Hotel Business - 3/12/12
Pillar adds veteran Rohling to help accelerate growth
By Stefani C. O'ConnorIRVING, TX Since its acquisition from Archon Group by InterMountain Management, LLC, in third-quarter 2011, Pillar Hotels & Resorts has implemented ambitious plans, particularly around its third-party and revenue-management efforts. Toward this, the company recently brought on board Ed Rohling, the former CEO of real estate investment trust Lodgian, as Chief Business Development Officer, and tasked him with advancing the reach of the Texas-based company.
An existing relationship is how Rohling found himself an executive a Pillar. Both he and CEO Chris Russell have known each other since the mid-1980s, most notably working together at the then-Bristol Hotel Group.
"We have very much the same work ethic, the same owner focus," said Russell. "There are a lot of people on my team here that Ed has also worked with, so it seemed to be a very natural fit. The fact that he's been an owner, the fact that he's been a premier operator, that he's had a vast amount of experience running a company and has deep contacts and is well respected within the industry, we thought that was a great fit."
While Pillar is raising its visibility this year, Russell acknowledged the company has kept a low profile during the past decade. "Our group has been under the radar screen for the last seven years since we opened because we've really been an in-house management company and haven't been actively pursuing [deals] to grow our business just because that's not what we were set up to do. There was no need to pursue new business," he said.
Russell had set up Archon Hospitality in 2004-2005 as a subsidiary of locally based Archon Group, giving the wide-ranging company its first hotel platform. Due to subsequent regulatory issues, the management arm needed to separate from Archon Group and last September merged with InterMountain, a 30-year-old developer/owner/operator based in Monroe, LA, and owned by Dewey Weaver Jr. It subsequently renamed itself Pillar Hotels & Resorts. Weaver is now the majority owner of Pillar; Russell also is an owner in the entity.
Though partnered, Russell said Pillar is continuing to concentrate on larger institutional investors and larger portfolios in terms of management while Weaver concentrates more on individual development "and kind of the ones and twos."
Still, there are synergies, said Russell, such as back-office-support, purchasing, and revenue management. "I kind of describe it that we're sister organizations. We share and continue to look for opportunities where we can share some synergy," he said.
With 222 hotels in 38 states, Russell also expected to be opportunistic leveraging the existing relationships of both Pillar and InterMountain.
"And now with Ed, with the trusted relationships, knowledge and business resources he has, it makes a nice team to take advantage of some of the opportunities that might exist at this time in our cycle," said Russell.
"Everything I've done, even though my positions have been different from time to time, has been focused on maximizing the value of hotel real estate through superior management," said Rohling. "It's a basic belief that I have and it's what I've done in many different forms continually ever since those early ‘80s; even the last three years when I've been working on loan advisory for lenders that had troubled hotel loans. My focus always has been on: Is management up to the task? If not, what do we do to make those changes, and if it is, how do we let them do their best work? Same thing at Lodgian. When we got there, we had 72 hotels and it was my charge from the board to maximize and rationalize the value of the real estate the publicly traded hotel company had inside its portfolio. So that's the consistent theme."
Rohling told HOTEL BUSINESS® as an outside observer, he perceived Pillar as "a light under the bushel, not able to pursue outside business. I recognized once it broke loose, that is was going to be a tremendous opportunity to use that talent, that history, and to manage for third parties. It's our hope we can find a niche and be able to take business from owners that want to improve their hotel management. We also want to work with private-equity firms and other investors that may want to buy portfolios or hotels in this market and time, using Pillar side-by-side as the underwriter as well, before moving into management."
Rohling said Pillar in 2012 is putting a great deal of focus on portfolios of select-service properties.
"We want to grow at a rapid pace, quite frankly," said Rohling. "With 222 hotels, 20% growth means 40-something hotels, and we're not going to get there by just picking out ones and twos of select-service properties. We also have a niche. There are very few firms out there that have a whole lot of opportunities to partner with other third-party management companies and want to invest in select-service properties on a large scale. Interstate [Hotels & Resorts] is the biggest out there but we're next in line. So if you're a private-equity firm and you want to buy a 20-, 30-, or 40-hotel portfolio that's being divested, perchance by a public REIT or non-publicly traded REIT, there are not a whole lot of choices. We bring a whole new choice to the table for those kinds of situations."
And while the company has depth in full-service properties, Rohling felt it's not represented significantly in the number of those it's managing. "That being said, because of the opportunity in full-service, to get deeper turnaround, we are interested in singles, doubles, and triples in taking on third-party management of full-service properties because we want to build that reputation, even though we already have the imbedded talent," he said.
Russell pointed out Pillar on the select-service side is a "substantial size" manager for Hilton Worldwide and Marriott International product, and on the full-service side, has done a lot of work with Holiday Inn, Wyndham Worldwide and Starwood Hotels and Resorts, Inc.
"With select-service there's not a lot of companies that can take down a portfolio of 15, 20, 25, 30 hotels; we've done that. But that tends to be our niche because the buying opportunities of the last several years were portfolios of size, so we do that very well," said Russell. "We have a pretty systematized approach. We have 38 states. We have several people who oversee our hotels in area manager positions who could very easily be dispatched to multiple cities at any given time in order to transition hotels to Pillar Hotels & Resorts."
Russell indicated distressed management companies, such as the ones started by laid-off hotel executives at the start of the recession, also are on Pillar's radar.
"We are really in this to work hand-in-hand with owners and investors in order to maximize the value of the hotels. If we can help that investor win, then we would like to win as well. We're not necessarily interested in going down the path of interim – 60, 90, 120,180-day-management just for the sake of short-term management-fee income. We want to be aligned with investment groups that are focused on creating value for their portfolios, whether they own them for a couple of years or won them for several years. We have the advantage of working with many different investors now as in the past, and needs are different. We want to be able to help them with their strategy and their plan in order to create a win-win situation," said Russell.
Although the recession sparked the emergence of start-up management companies, Rohling indicated it's not unusual to see such entities begin to struggle.
"One of the realities of this business, especially as it has evolved, is that the owner/operator structure works reasonably well on a small scale, but as a third-party management structure it's very hard to get the economies of scale needed not having a larger portfolio to manage," said Rohling "You can only spread a multi-property person so far. Without scale for certain things like revenue management, purchasing and CapEx, as well as having the ability to interface at a higher level with the brands, it's tough."
Pillar, for example, recently found itself dealing with an "extreme renovation" at the 63-room Hampton Inn Binghamton/Johnson City in New York after the area was hit by severe flooding last fall. The ground floor of the hotel was completely renovated and now features the brand's Perfect Mix lobby.
Russell said in the current environment, owners are very focused on maximizing revenue. "It's very competitive. The lack of supply growth over the past couple of years has certainly helped the industry, but now's the time to really be in front and maximize sales opportunities for revenue management and great direct sales."
As might be expected, costs, in general, are a major concern. "Costs have gone up substantially and everything has gone up just in terms of raw products. And how do you stay in front of the cost of food going up, electricity, utilities, insurance, health care, state taxes? These costs are increasing much faster than our rates are going up across the board…maximizing the rate has really got to be a focus for people and keeping the costs at bay," said Russell.
"Sometimes that best financial performance is misconstrued in our business and is equated with cost-cutting. The business isn't that simple," added Rohling. "It's the magic of being able to enhance revenues and maximize productivity to maximize NOI."
Russell does feel there have been "lessons learned" by the industry as it gains traction coming out of the recession.
"My sense is that people are approaching the business smarter today than they did several years ago," said Russell. "It's really important for us, Pillar, to maintain a balance, whether we're in a downturn like we were in '08, '09, or a little bit of an upturn like we are now, maximizing the revenue, minimizing the cost and making sure the employees and the guests are really taken care of."
©HOTEL BUSINESS®/ICD Publications, Inc.
Reprinted by permission of HOTEL BUSINESS®
O'Connor, Stefani C.. "Pillar adds veteran Rohling to help accelerate growth." Hotel Business 21.5 (3/12/2012): 7, 45-46. Print.