Hotel franchisers, brokers and private ownership groups know business investment can improve the lives of individuals, families and whole communities. Episode 284 of Lodging Leaders podcast explores how leaders in these industry sectors are telling the stories of wealth creation through hotel investment to Black and other minority business people. This report is part of our ongoing coverage of diversity, inclusion and equality in the U.S. hotel industry.
When Choice Hotels International in July appointed John Lancaster regional vice president of emerging markets, it was a significant achievement for the executive who was raised in government housing in Washington, D.C., and got his first hotel job as a lifeguard.
Lancaster attended Howard University on a swimming scholarship, graduating with a business degree. Today, the Bison is the only Historically Black College and University or HBCU Division 1 swim team in the country.
John Lancaster, regional vice president of emerging markets at Choice Hotels International, was a competitive swimmer as a student at Howard University in Washington, D.C. Lancaster is determined to make his mark in hotel leadership by expanding Choice Hotels’ mission to recruit and support more minority hotel owners.
A college swim team of mostly Black students is an anomaly but Lancaster doesn’t think it should carry over into hotel ownership.
Lancaster said while coming of age in the nation’s capital he saw billboards advertising hotels but he had no idea the properties were franchised. And he certainly never thought a Black person could be part of that.
His mission is to grow Choice Hotels’ franchised ranks by recruiting under-represented minorities as investors and owners of the company’s branded hotels.
The charge, he said, comes straight from the top.
Stewart Bainum Jr. is chairman of the board at Choice Hotels International, which his late father founded in the 1950s. It is Bainum who leads the mission to bring more minorities into hotel franchising, Lancaster said.
Choice Hotels offers financial incentives to qualified franchisees. It could be key money or help with construction costs. In most cases, the loans are forgiven over a period of time.
In its second quarter 2020 filing with the SEC, Choice Hotels reported that, for the six months ending June 30, it had advanced $12.6 million to owners for new construction or renovation projects. It noted it had commitments for an additional $288 million for franchised hotel development.
Lancaster said while financial incentives are helpful in attracting new owners, he spends much of his time educating prospective investors on the fundamentals of hotel investment.
“It’s not just the fiscal capital that’s needed but more so the intellectual capital that we need to get these potential owners interested in buying hotels,” he said. “Many people I speak with in other industries just don’t understand the hotel business, they just don’t understand franchising.”
NEW ROLE: John Lancaster has been with Choice Hotels International for six years. In July, the company announced his appointment as regional vice president of its emerging markets.
The education process can be a long one.
Lancaster’s been with Choice Hotels for the past six years. About five years ago, he met a woman interested in hotel ownership during an annual conference at the National Association of Black Hotel Owners, Operators and Developers or NABHOOD. Her family owned and operated other franchised businesses but she knew little about hotels.
It took more than two years of coaching and connecting her to a broker as well as prospective lenders to get her to the point where she could confidently acquire a property. She became a Choice franchisee in 2019.
“Once you have that understanding and move forward, that’s what happens,” Lancaster said. “They may know business, but they don’t know the hotel business. The clients may know real estate, but they don’t know how to operate a business.”
Adding to Choice Hotels’ financial incentives and willingness to educate prospective owners, is a new program for under-represented minority owners who will meet with CEO Patrick Pacious to share ideas as well as learn what’s next for the company.
Lancaster noted most minority owners are not only interested in making money. “They want to create jobs. They want to give back to the community.”
LISTEN: ‘MAKE SOMETHING BEAUTIFUL’: Black hotel developers and designers are emerging to tell the stories of Black history, heritage and culture through boutique hotels. Pictured is the living area in a Tiny Urban Escapes’ unit built from shipping containers. Check out Long Live Lodging’s Episode 283 multimedia report that explores two developers breaking new ground.
Lawsuit Claims Discrimination
Though Lancaster is dedicated to boosting minority ownership at Choice Hotels, the company has recently faced backlash from Asian Indian owners who filed a lawsuit against the company and its franchise owners council alleging unfair business practices.
The suit filed on June 16 in U.S. District Court in Eastern District of Pennsylvania claims the franchiser mandates owners buy products from designated third-party vendors who inflate their prices and allegedly provide kickbacks to Choice Hotels.
The suit’s 100-plus plaintiffs are Indian American. They claim racial discrimination, saying the franchiser’s alleged unfair practices purposely target Indian American owners, which comprise 80 percent of its franchisees. The suit claims the Choice Hotel Owners Council loads the council’s leadership with white owners who do not consider the ideas or needs of the Indian American owners.
On Aug. 19, lawyers for the defendants filed a motion that the court allow Choice Hotels to arbitrate each plaintiff’s case individually. The courts have in the past sent franchisee complaints through Choice Hotels’ arbitration process.
In response to Long Live Lodging’s request for a comment, a Choice Hotels spokesperson provided the following:
“The allegations in the lawsuit are unfounded.
“Throughout its over-80-year history, Choice Hotels has always had a strong commitment to the success of its franchisees, most of whom are small business owners and the majority of whom represent diverse backgrounds, and we are immensely proud of our best-in-class voluntary franchisee retention rate of 98 percent. We are honored to be stewards of such long-standing relationships, and our franchise model is designed to be the foundation of a mutually beneficial relationship – our franchisees’ success means Choice’s success. There is clarity, disclosure, and opportunity for discussion regarding the terms prior to hotel owners making their decision to enter into our franchise agreement.
“Further, Choice does not tolerate any form of discrimination. Choice is regularly recognized for its long-standing and deep commitment to diversity, equity and inclusion, and our brand promise of ensuring that everyone, including our franchisees, is welcome, wanted and respected, underscores these values. We have an open line of communication with our franchisees and always welcome discussion of any specific concerns and experiences, so that we may swiftly investigate and take action, as necessary, in accordance with our values and policies.”
‘Building an Ecosystem’
Lancaster does a lot of speaking at colleges and high schools to introduce young people to hospitality careers.
“For me it is a passion, I weave it into each and every course that I teach, specifically at the HBCUs,” he said.
He also leads students to think like entrepreneurs. “I ask, ‘You walked into this building today, but who owns this building?’”
Outside the classrooms, Head also conducts workshops on hotel ownership for first-generation owners, including members of African American and Latino communities.
Head is a member a historically black fraternity. He uses his connections and friendships with members to talk about hotel ownership. His message is hotel ownership is more than just owning a piece of commercial real estate. It’s a strategy that creates wealth “that ultimately promotes generational change.”
That message speaks volumes to underserved and underrepresented Americans.
But the story has to be told in terms that everyday folks can understand. And a plan needs to be crafted that guarantees the rising tide will lift all boats.
Head lays out how he goes about telling the story of building prosperity for minorities through hotel investment.
“What we focus on is how hotels are economic drivers,” he said. He takes students to the American Hotel & Lodging Association website that shows one in five jobs in the U.S. are supported by the lodging industry.
When Black investors can push hotels’ third-party managers to hire women and minorities as general managers. They can urge managers to recruit interns and new graduates from HBCUs. They can intentionally do business with minority vendors. If a vendor is not qualified by the brand to supply the hotel, the owner can turn to the brand to advocate for the supplier.
“You’re actually building an eco-system,” Head said. “By investing in hotels, you can make money, but you can also make an impact.”
Head also sees a need to educate investors of other commercial real estate assets.
Many people might believe most Black people don’t invest in hotels because they don’t have money or they lack access to capital.
While that’s true for some, there are others who have money but don’t consider investing it in hotels.
“The biggest obstacle is information,” he said. “It’s not lack of capital. I sit with Blacks and Latinos who own restaurants, apartments and car dealerships. A lot of people don’t know hotels are franchised.
“When I start to break it down and I walk through a pro forma, they expect me to explain how to split an atom. When I explain, they say, ‘Wait. That’s it? That’s really it?’ They are not blown away by how capital intensive it is, they just needed someone to walk them through it.”
‘LET’S OPEN’: Hotel Development and Management Group of Ocala, Florida, owns the SpringHill Suites by Marriott in its hometown. The photo of the hotel accompanied an opinion piece by Navroz Saju, president and CEO of HDG, that ran in the Ocala Star-Banner newspaper on April 30. In the column, Saju urges government leaders to consider the human cost of unemployment as they plan to reopen the economy. Florida Gov. Ron DeSantis began to reopen the state on May 4. Hotels could remain open if they housed “essential lodgers,” including first responders and health care workers, and sheltered people dislocated from home and victims of domestic violence.
While Head meets a lot of minority owners of other commercial real estate assets with money to invest, one family-owned enterprise purposefully targets small investors.
Navroz Saju and Azim Saju are brothers and owners of Hotel Development and Management Group in Ocala, Florida. The company has a portfolio of 19 hotels in the Sunshine State. Their new Comfort Suites in Gainesville opened this week.
The Sajus are of Indian descent but the family hails from Tanzania, East Africa, arriving in the U.S. when Navroz and Azim were boys.
Navroz Saju, left, is president and CEO of Hotel Development and Management Group in Ocala, Florida. His brother, Azim Saju, is vice president and general counsel of the family-owned company that has 18 hotels in Florida with a 19th under construction in Gainesville.
Hotel Development and Management Group has grown over the past several decades by developing and operating branded assets. Its success is also shared among minority owners it brings into the fold through its investment strategy.
Navroz, president and CEO of the company, said, “Hotel development requires a tremendous amount of capital” and HDG seeks investment partners who can fill in the equity gaps of a project’s cost.
Before the coronavirus pandemic and the subsequent downturn in the lodging industry, lenders wanted 2o to 25 percent owner equity in a project. Navroz expects post-pandemic the gap will widen to 30 or 35 percent.
WATCH: COMMUNITY PARTNERS: Hotel Development and Management Group shares the story of its mission to build a culture that educates and promotes a diverse group of employees and supports the neighborhoods where it does business.
HDG has developed a minority equity fund to attract and build wealth for investors. Besides adding capital to HDG’s projects, new investors can gain a foothold in an industry in which they may have struggled to take part.
“We’re blessed now to have a platform and have a hotel development company that when we do go to a lender, we have a track record,” Navroz said. “We’re lucky. Our parents started the business; we had a base to start with.
“There are a lot of successful minority Americans that have capital, and they want to invest in items in addition to the stock market or their 401(k) plan.”
But without a track record in hotel development, it’s hard to find willing lenders. Along with building an investment fund, the Sajus also spend time teaching about hotel ownership and operations.
“Navroz and I take an approach in raising money that it’s not about raising capital, it’s about education,” Azim said. “We try to educate them on all the different facets of the development process and then the operational process.”
Sometimes the prospective investors decide to buy or develop a hotel on their own but Azim doesn’t see that as a waste of his time.
“We take it as a way of us positively impacting our industry and investing back into the people who make up this industry regardless of their experience and financial capacity so that we can grow the pie and grow the number of people at the table who are beneficial to the industry.”
The Saju family’s first hotel was a Howard Johnson by Wyndham along Interstate 75 in Ocala. The property is still in the HDG portfolio and is among its highest performers.
The general manager is Cedric Trueluck who started in an entry-level role and rose to become part owner of the hotel. Now that he’s more than an employee, Trueluck has become more thoughtful and pragmatic in business, Navroz said.
“When people come into the hotel looking for the leader, Cedric can say, ‘I am the leader and I’m also an owner in the company,’” he said. “The education that that statement provides and the inspiration it provides to his peers? That’s priceless.”
Resources and Links
Lodging Econometrics has tracked the hotel industry since 1998. Its global database includes new-hotel pipelines as well as renovations and brand conversions. Hotel franchisers once eager to launch new brands are focused on converting existing hotels because it’s a faster way to recover revenue lost to the COVID-19 pandemic than through new construction. In Episode 346, Lodging Leaders explores the increasing number of conversions in the U.S. hotel industry and what owners and operators need to consider before repositioning an asset.
In the first few months of the COVID-19 pandemic in the U.S., financiers anticipated a swell of distressed hotel businesses. Some raised rescue funds to respond to what they thought was a pending crisis. Though there are financial rescues taking place, the level of such activity is far below what industry advisers and fund managers expected. Commercial real estate investors positioned to act in the early days of the pandemic held off and are now just beginning to unleash their cash hoards totaling billions of dollars. Episode 345 of Lodging Leaders podcast explores the state of capital investment in the hotel industry.