Turning troubled inns around

Published 9:00 pm Sunday, December 28, 2003

EDMONDS — In Monopoly, buying hotels is a prime game-winning strategy.

While that’s not always the case outside the simplified world of board games, The Hotel Group Inc. has shown itself to be an adept player in managing and owning properties.

"If you look at our track record, the opportunities have been there no matter what cycle the economy’s in," said Doug Dreher, president of The Hotel Group.

The Edmonds-based business, which specializes in turning around hotels that have struggled, owns five properties and manages another 21 in nine states. This past year alone, it bought and renovated a 224-room hotel in San Antonio, Texas, and a 317-room Hilton hotel in Knoxville, Tenn. The firm also guided three new inns through openings.

The firm also has given notice that it wants to buy more in the coming year.

But The Hotel Group, isn’t about to grow with abandon, said Edmond Lee, the company’s 53-year-old chief executive officer.

"We have the capacity to buy several hotels, but the likelihood is we will buy just two or three," Lee said. "Our criteria is strict. … We may look at eight or 10 before deciding to buy one."

Lee entered the hotel industry by accident. When he was an accountant, one of his clients did business with hotels, so Lee learned more by keeping track of the books. When the client moved to start a new business, Lee negotiated a deal to take over the businessman’s portfolio of three hotels.

That was the birth of The Hotel Group, which started in Bellevue but has been in Edmonds since 1986. It has remained profitable, and expanded over the years by adjusting to changing times in the hotel industry.

In the late 1980s, for example, The Hotel Group began accepting management contracts to guide new hotels through their openings. Also, when a 1986 tax code change allowed lenders to own and operate hotels, The Hotel Group specialized in overseeing those properties for the lenders.

When the savings and loan crisis hit in the early 1990s, The Hotel Group formed a joint venture to take over and sell off hotels held as assets by the failing banks. That ended a decade ago, so Lee and his team then began buying and holding on to hotels, rather than just managing them.

The firm’s evolution in response to industry changes, along with the strategy of not holding properties just in one region of the country, has served it well, Lee said. When Commercial Property News ranked the nation’s hotel companies earlier this year, The Hotel Group was among the 30 biggest.

"In the hotel industry, we’re fairly well-known and respected, I think," Lee said. "But we like to be quiet."

Michael Mohn, a principal with the Jinneman, Kennedy &Mohn hotel consulting firm in Bothell, said The Hotel Group’s results speak for themselves.

"What they do, they do very well, and they do it across a wide geographic area," Mohn said. "They’re definitely players out there."

The dollars that allow The Hotel Group to add to its property holdings come from private investors, Lee said. He made clear their preference to remain as a private firm rather than becoming a real estate investment trust.

"We buy from them and sell to them," Dreher said of the investment trusts. "But we have no desire to be like them."

Dreher, 39, joined The Hotel Group in 1989 with a background in the hospitality industry. An Edmonds native and graduate of Washington State University’s well-reputed hotel administration program, Dreher quickly rose to become a regional manager for Westin Hotels &Resorts before joining the Edmonds firm.

On a shelf in Dreher’s office sits a Mr. Steak cap he wore as a 16-year-old dishwasher at the Mr. Steak restaurant in Lynnwood. Pointing it out, Dreher talks about his contention that providing good service at a hotel begins with people in what are perceived to be the lowest jobs, such as the dishwashers and cleaning staff. For that reason, The Hotel Group focuses on being a preferred employer and finding the right people to work in its hotels, he said.

Dreher and Lee said there usually are simple reasons why many of the hotels the business buys or is contracted to manage aren’t doing well.

"Almost always, a property that has failed has management problems and is undercapitalized," Lee said. "So we renovate the staff and the property."

"Renovating" the staff doesn’t always mean firing people, he added. Sometimes the existing staff members just need more training in customer service.

Dreher said he looks at improving everything from reservation tracking to banquet services when The Hotel Group first takes over a property.

To handle all those different aspects, The Hotel Group’s corporate staff includes people with experience in food and beverage services, construction management and franchise relations.

"It’s soup to nuts," Dreher said, "It’s an incredibly detailed business."

But the strategy of buying failing hotels at severely reduced prices, making improvements and then selling the strengthened businesses at the right time has brought good returns for the firm’s investors. Especially with the tourism industry showing some revival. Lee and Dreher said they’re looking forward to The Hotel Group’s 20th year.

"It’s an interesting business, it’s a challenging business," Lee said. "You have to fill up the rooms every night."

Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.