Dual-branded hotels: Short-term solution or long-term strategy?

The dual-branded hotel model has been attractive to many hotel players since the early 2010s, but the idea of doing more with less has garnered particular favor in the current environment – for good reason.

High interest rates, labor shortages, the increasing appeal of mixed-use developments, less available land, heightened material and construction costs and the ability to pull in different but complementary types of travelers have put this efficient model front and center for certain hotel investors in certain markets.

Mark Kallenberger, principal of hotel investment consultant firm Kallenberger Jones & Co., believes the dual-branding approach can be win-win-win.

“It is market-driven in that it benefits hotel guests, franchisees and franchisors,” he explains. “Hotel customers are afforded more purchase choices, increasing the possibility they’ll find ones that better meet their needs. Franchisees are often able to realize higher financial returns and possibly limit competition from other developers. Franchisors are able to enhance the distribution of their brands, especially when launching new brands.”

The benefits of dual branding

The efficiencies inherent with the dual-branded model are particularly attractive to franchisees who face high development costs. The price of construction materials, labor and land increased steadily post-pandemic through 2022, according to CBRE, with many markets experiencing an increase between 10 per cent and 20 per cent. These costs remain elevated, though stabilized in many markets.

“The per-room cost of developing a market-supported dual-branded hotel is likely to be lower than that of a single-branded hotel largely because it should have more rooms since it is appealing to a broader swath of hotel customers,” Kallenberger adds.

Clarence T. Vinson, president of PFVS Architects, adds that diversity and density are two big bonuses with the dual-model, especially in this competitive environment.

“Real estate and land prices are growing every day,” he says. “Dual and triple brands allow the developer to build more on smaller parcels.  It especially is an advantage in urban areas where lots can be very small.”

Lightstone knows this firsthand. The privately held real estate company opened the Moxy Downtown Los Angeles and AC Hotel Downtown Los Angeles in April 2023. The 37-story tower contains a total of 727 keys, in addition to 12 dining and entertainment venues and 13,000 square feet of meeting and events space.

"By integrating the two hotels…into a single building, we're creating a myriad of experiences never before offered in Los Angeles – and keeping it all affordable,” said Mitchell Hochberg, Lighstone’s president, in a release announcing the opening.

And just like that, the benefits to consumers become apparent. Noah Silverman, Global Development Officer for the U.S. and Canada at Marriott International, notes the varied offerings, price points and experiences are what dual-branded hotels aim to provide.

“The Moxy Downtown Los Angeles and AC Hotel Downtown Los Angeles appeal to both business travelers in town for a conference and younger guests eager to explore an up-and-coming part of the city,” he says.

Silverman is particularly excited about this model when Marriott is able to pair one of its extended-stay brands with a brand in the premium segment. Such was the case with the 270-key Le Méridien and Element Salt Lake City Downtown, which was developed by the Ritchie Group in early 2023.

“The fusion of these two brands under one roof offers guests flexible options for an experience that fits with their length of stay and lifestyle, including room categories, amenities, design and price point,” Silverman continues. “The two hotels also share a signature restaurant that provides locally sourced options, catering to the wellness-minded travelers of the Element brand, with a global influence that appeals to Le Méridien’s target guest.”

Sharing is another key advantage for dual-branded franchisees. Two hotels under one roof can maximize the efficiencies of staffs and systems. This can be seamlessly achieved in the back of the house with shared maintenance, housekeeping, administrative and laundry rooms.

Front-of-house operations can also benefit from this collaborative approach when the two hotels can share front desks, elevators, and amenities, such as restaurants, gyms and pools.

Robert Mandelbaum, research director at CBRE Hotels Research, adds that maintaining two separate reservations systems can actually bolster the dual-branded hotel’s overall occupancy.

“Operating with the benefit of two reservation systems provides an opportunity to attract diverse demand segments to the property,” he says. “I have heard from clients that they won’t ‘shut down’ the reservations system when they sell out one half of the hotel.  They simply ‘walk’ the additional reservations to the other side of the building.”

Doubling down

Maximizing efficiencies while cutting costs and appealing to a wider guest demographic make the benefits of dual-branded hotels obvious, but, like everything in life, these benefits can come with a cost. Investors need to closely consider these pros and cons to assess whether they’re sacrificing long-term viability in favor of alleviating a few temporary pain points (i.e. costs, labor shortages, etc.).

First, not everyone shares well.

“Some brands do not allow for the sharing of a common registration area or employee uniforms,” Mandelbaum cautions. “This limits the construction and operational cost efficiencies that owners look for when developing a multi-branded hotel.”

Vinson adds that some brands require completely different entry points, lobbies and public areas. These are not small things when it comes to hotel design. For this reason, Vinson prefers corner lots where separate entries can be put on each side. Extra elevators may also be required if they can’t be shared between the brands.

Then there’s the issue of food and beverage.

“Some brands offer free breakfast or evening drinks,” Vinson says. “So, the two brands need to recognize this with the layouts and operations of the two different brands to prevent cross circulation in the public areas.”

Creating a physical separation is generally the accepted strategy. This is usually done by hosting the free breakfast on a dedicated floor – one that can only be accessed via a key card from that brand. Paper tickets or simply showing one’s key card work as well, though this issue of separate offerings brings up another hurdle for dual-branded properties: guest confusion.

It behooves both brands to clearly communicate what the guest experience includes at the given property, paying special attention to whether there are access or amenity restrictions. On the flipside, having two brands at a guest’s fingertips provides endless opportunities to introduce or familiarize that second brand, cross sell or upsell.

Whether a stay at a dual-branded hotel creates positive experiences or confusion comes down to the operator and – even before that – to the investor and developer.

“The dual-brand model requires much more market research, design detailing and project planning since it effectively requires assessing the potential of two hotels rather than one,” Kallenberger says.

He believes this model works best with traditional and extended-stay components. That’s because the extended-stay guests can bolster occupancy on the weekends, which are often low periods for traditional hotels. Silverman agrees, noting he has seen “great success” with the co-mingling of two Marriott Select Brands: TownePlace Suites by Marriott, which offers an extended-stay model, and Fairfield by Marriott, a transient-stay brand.

“This combination offers a wider range of stay purpose and travel type,” Silverman explains. “In turn, owners often benefit from the higher RevPAR performance that this combination can yield.”

Vinson notes better returns may also be achieved through dual branding as it can plant that brand’s figurative (and literal) flag in a region.

“The developer takes the advantage of removing one or two other competitive brands off the market for its location,” he says. “This locks in potentially better returns on the investment.”

Naturally, investors must first check with the desired brands to ensure their region is available, as many hotel chains won’t allow the same brand to operate within close proximity to one another.

Kallenberger cautions that perception should also be considered when luxury or higher-end brands are in the mix.

“A drawback of dual-branded hotels can be the weakening of the market image of the higher-rated brand,” he says. “This could adversely affect its performance – something the franchisor would seek to avoid.”

That’s why he believes interested investors must understand the current and future hotel market, noting that the size, depth, and composition of the regional and local hotel markets are critical.

Marriott works closely with its development stakeholders and global design partners when evaluating the dual-branded option for this reason. The company has more than 350 open hotels and nearly 450 signed pipeline hotels that are one part of a co-branded location.

Silverman notes that the first factor to consider is what brand pairing makes sense for the location, as that will dictate how the spaces can be used and shared. Potential investors must also assess the size of the total property to determine if the dual-branded model is feasible or if the space is better suited for a single-brand hotel.

When done right, however – now or in the future – this model can be a winner.

“With financing and interest rates continuing to present a challenge in many parts of the world, opportunities like multi-branded properties have the potential to help manage costs and deliver a more efficient operating model, while providing a product that is mutually beneficial for owners and guests,” he says.