The Pluses and Minuses of Creating a Hotel Juggernaut

MarriottStarwoodSo, commercial real estate consolidation continues.

We have seen major brokerage firms consolidate in the last year, as well as some larger retail chains, specifically in the retail office-supplies arena.

Now, it looks like the commercial real estate industry is going to have an undisputed leader in the hotel sector. Marriott International is buying Starwood Hotels and Resorts Worldwide for $12.2 billion, unless regulators have objections to the deal. The Marriott-Starwood merger would reportedly create the world’s largest hotel company, with 5,500 properties under its operational umbrella, as well as 1.1 million rooms. Annual revenues for the brands, which include the Marriott family, as well as Starwood’s W, Westin and Sheraton nameplates, would hit $2.7 billion, based on each company’s 12-month financial results, ending Sept. 30.

So what does this mean for the hotel sector of commercial real estate overall?

Several things (some of which we are sure to miss, as the potential deal hasn’t entirely been absorbed by the industry):

  • With the merger of the two mega-hotel companies, we could actually see less overall brands/chains. Between both, Marriott and Starwood operate no less than 30 hotel chains. Some industry observers say that a Marriott-Starwood merger will necessitate a streamlining requiring the merging of two brands that are similar in the portfolio.
  • This brings us to…possible hotel closings. By many accounts, commercial real estate’s hotel sector is doing very well right now. A JLL report earlier this year said that hotel fundamentals are very strong, with transaction volume hitting $23 billion during the first half of this year, a 56-percent jump from the first half of 2014. This would lead us to think that the appetite for any redundant locations due to a merger would get scooped up by hungry investors.
  • Marriott-Starwood rewards points are reportedly a topic that consumers are already fretting over. It’s likely going to be a hassle to undertake it for the two companies, but when Continental Airlines and United Airlines merged a few years back, the process wasn’t the end of the world for frequent-flyer miles. Plus, the upside for customers is that they will have more properties to choose from for their stay, and the much-lauded Starwood frequent-visitor program was supposedly one of the major reasons Marriott was interested in purchasing its rival.
  • What the Marriott-Starwood deal means for corporate travelers. Well, when two large companies combine, it means they have more control over pricing, which isn’t necessarily beneficial to the end buyer. Travel budgets for large companies are reportedly in place through next year, but there is talk in the industry that headaches are bound to take place when budgets are set in 2016 for the following year.

The Marriott acquisition of Starwood has not gained final approval by regulators. Whatever happens, it is safe to say that there will be an impact on the hospitality/hotel industry and its competitors. Whether that will be good or bad for any parties involved seems to be up in the air…for now.

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