Investing Where People Want to Live

4 min read

MONEY magazine ranks the best places to live in the nation every year, and the Village of Schaumburg definitely set out to impress this time around, ranking 9th overall. Of course, the EquityRoots team isn’t surprised — the ranking is a testament to the type of markets we like to invest in. The Schaumburg Holiday Inn dual brand project is worth its weight for investors.

Demand Driven

Our team understands that some of the strongest performing investments for hotel investors are often located where quality of living is highest. Whenever EquityRoots’ receives a funding request, our team looks at the proposed project holistically, giving consideration to the brand, amount of funding, and nearby demand drivers that influence people to live or visit a location. Luckily, Schaumburg is abundant with demand drivers, all of which work to ensure that a new hotel development in the village will prove a fruitful investment and bigger economy.

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Schaumburg has a projected job growth of 3.0%, reflecting the village’s promising talent pool in years to come. Many of the companies opening or expanding in Schaumburg will look to host conferences and encourage business trips – which translates into increasing demand for available hotel rooms to host those business visitors. Do you like great weather? Schaumburg has on average 189 clear days every year. People generally want to be in an area that has nice weather, and that can translate to more tourists visiting Schaumburg’s parks and commercial centers, consistently driving revenue.

Many of the reasons why MONEY selected Schaumburg as the 9th best place to live in the US, or alternatively, many of the reasons why EquityRoots selected Schaumburg as the site for our dual-brand development. Source: MONEY Magazine

Other demand drivers can be physical. The Olympic Park is only a short drive from our development meaning that high school, collegiate, and team families have additional lodging options. This is a huge source of potential revenue not only from all the hotel rooms needed, but also for retail and restaurants that these teams will visit. The Woodfield Mall – the largest mall in Illinois and one of the largest in the nation – is an obvious demand driver and amenity for visitors. This benefit works both ways, creating a market where retail and hospitality compliment each other.

Woodfield Mall in Schaumburg, IL is a critical demand driver that brings in value not only through revenue generated from retail, but also as an amenity that supports local hotels and other businesses. Source: Simon Property Group

These demand drivers are also what led EquityRoots to decide that a new hotel in Schaumburg would be the perfect project. To keep up with the commercial needs of a growing Village and the chance to answer that with a high quality project, this project was designed to be healthy for the local economy in addition to the potential opportunity of profit to its stakeholders.

Local investors saw our IHG project as a chance not only to earn a potential return on a Class-A asset, it was also a chance to be a part of developing something that built positive value in their community. For our more recent IHG project in Schaumburg, a significant number of investors were from Schaumburg and nearby regions in Northern Illinois. When you look at different real estate investment options, you also want to consider nearby demand drivers that often provide amenities and other businesses that promote high quality of life. Instead of looking at MONEY’s rankings as a list of the best places to live, you’ll be using it as a guide to help you invest smarter.

Sources

“Largest Shopping Malls in the United States.” American Studies at Eastern Connecticut State University. April 25, 2009.

“The Best Places to Live in America.” MONEY.

 

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Bhavik Dani Featured on Midland Investments Podcast

1 min read

Midland Self-Directed IRA & 1031

Earlier this month, our very own Dealflow Officer Bhavik Dani lent his hotel crowdfunding expertise to Midland IRA, on their Midland Media: Podcast Series. Bhavik goes in depth about how hotel crowdfunding distinguishes itself from other real estate investment opportunities, and also discusses our team’s journey so far on the road to making hotel crowdfunding accessible to investors across the nation!

Check out the full podcast here.

Bhavik Dani Featured on Midland Investments PodcastInterested in learning more about hotel investments and EquityRoots’ hotel crowdfunding platform? Click below!

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EquityRoots: Democratizing Hotel Investments

3 min read

Hi. I’m Bhavik Dani, Dealflow Organizer with EquityRoots.com. It’s my pleasure to talk to you about how crowdfunding is revolutionizing the hotel industry. EquityRoots.com uses crowdfunding as a finance mechanism to raise capital for real estate assets, specifically for premium branded franchised hotels. EquityRoots combines and harnesses the buying power of the crowd to bring you investment opportunities in institutional grade investments that were once available only to REITs, insurance companies, and the largest corporations. Our crowdfunding technology allows even the smallest of investors to pool their capital right next to proven developers and industry leaders. Hotel crowdfunding is really a system in which everyday folks like you and I become the source of capital. The capital can be structured as equity, debt, mezzanine debt, and sometimes even convertible debt. This capital is fairly flexible with how a developer can use it to further grow and improve business, from renovating a pre-existing hotel development to constructing and designing an entirely new development from scratch.  The advantages of crowdfunding to investors include:

Diversifying Risk

We can diversify risk by allowing the crowd to buy fractional interests in different hotels across the country. EquityRoots allows investors to select multiple assets, affiliated with different brands and located in various geographic territories.

Institutional Grade Assets

Next, it allow hotel investors to own a piece of an institutional grade quality hotel. Let me explain a little further. The average hotel groups and hospitality groups have the ability to build a standard 80-120 room hotel in a suburb, where barriers to entry and construction costs are often lower. However, in center city urban markets – like Chicago and New York – investors often encounter high barriers to entry and substantially higher construction costs. Deals in such markets can become out-of-reach for traditional hoteliers and real estate investors. This is where crowdfunding kicks in. By pooling capital from everyone, it allows combined leverage of the crowd to pursue a higher-grade, higher-quality deal. It’s something usually reserved for institutions –  REITs and insurance companies as I mentioned.

No Middleman and Commissions

Another advantage is removing middlemen and commissions. The crowdfunding process is very clean and simple. Our crowdfunding platform doesn’t allow broker fees or commissions for buying and selling the investment. EquityRoots aims to make every penny of your dollar count in the investment.

 

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Ownership Beyond Paper

Investing in property and buildings that you can see and visit is probably one last advantage I’d like to share. Hotel crowdfunding investments are markedly different than paper stocks and bonds – paper certificates that we trade on by speculation and can never actually “see” in the same sense that you can see and visit a hotel you invest in. Real estate is an investment that you’ll always be able to see. It has real property interest and improvements on the land.

Conclusion

These are just a handful of the reasons why hotel crowdfunding is such a game changer – not only does it harness the power of real estate crowdfunding, but it also allows real estate investors new and old to gain access to those high-barrier markets. EquityRoots is hotel crowdfunding, democratized for today’s investors.

 

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Do Brands Still Matter in 2017?

5 min read

Are Millennials Blind to Hotel Brands?

Do brand preferences still matter in the Millennial generation? This question comes up because Millennials have shown an emerging taste for untraditional, decentralized, and independent local providers of goods and services in what is commonly referred to as the “sharing economy”. The sharing economy has undoubtedly made an impact across multiple industries.  Sharing economy leaders like Uber and Airbnb are estimated to grow to $335 billion by 2025. This significant growth leaves many hoteliers and investors alike wondering how the hotel industry will continue to change moving forward. Many are also asking if hotel brands matter at all? After all, Millennials seem to be happy with online travel agents (OTA’s) where brand loyalty doesn’t matter, or online platforms like Airbnb which reveal a preference for more communal, local, and location-authentic lodging experiences.

Are Millennials Blind to Hotel Brands?

Despite higher preferences than their older counterparts, Millennials still show strong preferences for branded hotels.

The travel and hospitality marketing firm MMGY Global launched a study hoping to answer questions about these changing hospitality preferences among American travelers. (You can check out the full article here.) Peter Yesawich from MMGY Global has some great insights worth checking out, and below is a snippet of that report:

MMGY Global

Source: MMGY Global

Highlights from the Study

Our team at EquityRoots also wanted to take a look at the study results to find a conclusive answer on whether or not hotel brands will still matter into the future.

In short, yes – brands still matter, and investing in the right hotels can still lead to a fruitful real estate investment.  It’s true that Millennials still show more interest in a shared economy, especially compared to other age demographics. Knowing this, are hotels still solid real estate investments? Yes, of course they are. Millennials’ preferences are still similar to their older counterparts, including high preferences for full-service flags like Hilton, Marriott, and IHG (77%) as well as all-suites properties (70%). Looking at cumulative interest across all age groups, we see that big brand hotels are still preferred by a vast majority.

The rise of the sharing economy doesn’t take away from brand loyalty. Let’s take a look at our Millennial Airbnb travelers as a case-in-point. Bed and breakfast operations have existed way long before Airbnb (and even before the rise of hotel room standardization in products like Hilton and Holiday Inn). However, brands like Airbnb and HomeAway are streamlining alternative lodging, gaining strong loyal users. Even though Airbnb users are staying in different hosts’ accommodations from trip to trip, many Airbnb users continue to use only the Airbnb platform to find those rooms. In other words, they are familiar with the brand Airbnb and choose to book through there the same way that many travelers today maintain degrees of loyalty among the Hilton or IHG or Marriott. Despite the huge variance that might exist on Airbnb’s platform, users have come to Airbnb repeatedly with some sense of standardization and expectations.

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Hotel Brands Continue to Evolve

The question now becomes “how do current hotel brands adjust to capture the sharing economy audience?” It’s a question that hotels are already taking steps to answer including by:  

– Developing new hotel products like Marriott’s Moxy, Hilton’s Tru, and IHG’s Avid that target the emerging Millennial preferences

– Partnering with Airbnb to provide food and beverage solutions

– Offering “local experiences” and trips that are commonly utilized by the sharing economy.

The hotel investor can rest at ease. Hotel products from strong, established hotel brands aren’t going away anytime soon. Corporate travelers and companies still prefer lodging with hotels, considering hotel brand benefits such as loyalty points and more established quality standards across a wealth of hotel franchise locations. If anything, the hotel industry is thriving, continuing a trend of growth since 2010 as hotel demand increases faster than hotel supply. On top of this increasing demand, hotel companies continue to innovate and appeal to travelers, whether it be through adopting new food and beverage options, creating more communal living arrangements or utilizing the latest technology to provide travelers with instant check-in and other amenities. As the hotel industry continues to evolve, hotel investors will need to keep a fresh eye open for both strong performers in the present day, as well as potential performers in the future.

Sources

“2017 Set to Bring Modest Growth for U.S. Hotel Industry.” Zacks Equity Research. Jul 17, 2017. NASDAQ. 

“Global Portrait of American Travelers.” MMGY Global.

Moyer, Liz. “Hotels, Feeling the Pinch of Airbnb, Promote Local Experiences.” May 29, 2017. The New York Times. 

Simon, Elaine. “Food-and-beverage an opportunity for hotels, Airbnb to partner.” Sep 22, 2017. Hotel Management. 

Yaraghi, Niam and Ravi, Shamika. “The Current and Future State of the Sharing Economy.” Brookings India. 

 

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Keeping Chicago Competitive: The Hotel Supply Wave

4 min read

A Wave of Supply

Chicago’s hotel market is preparing for a supply wave. In the next few years, the Windy City expects to add an additional 12,000 to 13,000 new hotel rooms to its arsenal. To many, this isn’t shocking news. Hotel developers and operators in Chicago have enjoyed a steady climb in RevPAR since 2009. However, in 2016, we saw Chicago’s first decline in RevPAR in 6 years, a sign which some say is reason to worry about the incoming hotel room supply.

Market consultants and policymakers point to a potential oversupply problem as the source of their worries.  Under basic supply-and-demand principles, these critics essentially say that if there are too many hotel rooms in a market, then the price of each hotel room in that market will, on average, decrease.  There will be more hotel rooms than Chicago needs to accommodate its visitors and with more hotel rooms than hotel guests, the argument is that each hotel will get a smaller piece of the pie. We believe that these claims are blown out of proportion and fail to acknowledge any of the upside. While the argument is fairly simple and logical, the critics are erroneously oversimplifying the market and overlooking the micro and macroeconomic consequences. Our business team at EquityRoots wants to make sure investors and hotel owners are not oversimplifying Chicago’s market and then making assumptions on those generalities.

Keeping Chicago Competitive: The Hotel Supply Wave

A robust supply of hotels are critical in establishing continued economic growth in Chicago.

Other regions in the United States outside of Chicagoland (San Antonio, New York, and Seattle, to name a few) have similarly seen the development of new hotels in their respective markets. These brand new hotels attract additional business and travel, and keep their cities competitive in the hospitality market. Cities that fail to upkeep their hotel inventory can lose out on significant business opportunities and city revenue. This includes Chicago, which stands to lose much ground to other established and on-the-rise metropolitan areas. If Chicago wants to remain a world-class city that is capable of handling large conventions and attracting major corporations to set up shop, it needs to keep things fresh with updated hotel products.

The Chicken, or the Egg?

If you’ve been watching Netflix recently, you might have stumbled upon “The Founder,” which takes a look at the entrepreneur Ray Kroc and his role in making McDonald’s a worldwide brand. For Ray Kroc, business growth is a supply and demand issue. Which comes first, the chicken or the egg? Ray Kroc believed that new supply attracts new demand, building the McDonald’s restaurant empire on this theory.  

Likewise, EquityRoots.com believes that the threat of oversupply is overhyped, particularly for the newest hotels to enter Chicago’s market. While it is true that there will be more hotel rooms available in Chicago from a sheer numbers standpoint, the newest constructed hotels will drive others to improve. Newer hotels that are slated to open in Chicago – including a Cambria hotel in Chicago’s Loop and a dual-brand IHG hotels in Schaumburg – introduce updated and upscale venues with cutting-edge floorplans that appeal to old and new visitors to the city. Modern additions including rooftop venues, new technology, and newer beds are likely to attract the majority of incoming travelers, and this is a standard that corporate travelers have come to expect in other markets across the country. This means that the pressure falls to older hotels to reinvest and renovate, especially those that are 20 years old or more. For example, developers are already spending about $20 million to renovate the Talbott Hotel in the Gold Coast in order to keep the asset competitive. Other older Chicago hotels are also expected to renovate and update their rooms and designs to avoid the risk of becoming outdated. Chicago’s hotel room supply will continue to be updated.  Increased expenditure and capital improvements will ultimately raise an owner’s basis, driving rental rates higher to obtain the same return.  As a result, the entire market responds by increasing average daily rates.  The supply of total rooms will go up, but so will quality.  This gives all hotels the edge in competing for corporate and leisure travelers. As a whole, competition will drive up the quality of hotel services and products offered in Chicago, which lead to positive experiences and can encourage even more travelers to visit the Windy City and drive demand.

Moving forward, Chicago is expecting more travelers, which is great news since the number of conventions and meetings held last year in 2016 was atypically low for the Windy City. When you couple that with high-publicity events like the Chicago Cubs’ World Series win last year, EquityRoots.com expects that the future still remains bright for Chicago’s hotels.

 

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So, what caused the 2016 decline?

If it wasn’t primarily oversupply that pushed Chicago’s downward RevPAR dip in 2016, what was the source? Chicago is facing microeconomic issues.  For starters, the city’s current lodging supply is outdated compared to other cities.  It’s also worth noting that Chicago was in the running as a host city for the 2016 Summer Olympics. During the bidding process, corporate travelers shied away from booking in Chicago because the Olympics typically creates a lot of traffic, congestion, and delay in the way of a busy work/meeting schedule.  A number of conventions and businesses avoided booking travel to Chicago during the time frame that the 2016 Olympics would be occurring, opting to hold their conferences and meetings in other cities like Detroit, Indianapolis, Las Vegas, or Minneapolis.  When Chicago wasn’t awarded the 2016 Summer Olympics bid (which went to Rio de Janeiro), the city got a 1-2 punch. The city not only missed out on the opportunity to capitalize on a huge wave of tourism for the games, but also was hurt by the void of typical corporate travel avoiding the market. As 2017 and future years pose more typical operational years, we believe the hotel industry will continue to improve in Chicago.

Chicago needs to stay competitive to keep up with other leading primary markets in the United States, including New York and San Francisco.

Chicago needs to stay competitive to keep up with other leading primary markets in the United States, including New York and San Francisco.

Staying Competitive

Freezing free market activity and slowing down updated prototypes will push Chicago laps behind in a race against other cities. America and capitalism thrived on encouraging innovation and progress.  If Chicago were to halt new development for fear of oversupply, it will have comparatively lower quality lodging than other cities, which will make it more difficult to attract travelers and other demand drivers to come here in the first place. We are seeing incredible market strength in cities like Seattle, NYC, and Boston – cities that happen to offer the latest and greatest hotels and amenities.  Chicagoland needs to put pressure on the status quo, create pressure to improve, and bring in the latest and greatest facilities so that we can attract more businesses and travelers to come here.

Sources

Gallun, Alby. “Hotel market falters after six-year run.” Crain’s Chicago Business. Sept 26, 2017. 

Gallun, Alby. “Will the downtown hotel market bounce back in 2017?” Crain’s Chicago Business. Jan 30, 2017. 

Hoisington, Alicia. “Oversupply concerns loom over Chicago.” Hotel Management. Mar 6, 2017. 

Ori, Ryan. “Talbott Hotel to shut down for $20 million renovation.” Crain’s Chicago Business. Dec 8, 2016. 

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Limitations on Funding for Development Proposals

2 min read

Limitations on Funding for Development Proposals

What are our limitations on funding?

Many times we get inquiries about what types of deals EquityRoots.com funds. We fund a variety of deals: opportunistic turnarounds, acquisitions, new developments. However, we do have some qualifying criteria to ensure that our hotel investors have the highest quality crowdfunding projects available to them. All projects must be franchised with one of the big three brands. This includes Marriott, Hilton, and IHG. Why is it that we are only picking these three? It’s not to say that other properties and other franchises do not make money or are that they are poor investments. These properties do have the potential to perform well and earn returns, but the three big brands that EquityRoots has identified have proven track records of customer service, brand standards, and a sense of predictability that corporate travelers have come to expect. It’s the hotel brands that we feel comfortable investing behind and sharing to our hotel investors on our hotel crowdfunding platform. They have strong brand support that includes a robust central reservation system working to fill your guest rooms each night.

EquityRoots.com also likes to look at the type of transaction. New development hotel projects from the ground up tend to have longer planning times and disposition periods, but they also tend to draw in higher revenue than a comparable pre-existing hotel upon stabilization.  It’s no secret that new hotels often become market leaders, but hotel investors must endure 18-24 months of deferred returns during planning and construction.

Alternatively, existing asset acquisitions are also an attractive proposition because you’re ready to recognize a return on your hotel investment the day after closing.  Existing stabilized assets also allow hotel investors to see exactly the income that they’re buying, whereas new development deals are based on projections.

 

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Are there any dollar amount limits on funding?

In short – no. Traditionally, potential real estate investor bases are often limited by their location. EquityRoots’ platform allows sponsors to reach a larger investor base, using technology to enhance how they source capital. A Hampton Inn in New York City will have no problems raising capital online. It’s strong brand and larger sized market will allow this project to draw not only local investors in New York, but also investors from outside New York State. Our technology department focuses on effective quality search algorithms to make sure that investment opportunities are available to local investors. Interested hotel investors that may be researching how and where to invest in hotels online may find themselves directed to EquityRoots.com’s platform. You don’t have to live near an asset to perform due diligence and invest. With that said, we would expect the New York City Hampton Inn would raise quite a bit more capital than a La Quinta Inn in Albuquerque, New Mexico.

Looking beyond the deal itself

Oftentimes, the sponsor behind a hotel crowdfunding deal matters just as much as the merits and location of the deal itself. Although we don’t set funding limits, we often push project sponsors to contribute at least 50% equity, requiring them to share a significant stake in the success of the project.  This way, both passive hotel investors and project sponsors both share a mutual, financially backed interest in the success of the deal. Other factors matter too, and we look at each submitted project holistically before presenting the hotel crowdfunding opportunity to our hotel investors. In general, the better the flag, brand, sponsor, and market size – typically improve the outcome on the capital raise.

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My Home Away from Home: How Brand Loyalty Affects Hotel Industry Investments

4 min read

by Kernisha Padilla 

I was recently asked to attend a conference in another state and was given the choice of hotels with a per diem limit. I was ecstatic at the thought. Why? Well, I finally had the freedom to stay at the hotel of my choosing, which means I was looking for a place where I was most comfortable; in essence— a place that could be my home away from home.

My Home Away from Home — How Brand Loyalty Affects Hotel Industry Investments

We all have preferences in life and we stay loyal to certain brands, regardless of the array of options available to us.  Not only do we do this with choice of hotels, but everyday items as well. Take a moment and think about your choices for grocery stores, the toothpaste you used this morning, the coffee you drink and the type of computer you’re reading this from. All brand choices no doubt, which means we all are subjected to a sense of brand loyalty that manifests in numerous ways.  Brand loyalty is real and plays a key role in our everyday thinking. Our choices are often so engaged with brand loyalty and we do it so consistently that we often forget we are even making such choices anymore.

Ultimately brand loyalty was the motivating factor when I made my conference hotel choice. It came down to the top three hotel groupsMarriott, Hilton and IHG (Intercontinental Hotel Group). As far as the hotel industry is concerned, brand loyalty is one of the greatest driving forces behind the industry’s success. Marriott, Hilton and IHG marketing principles and driving forces towards increasing their brand loyalty is commendable. The reasoning is obvious; a large and loyal customer base yields an increase in profits for each of the hotel groups. Success through the expansion and growth of their assets and guest loyalty is a must for the hotel industry in today’s ever-expanding market.

 

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What is Brand Loyalty?

Brand loyalty is a surprisingly easy concept to understand. It is the extent of the faithfulness of consumers to a particular brand that is expressed through their repeat purchases and occurs irrespective of the competing brands. The choice of a brand, in essence, becomes less based on logic and rationale and becomes more of a go-to decision.

Taking a look at the hotel industry, brand loyalty is often supported by key factors that attract their customers and following. The availability of a wide range of hotels at different price points, and in different segments, all throughout the world means that hotel brands are looking to foster a deeper connection with their guest and cater to all of their personalized needs. Most travelers are seeking hotels that provide a good combination of key amenities, such as free internet and hot breakfast combined with a consistent quality standard. Expanding upon this, hotel owners have added the use of loyalty or membership programs to keep their customers coming back.

Why Does Brand Loyalty Matter?

The mere sheath of availability of the top three hotel groups alone means that there are approximately 10,000 hotels that have a large loyal customer base. Out of these 10,000 hotels, Marriott alone has 19 brands with approximately 4,500 properties in 87 countries worldwide and hundreds more in the development pipeline.  The long-awaited acquisition of Starwood Hotels by Marriott will officially make them the largest Brand, with the largest brand loyalty following. Hilton offers over 13 brands, totaling 570 properties across 6 continents. IHG has over 5,000 properties through 12 brands across 100 countries. If the vastness and potential of the hotels to attract such a loyal customer base don’t attract you to learn more about brand loyalty I am not sure what will. Think about it. Each of these hotel brands has to invest such a large amount of resources, time and strategy in building protocols unique to each of its brands, positioning it to capture different market segments and different types of travelers, ensuring that their hotels and affiliate brands all are connected and attract more customers.

What’s the best way to get guests to stay loyal to the numerous hotels each group offers? The offering of a loyalty and membership programs that spans each group. Marriott, Hilton, and IHG offer loyalty programs that are based on a tiered or membership level; meaning that every customer that remains loyal to the brand has a potential to earn rewards from their stay ranging from an increase in amenities or an upgraded room to free hotel room stays and airline points. These loyalty programs are individual based, rather than company or group based, which means that regardless of who pays for the room, the actual guest earns the points for later personal use.  This is important to note because many corporations book employee travel for training, seminars, meetings, etc.  And although the employer pays for the room, it is the employee (guest) who earns the loyalty points, often using them later for family vacations.  Each hotel group has found a system that works best for them, feeding off of the feedback from their customers and their needs.  This is why brand loyalty is so important. The goal is to increase the hotel’s customer base through the use of brand identity. In essence, to have an emotionally backed choice for the hotel that makes the customer feel as if the hotel is their home away from home— familiar but one they would choose irrespective of the competition.

What Does Brand Loyalty Have to do With Hotel Investments?

Put simply, investments are driven by interest and the ability to lower risk as much as possible. While no real estate investment can ever be fully guaranteed, there’s something to be said about a hotel investment that carries a Brand License with a steady history of customer loyalty and a large customer base. The effort that the hotel brands put into their loyalty program helps to lessen the risks of investing in this type of real estate.  A Holiday Inn Express performs with a certain sense of stability and predictability than… let’s say Bob’s Bed & Breakfast.

If you’re looking to invest in a hotel, be honest with yourself. While investing generally involves making logical, calculated risks about land and construction cost, make sure to take into account the brand’s loyalty as well. While brand loyalty may often become a subjective decision on behalf of the customer, the success of such loyalty should speak volumes to an investor. Brand loyalty shouldn’t be overlooked. The ability for the major hotel chains and their various brands to attract such a grand following helps ensure that a licensed investment in such an establishment would be worthwhile. As a frequent traveler, you wouldn’t ignore your natural brand loyalty and you shouldn’t do so when considering investing in hotels as well.

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The New Industry: Hotel Crowdfunding

The New Industry: Hotel Crowdfunding

Crowdfunding has revolutionized the way people raise money to start new businesses, and the model has caught on in a number of other industries. Hotel crowdfunding is at the front of this new fundraising model. It gives investors the opportunity to cut out the middleman and invest directly in properties they believe in. Simply put, hotel crowdfunding gives everyone, from the seasoned investor to the newcomer, a way to invest in qualified hotel real estate properties.

How Hotel Crowdfunding Works

Potential hotel investors sign on with a hotel crowdfunding company, create their user profile and browse for deals they might be interested in. Once they find a property that fits their investment goals and budget, they can transfer funds and start their investment. Online dashboards provide feedback and information about each of their investments.

Who Can Invest in Hotel Crowdfunding

Recent changes in regulation for the industry have made it possible for virtually anyone to own a piece of a hotel property. Investors fall under the categories of “accredited” and “unaccredited.” Accredited investors are those who have a special status under financial regulations, which typically means they have a net worth of at least $1 million or meet other income thresholds. Those who are unaccredited can still invest, but may be limited to certain offering types that become burdensome or take away general solicitation privileges from the sponsor.  And heck let’s face it, how are you going to find an investment opportunity if the deal can’t be generally solicited? That’s all about to change when crowdfunding companies like Equityroots.com take advantage of the newest securities laws such as Regulation A+, which carves a path for non-accredited investor participation.

Why is Hotel Crowdfunding becoming so Popular?

Besides hotels being an exciting and rewarding asset class, hotel crowdfunding offers a unique and innovative way for people to manage their money. They can invest in the hospitality industry without having to raise the capital to buy a franchise on their own, and they get the benefit of being able to invest alongside industry experts who know how to operate the property.  Many times, the investors are thinking about who they are investing with just as much as what they are investing in.  As of 2015, there were more than 300 securities-based crowdfunding real estate development offerings, and that number is only expected to get bigger as time goes on.

 

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Hotel crowdfunding is disrupting the traditional way of real estate investing, and it is also becoming a disruptor as a finance mechanism for large-scale projects. Investors can influence the outcome by choosing what they want to fund, and companies building hotels can raise the equity capital they need from the local community, or an online crowd of like-minded investors, rather than relying on some form of institutional Wall Street capital.  Money is money after all, no matter where it comes from.  Letting the masses have a shot at the risk and rewards is undoubtedly progression of our capital markets and financial Democracy.

Link: http://www.cnbc.com/2015/10/02/hotels-join-the-crowdfunding-craze.html

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1031 Exchange: Defer Your Tax Obligations

3 min read

1031 Exchange- Defer Your Tax Obligations

Investing in hotels and real estate continues to be one of the best ways to build your wealth, grow your portfolio, and minimize your taxes. Thanks to Section 1031 of the Internal Revenue Code, investors are able to enjoy these advantages.

What Is Section 1031?

Section 1031 of the Internal Revenue Code allows an owner of any business or investment property to defer paying federal capital gains taxes and depreciation recapture if they exchange business or investment properties of like-kind. The 1031 Exchange allows you to swap properties or businesses while ignoring the taxable gains and reinvesting it into more valuable property. Essentially investors are using money that would otherwise be due in taxes to continue funding a bigger portfolio.

What are the Benefits?

There are numerous benefits that can be the result of a 1031 Exchange, but there are a number of requirements that must be met in order to complete an exchange. The most obvious benefit of a 1031 Exchange is tax deferral. The true power, though, lies in what comes as a result. Depending on your investment objective, a 1031 Exchange offers a wealth of opportunity.

Preserve Equity

If you are looking to preserve your equity, a 1031 Exchange can do that. Tax deferral will allow your initial investment to continue to grow. And since there’s no limit on how many times you can do a 1031 Exchange, you can defer indefinitely and continue to reap the benefits.

Purchasing Power

Or if you’re simply looking to increase your purchasing power, a 1031 Exchange can do that too. By allowing you to use all the sale proceeds- money that would otherwise be tied up in taxes- you can leverage it into more valuable real estate, which can subsequently increase the return on your investment by producing more cash flow and greater depreciation values.

Diversify Investments

And if you’re looking to diversify your portfolio and improve your investment position, a 1031 Exchange can do that too! Although this tax provision is limited in scope to only property located within the US, diversifying into different geographic regions or into different types of business or investment properties may be desirable for you or your business.

But if you’re looking to split up property or consolidate properties, a 1031 Exchange can do that too! Allowing you to roll over the gain from property to property, gives you the option to exchange a large property and split up the gain among several smaller properties or to exchange multiple properties and consolidate the gain into one larger property.

EquityRoots - Hotel Real Estate Investments Platform

Is it Right For Me?

A 1031 Exchange may be just the thing if you are intending to sell business or investment property, and you plan to buy a business or investment property of like-kind, within 180 days following the closing of your relinquished property.

It is ideal for taxpayers looking to sell their appreciated property–a low tax basis, business or investment property that has been held for more than one year. However, it should not be utilized if you have recently refinanced the property you want to sell, nor is it recommended if the transaction will result in a capital loss.

It’s important to know, though, that 1031 Exchanges are subject to strict rules. And depending on the type of transaction involved, these can sometimes be very complex. However, the use of a qualified intermediary to coordinate the essentials is imperative to the success of any exchange. Despite its complexity, though, 1031 Exchanges remain a very powerful investment strategy- that allows ‘real estate to help defer your tax obligations!

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