A history lesson in hotels

MEMPHIS—A panel of hotel industry veterans who have seen plenty of changes during the past 50 years agreed not only is time flying faster than they imagined, but the speed of information dissemination is among the most mind boggling of those changes.

Speaking during Wednesday’s Southern Lodging Summit in Memphis event, four of the industry’s most notable elder statesmen appeared to relish the rapid changes the hotel business has undergone. And the panelists said they don’t expect the pace to diminish.

“You’re going to see it change even more … the velocity of information getting to us,” said Rick Kelleher, principal and CEO of Pyramid Hotel Group, who began developing hotels in 1983 after starting his career in the consulting world. “Today it can get pretty precise in what’s happening in the market.”

The evolution of the industry’s chief business model has had a huge impact, going from predominantly an independent, family-owned model to a franchising/branded model that spans the globe.

“Franchisee-franchisor relationships have evolved with tremendous velocity in the last 10 to 15 years,” Kelleher said.

“The change in the industry of going from the independent property … the relationships with the franchisees was a lot different,” said Joe McInerney, president and CEO emeritus of the American Hotel & Lodging Association, who started his career in the hotel industry in 1961. “It has changed for the better. As much as everybody complains about the (franchise) fees they pay, you’re getting a lot better services than you could on your own.”

Michael Murphy, the head of lodging and leisure capital for First Fidelity Companies, who started his career with Holiday Inn 40 years ago, said the sea change in the hotel business happened when Marriott became like a manufacturing firm. “They did well. They created an inventory of assets for sale to institutions or by putting them together in limited partnerships.”

Ed Fuller, chairman and co-founder of Laguna Strategic Advisors, who spent 40 years as a top executive with Marriott International, said a key turning point came when Marriott worked out long-term management contracts with itself on properties it owned, then sold the properties.

“We had the ability to get these long-term properties in place,” he said.

However, it wasn’t always rosy for the company—especially when recession hit in the late 1980s and early 1990s.

“We hit the wall in 1990, which was the critical time our model failed because we were sitting on $4 billion in 1990 dollars,” Fuller said. “Then we got short-term deals. Everything was thinking in terms of five years (instead of 30-year management contracts).”

The result of that was the 1993 formation of Host Marriott Corporation, which today is known as Host Hotels & Resorts. In October 1993, Marriott Corporation split into two separate companies. Marriott Corporation became Host Marriott Corporation, which retained ownership of 24 full-service hotels, 102 limited-service hotels, 14 senior living communities and the Host Marriott Operating Group, an entity that provided food, beverage and merchandise in airports and toll roads.

Kelleher said multi-unit owners have the ability to affect brand standards in ways that didn’t exist 30 years ago.

“Brands are extremely valuable to a real estate owner,” he said. “They’re going to get stronger.”

However, Kelleher cautioned that the delivery of business to hotels was forever altered by the emergence of online travel agencies during the early 2000s.