When First Hospitality, the family-owned and family-run hospitality investment, development and management company, decided to partner with New York-based The Georgetown Co. in September 2021, the hospitality sector had yet to even begin its rebound.
Nine months into the marriage, First Hospitality President and CEO David Duncan, who heads the new platform along with Georgetown Managing Director Michael Fishbin, recently told HOTELS all is well and the tandem’s natural strengths as developers are meshing quite nicely.
The partners announced the launch of a new platform targeting US$1 billion of investment in upscale and luxury properties and in January acquired the 250-key Hutton Hotel in Nashville, Tennessee. The 14-story hotel, which was an office building in the 1960s and was converted into a hotel in 2009, includes a social club and entertainment venue for live performances along with a coffee shop and a restaurant.
Both partners are working on the hotel jointly and every decision has been in close association with each other, Duncan says. “The Hutton plays really well to our strengths. It’s a hotel that needs some renovation of the physical product. We are going to undertake a pretty significant renovation of the rooms, banquet, catering and other spaces over the next year or two and bring it to life as Nashville’s original boutique hotel,” Duncan adds.
Besides working with Georgetown, First Hospitality also acquired and develop its own projects, concentrating on different markets of different sizes. It has also made strategic investments in technology around revenue management to continue to generate above-average profit margins.
In conversation with HOTELS, Duncan spoke about First Hospitality’s growth outlook, the challenges they faced coming out of the pandemic and its ongoing plans with Georgetown Co.
HOTELS: How is the relationship with Georgetown evolving and what fruit has come out of it to date?
David Duncan: We announced the arrangement of the platform’s objective of investing upwards of a billion dollars in the hotel space for the next two to three years or the foreseeable future.
The early returns are going exceedingly well. We’ve been very active in seeking investments. We’ve acquired the Hutton Hotel in Nashville as the inaugural project that we’ve done together. We’re working on two or three things currently which we aren’t announcing now. But we anticipate that we’ll be acquiring additional assets and developing other assets in the next three to six months.
H: What’s next for First Hospitality and its investment platform with Georgetown?
DD: We’ll continue to aggressively pursue investment opportunities.
First Hospitality is very well positioned today because of some choices we made during the pandemic. On an investment basis, we have some strong momentum on the growth front, 20% growth in the last 12 months is an indication of that.
I strongly believe that our partnership with Georgetown, emphasis on first investors and relationship with our third parties will have a dramatic impact on growth going forward. In the next two to three years, we’ll be very dynamic in terms of growth.
With respect to Georgetown, we will continue to seek investments based on what works for our platform —full-service hotels, lifestyle brands and premium select-service in virtually all markets across the U.S. and slightly biased towards more dynamic and larger markets.
In terms of first investors, we have a similar product type, a little closer to home and slightly smaller where we will be able to pick our “spots” in more tertiary markets we’re really comfortable with the local demand.
H: Talk about your relationship with Georgetown Managing Director Michael Fishbin when it comes to sourcing and analyzing potential deals?
DD: I’ve known Michael for decades. Our relationship personally and the platform are working together go hand-in-hand. We are identifying opportunities, underwriting and pursuing those opportunities. We talk multiple times a week to organize the teams to underwrite deals. It’s as if it’s one team sourcing and underwriting positions for that platform. We contribute some of the work, they contribute some of the work and it’s quite seamless.
H: What is First sourcing on its own and how are you interacting with First Hospitality Chairman Stephen Schwartz?
DD: Like we’re working with Georgetown to acquire assets that they are interested in, similarly we’re working with Stephen and what we call ‘first investors’ to do basically the same thing in slightly different markets and at slightly different sizes to also acquire hotel real estate across the country.
Currently, the first investors are slightly smaller and probably fundamentally closer to our current region of investments focusing on what we consider overlooked markets in the Midwest.
On the Georgetown side, it’s a national platform that’s not necessarily just in the Midwest.
The third leg of the proverbial stool is the work we’re also doing with third parties as they’re considering acquiring new assets that they will own, and we will be an investor in. We’re doing management for them on a third-party basis.
H: How did the Hutton Hotel deal in Nashville come together and again how did that work with Georgetown?
DD: The hotel was for sale by the owner through a broadly marketed process. We participated in a broker-led process. The reason we were so excited about it, and still feel the same way, is Nashville has a dynamic, long-term and varied growth profile.
The Hutton plays really well to our strengths. It’s a hotel that needs some renovation of the physical product. We are going to undertake a pretty significant renovation of the rooms, banquet, catering and other spaces over the next year or two and bring it to life as Nashville’s original boutique hotel.
We have some exciting plans that we’re working on for the renovations there. It is a hotel that is perfectly located outside of the chaotic energy of Broadway and Nashville and tucked in near the university in Nashville. We love that location. It’s very proximate to a vibrant night life activity but not right in the middle of it so you get a little bit of peace and quiet but still have really good energy.
We’re working on that project jointly with Georgetown. Like we did with the acquisition — hand-in-glove — every decision was made jointly like managing the interior design, brand definition process as well as considering the different food and beverage opportunities there.
H: When are these renovations expected to be completed?
DD: We are under planning for the renovations which are likely to begin and commence over the next 12-15 months. We’re in the middle of addressing some of the challenges. Nashville is a vibrant place and we want to make sure that we don’t displace revenue and also the supply chain challenges of ordering products. These two attributes are making renovating time a little more complicated and that’s why it will take us 12 to 15 months to complete it.
H: Are you adding any dining venues or are you only renovating the existing spaces?
DD: The hotel had previously closed its dining operations. There is a restaurant that is going to be reenergized. We are likely to be adding selected food and beverage outlets in the building itself… it’s still under consideration.
It has a music venue called the Analog. We’re looking forward to bringing in new energy to that as well as reestablishing the current food and beverage offerings and bar.
The current restaurant that has been redeveloped has never been opened. It’s a nice opportunity for us to bring that to life with the outdoor patio.
H: Does First have its own equity share or strictly manage?
DD: We’re partners in the real estate investment profits and also managing it.
H: What is your third-party growth outlook apart from your relationship with Georgetown?
DD: We made very strategic investments during the downturn of the pandemic in three areas. The first investment was in our people to make sure we’re prepared for the long run, to keep the operating team at full strength. We found really good opportunities to invest in new talent during that time period.
The second one was significant investment in revenue management technology and related infrastructural process to ensure that operating companies managed hotel revenues better than anybody else in the business.
The third was to lean in on the challenges of talent and labor and making sure we had modern and cutting-edge technology to manage labor as well as keep the employee experience at efficient levels.
These three investments provided us with opportunities to grow and we’ve been able to grow that part of the business about 20% in the last 12 months. We will continue at that pace and increase over the next few years. There’s a good momentum coming out of the pandemic and that will help us expand our geography more broadly.
We’ve added considerably to the team of professionals and are looking forward to announcing some key executive hires that are joining us in the next two to three months.
H: As we come out of the pandemic, what are the challenges you have faced so far?
DD: There’s a lot of discussions around the global search for talent, at the property level and at all levels of the organization. We’re not unique in the hotel business to face this challenge. We view that as a fundamental opportunity for us and a challenge on the long-term basis.
We’re doing a number of things to ensure that we are well positioned to attract talent. We’re moving our corporate office to downtown Chicago, proximate to world-class transportation system and the energies there that will be a very large attribute of talent attraction.
We’ve made some investments in technology to ensure scheduling, labor tracking and management are at high levels of specificity.
We have shifted our thinking about employee experience to the person’s life experience. We think about how our employees think about work-life balance here and are really broadening our context around how people come to work for us.
There are a number of employee recognition programs that we have in place, but it goes back to the larger challenge of attraction and retention of talent, which is fundamental and key. We have a strategic advantage since we run our business centered around our people. It’s a family-owned and family-oriented business and it’s a way of life for us, and not just a back of the brochure employee promise.
H: What is your performance year-to-date and forecast?
DD: We pride ourselves for having above-average profit margins at all our hotels. That’s because we have invested in tools to support that.
Year-to-date, across our portfolio every region is ahead of budget by the bottom-line and topline on a year-to-date basis. Obviously, COVID-19 and its variants softened the demand surge but we’re looking forward to the return of business. We think it’s going to be a fantastic summer and fall.
Across our portfolio, the forward-looking patterns are extending, the group business is staying in place instead of falling off. We’re seeing a solid 2022 on the books.
The aspect that will overcome the challenges of the business travel are the transient and leisure travel. In many of our markets, we think the numbers are going to be very strong in summer.
H: How do you see the recovery of business travel and group travel?
DD: What we’ve seen in many of our assets is the traditional return of transient, business travel and then group. We’re seeing a fairly strong return of group business, outpacing traditional business travel.
H: Post pandemic, travelers more often prefer extended stay and experiential vacations. How is First Hospitality responding to these emerging trends?
DD: As an adjunct to bringing group business back, we want to ensure that we’re advertising and making great opportunities available to that traveler so that they can extend their stay beyond the business event itself. We’re fortunate that a large majority of our hotels are in exciting, urban markets that weren’t exciting during the downturn because they were largely vacant.
But as we return to places like downtown Chicago, Louisville or Columbus, as Broadway and entertainment come back, we’re setting up specific rate programs to attract that business traveler to also extend their average length of stay. We’ve seen a 30% increase in the average length of stay over the past for months, which is largely a result of travelers extending their stay beyond their business travel.
This is accomplished at the grassroots level and by having a great revenue management system in place that motivates travelers to stay for longer periods of time at slightly lower rates.