Tye Turman, Senior VP of Lodging Development at Marriott, speaks with David Sudeck, senior member of JMBM’s Global Hospitality Group® at JMBM’s 2016 Meet the Money® – the national hotel finance and investment conference. They discuss what’s in Marriott’s pipeline, PIPs, adaptive reuse, and Marriott’s brands, including Moxy and AC.
A transcript follows the video. See other videos in this series on the Jeffer Mangels YouTube channel.
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David Sudeck: I’m at the 26th annual Meet the Money® Conference. I’m here with Tye Turman, Senior VP at Marriott, and I wanted to talk to you about your experience here at the conference so far. First of all, I wanted to see if you’ve ever attended before.
Tye Turman: Actually, this is my first time, David. I’ve really been looking forward to this, I’ve heard about Meet the Money® for many years. I’ve always had schedule conflicts and unfortunately couldn’t make it, so it’s a real honor to be here.
David Sudeck: We love the fact that it’s a small, intimate conference; we hope you are able to get some real activity from the conference, make some good connections. So, wanted to talk about 2016, where you think we are in the cycle. Obviously, Marriott has been in the news in a very big way and I’m sure a lot of what’s in the press you can’t speak to at all, so I’ll avoid those questions. But in terms of the market cycle, what sort of initiatives are you undertaking in 2016 versus 2015, and where do you think we are in the market cycle?
Tye Turman: It’s a question everyone’s asking right now, David. I get phone calls daily from franchisees and various owners asking me, “What’s next? Where are we?” Everyone’s crystal ball is a little bit different. They see the future just a little bit differently. From everything that we’re hearing right now and what we’re witnessing first hand – and my role is that I run the development group for the Western United States for Marriott select service and extended stay brands – we have noticed that the volume of deals that we’re doing is actually surpassing the pace of last year. Which is really good, because there has certainly been some hesitation in the market.
The things that we’re hearing most frequently from our owners is that financing is tightening down again, construction costs are through the roof – which not necessarily prohibits, but certainly limits, the ability to develop. And then thirdly, the cost of acquiring land is a concern because many owners are competing with multi-family developers in acquiring land. So I think that’s going to have a long-term slowing effect on things, but it has certainly not affected the volume of deals. What we’re seeing within existing hotels, right now Marriott’s pipeline – we just released our first quarter earnings report – we’ve got 275,000 rooms in our pipeline, 30,000 of which were just within the last quarter. RevPAR projections were not as strong as we had hoped for but, we finished globally at like 2.4% RevPAR growth. Internationally it was a little bit stronger – and when I say little bit, like by 2.6%.
David Sudeck: Internationally? Is that heavily focused on Asia, Europe?
Tye Turman: Well, it’s, it’s a mixture of both – we’ve got hotels in the Middle East, Asia, Africa and such but, at least right now, we anticipate that RevPAR will finish somewhere between 3 to 5% globally for us by the end of the year. Which is still good.
David Sudeck: That’s very good. And then in terms of conversions of existing brands to a Marriott brand versus new construction, are you seeing any change in the volume? Obviously there’s a tremendous brand extension opportunity and brand conversion opportunity with all of the new brands that you have announced. But over time are you seeing any change in new development?
Tye Turman: I would say just briefly, on the select service/extended stay side of things – even through the growth time periods and also when it slows down – we always tend to see more development on new development versus conversions. We get a number of calls every week from people wanting to convert assets, and quite honestly most of the time they just don’t fit the bill for what we’re needing or they are in markets where we already have brand representation – so it just doesn’t work. But the majority is new build.
We always love the opportunities when they present themselves for great historic assets. Where you can do an adaptive reuse of things like that – those come along not often – but enough to keep it interesting. I would say that, as you may remember, we brought the Delta brand to the United States after we had acquired it from Canada this past year. With that brand now we are seeing more acquisitions from existing products. Which is primarily what we had targeted that brand to do, where you’ve got great older product that just needs to be repositioned in still very relevant, vibrant markets.
David Sudeck: How does the Delta brand compare to the Autograph by Marriott?
Tye Turman: Autograph is a true boutique brand. The hotel itself is the brand – versus the name on the building. Whereas Delta, I hate to use this term because it’s not necessarily a positive thing, but is more of a collector brand if you will. We learned a lot from watching Hilton. You know, Doubletree has been highly successful. And, you know, it’s a small industry; we’ve tried it and so far it’s been very good for us.
David Sudeck: How about Moxy? How has the public embraced the Moxy brand?
Tye Turman: You know, it’s been really great and interesting to see. I’ll be the first to say when we decided to bring Moxy to the United States, you may remember from reading the original stories, it was going to be primarily a European brand.
IKEA, our partner who developed the brand, they were looking for a product very similar to Fairfield Inn & Suites to grow across Europe. And thank goodness for very creative franchise partners here in North America who saw a great opportunity for this in true urban destination markets such as New York City. Lightstone Group came in and was one of the first. They’ve got, I think, five Moxys approved with us in Greater Manhattan, between Manhattan and Brooklyn. Most of which are under construction right now. We’ve opened our first one in Tempe. It was a conversion project – you know, you’re always a little leery when your first hotel that’s going to open of any brand is a conversion – but it turned out exceptional.
The feedback that we’re getting from guests so far has been very good, very good. In fact, I just read a comment from a guest just yesterday. The guest wrote it to our brand director for Moxy and said, “I was very disappointed with my Admin Assistant when they first booked me at this hotel, I had no idea what a Moxy was because I’m very brand-specific where I like to stay and I anticipated a negative experience.” But in their words, they said “Wow, you guys really hit a home run with this, love the product.” So far we have, I don’t want to mislead you on the count – I know we’re roughly over twenty approved in North America. We have kept this product very true to our desire to keep it in urban, downtown destinations. Out west we’ve got product approved in Fisherman’s Wharf in San Francisco and San Diego Gaslamp. We’re working on one right now in Portland in the downtown area.
David Sudeck: Seems like the perfect setting for a Moxy.
Tye Turman: It really is, and that’s where we want to stay with our product. So, in short, we’ve been more than pleased with the reception for Moxy.
David Sudeck: What about AC as a brand?
Tye Turman: AC has just skyrocketed.
David Sudeck: I’m working on five ACs right now, so.
Tye Turman: Yeah, our phones ring off the hook. Everyone wants it – in fact the challenge is now becoming, where are markets where we can put them? We have over a hundred approved in the United States and Canada. We have opened six now. By the end of the year, I think we’ll be at right around twelve that will be open, we’ll open another twelve to fifteen next year. All in great, dynamic markets. No two AC hotels are alike and most importantly, right out of the gates, investors – as you know when they are looking at new brands there is always this hesitancy – they want to know how they’re performing. And the hotels that have been opened so far are hitting owners’ expectations.
David Sudeck: Well your historical performance at Marriott on a brand¬-wide basis has been so tremendous. I guess there’s trust immediately when you launch a new brand that you’ll put the capital behind it and you’ll expand it and be well received by the public. Tell me about how owner/franchisor relationships have evolved over time. I know that you guys were very sensitive during the downturn to your owners and allowing for a kinder, gentler PIP, a kinder, gentler renovation process when people were having a difficult time. In this market, as financing has been over the past couple of years more available, I note that there’s been a real push to upgrade and renovate some of the brands. Do you think most of these projects have evolved, that most of the properties are now compliant with what you would like to see the various brands look like at this point over the past 5-6 years? I know it’s been a good time to get financing.
Tye Turman: Sure, it has been. We certainly still have some hotels out there that we want to see renovated, modernized, go through the big brand changes. When you’ve got a number of brands – let’s just use Courtyard as an example. I believe it was late 2007, early 2008 when we rolled out Courtyard Refreshing Business, which was a total redesign of the lobby public space. We’re just now finishing those up. But when you’ve got as many Courtyards as we have across the United States, Europe and in other continents, it really takes time based upon when hotels have entered the system and such.
We are very cautious with PIPs when we’re looking at when somebody’s acquiring an asset to actually convert to one of our brands. We tend to stay very true because we’ve kind of learned from experience that sometimes conversions are not always your best lifters of the brand. And so we want to make sure we get everything we need in there. But I think on existing hotels we are looking really good right now just in general from how our hotels are positioned. You know, years ago we had some challenges with Fairfield Inn & Suites, really getting them elevated to the level that we wanted. And that brand in particular is doing well as a result of very firm PIPs that we put in place.
David Sudeck: I will say I recently went to the Residence Inn down the street here at LAX and it’s a conversion, and it is spectacular. I mean it looks like a new build and the finishes are fantastic.
Tye Turman: Yeah, Bob Alter and his team did fantastic. You know when they approached us on that project – and we know how difficult it is to find anything around LAX Airport – he says, I’ve got this office building, and we would like to convert it to a Residence Inn. I think the first words out of our mouths were, “how fast?” First of all, a quality franchisee – very, very in tune with what it takes to do adaptive reuse – and we couldn’t be happier.
David Sudeck: And he has a tremendous track record.
Tye Turman: That’s very, very true.
David Sudeck: I was there at the soft opening – and I don’t know how it’s sort of evolved over time and how it’s been received by the public – but it was spectacular.
Tye Turman: Oh, the guest comments are great. I think Bob’s been pleased with the performance. The one thing we like in particular about that asset is when you take an office building like that – he actually had too much space, I think he’s still got some space he hasn’t figured out what to do with yet. But you’ve got great-sized guest rooms, great views overlooking the runways of LAX. You’ve got wonderful ceiling heights, and I think probably the largest exercise room I’ve seen in most full-service hotels he’s got in there. I’d encourage you to go see it if you can.
David Sudeck: I will. What do you see as brand-expansion opportunities in the future? I mean at this point I know there’s discussion of a Starwood merger or acquisition, but just in terms of Marriott where you do you see opportunities? I know that several groups like Sydell have been expanding youth hostels and shared rooms. I don’t know if that’s something that Marriott has looked at, is looking at, as whether that is any sort of component of what you’re doing at this point.
Tye Turman: I would say right now there could be people that have this brainchild that they’re working on that we just don’t know about. It’s interesting that you would ask the question because Arne Sorenson, our CEO, was posed this question recently. He was at a hospitality summit somewhere in the Middle East, I’ve forgotten where it was, maybe in Dubai. But he’s asked, do you anticipate ever having additional brands? And he said, you know, I could foresee the day even with 30 brands potentially here, or after the acquisition; I could see the day that we would have some additional ones. Not knowing necessarily where they might be, but it seems like someone always creates a new niche that you can potentially find a product for.
David Sudeck: What do you think next year will bring? Do you want to read the tea leaves, look into your crystal ball?
Tye Turman: My crystal ball is no better than anyone else’s. But I will say this, I am very much an optimist and so I’m hoping that we can keep the momentum going the rest of 2016, maybe through ’17 at least. If we can keep construction costs in check, if financing will stay readily available at least for great projects, I think we’ll be fine.
David Sudeck: Thank you again for attending and participating.
Tye Turman: Absolutely, it’s a real honor.