In the community where I reside, two prominent, competing bagel shops had been in operation for as long as I can recall. Recently, the owner of one store retired and sold his enterprise to the neighborhood rival, who now dominates the local market for bagels.

The object of this monopolistic phenomenon is to own and/or operate all or nearly all of a market for a given type of product or service. It is every entrepreneur’s dream to create a critical mass of niche products or services that are difficult or costly to replicate. Consider how Microsoft has dominated the computer software market with Windows for nearly every non-Apple PC in the world today.

During the course of my career, I have encountered numerous hotel ownership or management companies that focus on specific regional markets. Multi-site or cluster ownership/management of lodging facilities create economies of scale that enhance revenues and operating efficiencies. Centralized hotel ownership and management can have a dramatic impact on the performance and value of lodging assets. Positive factors for the cluster approach include: control of availability and pricing of hotel room nights, reduced overhead expenses for personnel, bulk purchasing and procurement, enhanced lead and group sales generation, and expanded pools of target demand generators.

Examples of successful cluster platforms include:

  • Shamin Hotels, which owns and manages more than 39 properties in three states, with more than 4,564 rooms and over 70,000 square feet of meeting and banquet space;
  • Harrison Group Hotels, which includes 12 oceanfront hotels: 10 in Ocean City, Maryland, one in the Outer Banks, North Carolina, and one in Virginia Beach, Virginia;
  • Gold Key | PHR Hotels & Resorts, which manages a wide range of restaurant and hospitality investments in Virginia Beach and Norfolk, Virginia;
  • Caliber Companies, which dominates the Phoenix airport north submarket with ownership of an estimated 30% of available hospitality rooms located within 1.5 miles of Phoenix Sky Harbor Airport;
  • Wankawala Organization, which owns and operates hotels throughout the Mid-Atlantic;
  • West Coast Hotels Group, which develops, invests in and operates hotels in California;
  • BD Hotels, an owner-operator of 24 independent hotels in New York City.

As more hotel acquisitions and mergers are anticipated to occur over the next several years, many U.S. markets will become more consolidated and monopolized. The fact is that cluster ownership/management of lodging facilities offers potential to reduce costs, generate additional revenue or a better mix of business, and enhance property or enterprise valuation. Just as the game of Monopoly encourages cluster ownership of properties in a certain area of the board in order to be successful, we have seen this phenomenon play out in the real world as well.