Development Trends and Opportunities for Growth - Julienne Smith, IHG

Josiah: Let's start out at the very basics for people who maybe don't understand the development world. What does a chief development officer do?

Julienne: Well, it's interesting. It's really sort of chief owner relations person, I would say, because at a brand company like IHG, we primarily franchise. We also manage some hotels. We also have some ownership interest in some hotels, but really the bulk of our estate existing and future is with franchise partners, people who are building hotels or buying hotels on their own balance sheet, licensing the flag with us, and operating themselves. So I work with our ownership community on existing and prospective partners.

Josiah: You got involved in hospitality in a somewhat untraditional path, and that is through the world of real estate. And maybe for people who don't understand that world super, super well, why should people who care about hospitality care about real estate? What's that connection to hospitality?

Julienne: Well, if we don't have hotels for people to stay in, we don't have hotels for people to stay in, right? So having someone who's interested in investing in a hotel is paramount because that keeps hotels new, fresh, and exciting when there are real estate investors who appreciate hospitality as an asset class. There are lots of asset classes, residential, office, and industrial. Hotels are tricky because they're at zero occupancy every morning, so to speak. But they're also interesting because you can set your rates every day. So it's a volatile business, but it's certainly a lucrative one if you pick the right location with the right brand and have the right programming and philosophy in place.

Josiah: So it can be tricky, but it also can be compelling. Over the past couple of years, what would you say in terms of trend or demand have you seen for hotels as an asset class within real estate? Do you see more capital moving into hospitality? And if so, what's it been like?

Julienne: Well, there always is capital for hospitality. There's an interest on the equity side, and there are some players who have cash that they're ready to deploy. What's challenging today, more so than ever actually, is the interest rate environment and how high the interest rates are. So the returns for owners and investors are a bit eroded because everything else is high, too. Cost of labor, cost of construction, cost of goods, everything's at an all-time high. So to layer on that additional expense of the capital stack is a challenge. Now that's lent itself towards more of a conversion or adaptive reuse environment, where owners are looking within their own portfolio to say, am I branded correctly? Is this the right use for whatever the structure is? Or do I want to buy some assets? Unfortunately, there is some distress out there, not a ton. We are anticipating more of it to come next year. But what can I do? How can I leverage my capital in the right way? Development is still moving forward, but certainly not and to the degree that it was before the pandemic. Before the pandemic was likely some of the best development times that we've seen. Developers were building hotels and getting really good solid exits and purchases from REITs in particular. It's a little bit different now with the headwinds that we have. But what I like about the development community and the ownership community is they're all very entrepreneurial, right? And they don't want to just sit on their cash and just watch it sit there, right? So investing and moving forward, knowing that in two or three years when the hotel is ready to open, we'll be in a supply constraint environment because we're mostly focused on conversions, sets them up for a really good opportunity to perform well and see those returns that they maybe didn't quite see during the pandemic.

Josiah: That's an interesting point, and I always love hearing what can be done now, even given the challenges that we have, what can be done, right? You alluded to some of this. Are there other recommendations you have for real estate owners, and investors on what we can do in this environment at this moment?

Julienne: Keep your hotels fresh. I mean, there's this healthy tension between owners and brand companies like IHG, where we want the best experience for our consumers. They certainly want a good experience for their consumers too, but they also want a return on their investment. So maybe not doing that upgrade right now is the best for their investment, but maybe they're leaving rate on the table or they're not enjoying the type of occupancy that they could if they were renovated. Now, with that being said, I would say all the major hotel companies, IHG included, are willing to work with owners on what that property improvement plan might look like. So what that reinvestment plan could look like that has the most potential for an ROI on whatever they might be looking at.

Josiah: We've seen a lot as an industry over the past couple of years. How have those property improvement plans or how you've thought about approaching those in those conversations evolved recently? And I'm curious where you see this going.

Julienne: I think the overarching theme is what has a return on the investment. What is really the most guest-facing or associate-facing piece that will help drive performance on the consumer side? Obviously, it's the guest room in the lobby experience and making sure it's something that resonates with our consumers. But on the associate side, really making sure that tech is invested in to make more of a seamless experience for associates we're not known to be sort of tech-forward in the hotel business just broadly speaking and when you have a young associate or a new associate in this field working behind a front desk and it's difficult for them to understand. how to log in, how to check somebody in or whatever it might be. That's friction, right? That's causing us to lose people to the gig economy and other areas where there's more flexibility and it's sort of easier maybe to get ramped up. So that's a huge focus and an area where we should really all collectively, owners and brands included, focus our efforts and attention because we want that new talent coming to the hotel industry and continuing to deliver great hospitality.

Josiah: To the point of brands, I'm trying to understand more about hotel brands and you have behind you some of the logos you have. There's a lot there. Why do you have so many brands? What does that do for you and your company?

Julienne: Yeah, I think what we've shifted towards in the industry more broadly is the master brand opportunity where people, particularly in the US and in some other regions as well, but we tend to be tied more in the US to these points notion that's earn and burn, right? I go to Starbucks and I get points and I go there because of that, honestly. And the same thing's happening in the travel industry, whether it's airline or rental car. In the hospitality business, we're still delivering a great experience, right? We're just not a mode of transportation, as an example. We want people to stay, have a great experience, build memories with their families or their colleagues or whatever might be happening. But collecting those points and cashing them in has become extremely important. So there's a couple things. One is we need the product where people want to cash in. So we've highly invested in the luxury and lifestyle segment. So we now have Six Senses and Regent and Vignette. We bought Kimpton. Those are all newer brands to our portfolio overall so that when someone is maybe a Holiday Inn Express road warrior during the week for their job. When they're doing a reunion or some incentive trip, maybe with their colleagues, having that Kimpton or that Intercon to cash in or use for that is really important from a master brand standpoint. So having each of those opportunities for consumers to stay in is important. On the development side, when we look at any given market, we have some really devoted and loyal IHG owners who like to sort of own their market, so to speak. So if they've built an Express, maybe they're going to build an avid next or they've built a Hotel indigo, maybe they'll be building even next, so that they're able to continue to grow with us in those markets. So I see the brand portfolio twofold. It's a consumer solution so that we can kind of keep the consumer staying with us from their mid-scale experience at Garner all the way up to ultra luxury with Six Senses. And then from an ownership side, giving a variety of different investment opportunities either for a single owner or for a variety of different owners.

Josiah: That's fascinating. And in such a range, you think about many of these have very storied legacies, whether it's Kimpton or Six Senses, very kind of different types of hospitality. I'm curious, as you look into the future, where do you see some of the biggest growth opportunities for the company broadly?

Julienne: For us, it's that luxury lifestyle segment. Right now, about 85% of our open portfolio in the americas is what we call mainstream brands so that's your candlewood sweets your stay bridges your holiday express and a majority of those hotels are actually holiday express about fifteen percent of our open portfolio open hotels are luxury lifestyle category. Our pipeline's different. About 30% of our pipeline now is luxury and lifestyle. So we've really pushed to grow that. So where do those hotels live? They live in urban markets, large secondary markets, resort, leisure. That's really where we have the opportunity to grow. As you look at our key accounts, as an example, when we're negotiating on the global sales side with key accounts, they want to know where can we have our incentives trips. So having a portfolio of those options makes it more likely for them to book their business with us because they can use the Crown Plazas and the Expresses for their regular meetings throughout the year. And then when they want to really go out and do something big for their team or have an incentive trip, you've got a Kimpton in the Caribbean as an example to do that. And five, six, seven years ago, we didn't have any of that. So we're really doubling down on that growth opportunity. We've also launched a couple of brands that are conducive for conversion, which is fortuitous for this environment that we're in. So Vignette, voco, Garner in particular, those are really set up to be conversion brands. And we've had a great pipeline of those hotels given the current environment.

Josiah: So you say the current environment is conducive to this. Speak a little bit more. What's the opportunity with conversion?

Julienne: Many hotels reach sort of their useful life with an existing brand, either the market has shifted, and they need to upbrand, they need to downbrand, or they're buying an asset that's unencumbered by brand and trying to figure out, okay, what's the best use for this hotel. So we see a lot of opportunities with owners who want to do something different. Maybe they're with a family of brands, they no longer want to be a part of so they want to enter into the IHG system. And we've got some brands for them to choose from. Or maybe they're an existing brand, like there was a Staybridge in New Orleans that was sort of underbranded for the location. We converted that to a Kimpton with our franchise partner there. So we can get creative with, okay, so that hotel's been X, Y, and Z for 25 years. Is that really the highest and best use now that we have sort of this pivot point at the end of its license? What would be better here? Or does it need to be down-branded? Is it an express in a market where the market has shifted a couple of exits, and you can't get the rate? Would it be better suited for Garner? So we have that opportunity to be strategic in that regard based on the portfolio of hotels that we have.

Josiah: We've talked about some of the business opportunities and the growth opportunities on a company level, but I want to talk a little bit on a personal level for those listening. I think not everybody needs to work in the worlds of finance and real estate, but I do want people to be aware of the diversity of career opportunities in this space. And I wonder if you could speak a little bit to the potential that you see in the years ahead for someone to work in the worlds of real estate and development as you're leading teams of people now doing this at IHG.

Julienne: Yeah, so we do recruit often from the hotel schools. BU has a great program, Cornell, University of Georgia just stood one up. There's a variety of great universities, Penn State, Michigan State. And we do recruit heavily from those schools. I actually didn't go to hotel school. I did go to Boston University, but not the hotel school. And What I love about this industry is you can take an entry-level job, whether it's at the hotel or in a corporate environment, and work your way up. You don't necessarily have to have a specialized degree. Now, it does help on the real estate side today. And I do see the advantage there. And sometimes I think back, maybe I should have done that. But I think my path is just fine. There are many different opportunities also within a big company. So I've been a big company person my entire career. And although I've always been in development, I see others who've gone from legal. There are attorneys where maybe they don't really want to work on contracts anymore. They've gone over to development. Or I've seen people in investment analysis. That's a common sort of growth trajectory. They'll come over to development. Or global sales or hotel sales, and they'll come over to development. Or I've seen people in development say, I don't want to travel anymore and really focus on sales. I'd rather be in brand development. or marketing. So the opportunity to apply your skills and your interests within a large company is pretty infinite. So I'm a big believer on anyone who's not sure what they want to do in the hospitality world, take a position and see how it works out. Maybe network, maybe you figure out, hey, I took a job in marketing, but I'd rather be in sales or whatever it might be. There's also the ownership side. There's many franchisees who have large businesses now because they own 60, 70, 100 hotels, they also have a similar structure. They've got operations, oversight, sales, development, legal, and so forth. So even though my personal career has been on the brand side, I see many people on the ownership side, some of who are on my team now, and some of whom have left to join ownership group. The sky's the limit in terms of employment opportunity.

Josiah: It's interesting and you touched on ownership and maybe it's not something people immediately think about or for one reason or another haven't had the opportunity to kind of work in that or to become an owner or an investor themselves. I was speaking with Tracy Prigmore who runs She Has a Deal a few days ago and she and others are doing incredible work to try to get more owners, more women owners in the hospitality world. And I'm curious, because you're having these conversations, you're seeing things on such a macro level. I'm curious either what you're seeing or excited about in the ownership group becoming more diverse and kind of we see more people represented in these worlds.

Julienne: What I see or have seen over the last 20-plus years that I've been in this is people do business with people they are comfortable with, who they're friends with, who they've been connected with others, who they might be friends with or have done business with. So it's very much a relationship game. Many business people will say, well, anything is based on relationships, really. But even more so in the hotel development space, brokers refer hotels that are coming up on the market to people they've sold to before or friends that they've sold to before. Right. So it's a very tight-knit organization. So what that's created is an environment that's not necessarily very diverse. from that standpoint. Now from a culture diversity standpoint, we are diverse. 65% of our hotel rooms in the U.S. are owned by Asian Americans, right? So from a definition of diversity, we have diversity. But in the hotel space, they're the majority, right? So you see very few women, you see very few people of color and breaking into that network has been difficult, not by intention. I don't think there's any malice there. I just think it's friends of friends of friends, right? And that's just kind of how it has evolved. Tracy got into the business and she bought her first hotel and she stood back and said, gosh, I wish I would have known these 25 things. Her program's fantastic. I've seen it whatever the number is, I wish I knew these things. She built a program to help people not stumble the way she did. Now, people still need access to capital and there's other things that still need to be solved there. But what I love about hotel development and ownership is it's not rocket science. You don't need a specialized degree. There are some key points and some key perspectives to really clearly understand. You have to be willing to risk some money, but be mindful about how to mitigate some of those risks. Tracy's done a really great job of coming up with a program to help people sort of understand that.

Josiah: Well, it's great hearing that from you because you are at the top of your line of work at one of the biggest hotel companies in the world, right? And so you have this perspective. And actually, the person that introduced us for this conversation that we both know was speaking to kind of how you have consistently throughout your career brought others along with you. And now you're in this top job. But whether it is your work with the AHLA Foundation and the Board of Trustees, whether it is you serving on the Global Diversity, Equity and Inclusion Council within IHG, this has seemed to be a consistent theme of your career from those that know you. So maybe let's talk about the DEI Council within IHG. Are there things that you've noticed that have been effective at making our business more representative of our culture and giving people opportunities within hospitality? So my question is, what have you seen effective in these capacities being on the DEI council within IHG? What have you seen working for creating more representation and more opportunity within hospitality?

Julienne: I would say the primary factor is inclusion. We have a program called Ascend where we focus on mentoring and sponsoring individuals. This program focuses on people of color to get them in the room to be noticed and have the conversations. And that's how I was treated early in my career, my first a hiring manager. His name's Chris Ivey. He's retired now. He included me. He brought me into meetings. He said, listen into this call. Come with me to this meeting. You should network with the executive team. They should know who you are. He just was very open to my growth and was not guarded in any way and included me where appropriate. And I felt like that was the primary lesson I learned and what I could pay forward to anyone who's interested in growing in this business. We've gotten back to in-person. I think during the pandemic that was lost a little bit, but being able to bring in the junior person into a meeting to say, Hey, listen to this conversation because that's how you learn this business is really understanding what's being talked about, what owners are kind of focused on and so forth. So I think inclusion and just inviting people in is such a simple thing, but really impactful. So with the Ascend program, it's become more formalized in inviting people in. But I've seen some really great promotions and people saying, Oh, I didn't know this person had this skill set; she'd be great on my team, and people moving as I mentioned before that sort of career shift within a company like ice you can really go to another department as long as you're. Be made aware of now some of us, myself included, have the ability to raise, I can raise my hand and I can get in a room and I can network. Some people aren't always that way. So we have to recognize that and invite them in. I think that's the biggest piece that I see happening here at IHG and really more broadly in the industry.

Josiah: That's very actionable advice. Anyone listening can do this starting today, right? And so encourage all our listeners to do that. Julian, before we go, I always like to close with, you know, what are you most excited about right now, this moment or looking to the future? Curious what's firing you up these days.

Julienne: I think that we have a great opportunity at IT to grow. We have so much potential within our company. We have scale already. And now we've got the right brands to launch our scale even further. So I think continuing to engage with my owners. I love to see my owners build multiple hotels with us. We're seeing more sort of package deals these days, multi-unit owners. So I'm excited about that. I'm excited about the headwinds becoming some tailwinds in 2024. I think we can all use a little bit of that, but it's an exciting industry. I love travel. Many people do, and we've got great hotels to stay in. So I'm just generally excited.

Josiah: I love it. Thanks for taking some time to chat today.

Julienne: My pleasure. Thank you.