Company. Coral Hospitality
Key. Focus on serving customers well and the business will grow.
When Credit Suisse foreclosed on the luxurious Gansevoort Miami Beach hotel earlier this year, the investment-banking firm undertook a national search for a management company to run the resort.
The bankers didn't need to look too far.
Naples-based Coral Hospitality got the nod to manage the $350-million glitzy hotel and condo project, which features a 50,000-square-foot David Barton gym and spa, a rooftop pool and nightclub.
For Coral Hospitality, managing such a high-profile property for a global institutional investor was a huge coup over much larger rivals. That's because lenders like Credit Suisse are foreclosing on luxury hotels they financed during the boom and they need management companies such as Coral Hospitality to run the luxury properties while they figure out what to do with them. “It was like getting the Good Housekeeping Seal of Approval,” says Lee Weeks, 52, the CEO of Coral Hospitality.
As more institutional lenders acquire luxury resorts through foreclosures, Coral Hospitality's management will likely be in greater demand. After all, investment bankers aren't in business to run hotels.
Of course, the foreclosure-management business wasn't exactly in Coral's plans five years ago. “We were poised to manage condo hotels,” Weeks chuckles.
But Weeks has been careful to never grow his company too quickly and that has allowed Coral Hospitality to remain nimble and respond to changes in the market. Founded in 1989, Coral manages 34 independent luxury hotels, golf clubs and condominium associations. “We never grew the company until we had the finances,” says Weeks, a longtime hotel-management executive who served a stint as vice president of operations for Atlantis, the massive resort in the Bahamas.
Besides managing properties, Coral Hospitality also has the ability to help its clients finance acquisitions and dispositions of properties, a key that distinguishes it from its competitors.
Coral, which also has its own stake in six properties, works closely with EFO Holdings, a private equity group controlled by the Esping family of Dallas. EFO provides equity and the balance sheet that allows Coral and others to borrow. “Banks are lending on the right deals,” Weeks says.
Weeks says investors with his company have an advantage because they have an “insider” managing the property. For example, besides the management contract, Coral will also have an equity stake in the Jimmy Buffett-themed Margaritaville hotel that is scheduled to open in Hollywood in 2013.
With demand growing for its management skills and its ability to maintain rates and occupancies for its clients, Weeks says Coral is having its second-best year. The firm disclosed revenues of $8 million in 2009, up 60% from the prior year. It charges 3% to 8% of top-line revenues to manage hotels and $70,000 to $240,000 annually to manage golf clubs depending on the number of holes.
Weeks and founding partner John Ayres Jr. built Coral Hospitality by carefully growing its portfolio of luxury hotels, even during the boom. “It's not about volume,” Weeks says.
Rather, Weeks says the key to managing hotels well is to hire the best managers and devote the time needed to improve operations. “We try to create a culture of service,” he says.
The key metric in the hotel business is “revenue per available room.” Known by its acronym “revpar,” it's a product of occupancy and average daily room rate. Some hoteliers lower rates to boost occupancies, but Weeks falls squarely in the rate camp to boost revpar. “It's all about the rate,” he says. “The occupancy will never get you there.”
Customers at luxury resorts will pay the full rate if they perceive value, Weeks says. For example, at Coral-managed resorts, guests pay one fee that covers everything from bottled water to Internet access. The resorts maintain the rate but they don't “nickel and dime” guests, resulting in better revpar than competitors, the company says.
From the beginning, Weeks sought to diversify the company's resorts geographically. Besides Florida, Coral manages hotels in Georgia and the Caribbean. Coral also diversified its operations into golf clubs and residential community management.
As it grows its portfolio of properties, the challenge today is to leverage its people and systems to maximum efficiency while maintaining quality. For example, the firm employs five controllers who oversee a centralized accounting system for all the properties it manages.
Like most businesses, the hospitality industry faces economic and regulatory headwinds that require constant vigilance.
“If you don't have your finger on your business, the economy will swallow you up,” Weeks says.
Season's outlook dims
Don't expect a big rebound in the hotel business this winter.
Lee Weeks, the CEO of Naples-based Coral Hospitality, says people are still traveling but he expects occupancies at high-end resorts to drop about 5% this winter. More moderately priced hotels may see bigger drops. “Season's going to be off a bit,” he says.
In particular, Weeks is concerned that the bad publicity generated by the BP oil spill this summer will keep some domestic and foreign tourists away. “The oil spill truly hurt the entire state,” Weeks says.
The further tourists are from Florida, the less likely they are to distinguish between the oil-stained Panhandle and the rest of the state. European tourists may perceive incorrectly that the entire state was tarred. It's a perception that's been amplified by the debate among scientists and government officials over whether the oil has disappeared.
A beneficiary of the disaster may be resorts in the Caribbean, where airline service has grown in recent years and hoteliers are eager for business. “They're hungrier down there right now,” Weeks says.
The luxury resorts may be better off than lower-priced hotels because the top 5% of travelers aren't canceling vacations. But corporate business remains dormant, even after a tentative rebound in the spring. “Corporate group meetings became almost non-existent,” Weeks says.
Much of the uncertainty in corporate travel has been the federal government's anti-business sentiment. Increased taxation, insurance and regulations add to the uncertainty keeping businesses from spending. “We are at a complete and total standstill,” Weeks says.
Weeks cites increased health-insurance costs for his own business as an example. “Obamacare killed us,” he says. “It went up more than it's ever gone up.”
By contrast, Weeks says the state of Florida and local tourism groups have done a good job marketing the state during the spill, Weeks says. The advertising blitz may pay off. “Everybody is staying closer to home,” he says.