Finance and CommerceThursday, March 9, 2006
Minneapolis-based hotel unit followed a steady growth path in last decade, and its new leader has no intention of slowing the pace
When CSM Corp. chief executive Gary Holmes with looking for someone to head his company’s lodging unit last fall, he wasn’t looking for a Wall Street asset-manager type.
He was looking for a hotel guy, and that’s what he got in Rob Dann.
“I’ve been in hotels, literally, my entire life,” Dann says, indulging a little exaggeration. His career actually started at age 12 in the hotel his family operated in upstate New York. Dann went on to earn a hotel management degree at the University of Denver, and he’s been an operations specialist for some of the nation’s top hotel companies in the 23 years since then.
How much is the hospitality business a part of Rob Dann’s life? “I think that if I couldn’t be working in hotels anymore, I’d probably be dying.”
That’s probably another exaggeration, but Dann does seem happy and at home being in charge of the 38-hotel portfolio he took over as CSM Lodging’s president in October.
CSM Lodging has grown steadily since Holmes launched the unit 10 years ago as a subsidiary to his full-service real estate company, based now in one of its developments on Washington Avenue in Minneapolis.
CSM planned and built its first 30 properties, starting in the Midwest before extending to the Sun Belt and other fast growing markets along the coasts.
During the last two years, CSM picked up the expansion pace via acquisition, buying eight properties in four states to bring its portfolio to 5,290 units.
Dann says growth will continue to be the company’s focus, but he promises that it will come to CSM’s terms.
Hotel price tags have climbed rapidly in the past year, when the sector emerged as a darling of the real estate investment market.
But CSM will avoid bidding wars that make long-run earnings harder to obtain, Dann says
“If I buy only one hotel in a year and it’s a home run, that’s great. We just want to bring quality into the company,” he says.
That search for quality starts by finding markets with fundamental value and then developing a property and management team that can deliver solid earnings.
“Gary [Holmes] strategy is to go in and marry a market, and that long horizon suits me, Dann says. “We’re patient when we’re convinced about a market. We’ll buy a hotel invest in it, ramp it up, and if it takes three years to start doing well, we’re ready for that.”
The model is obviously working. CSM’s hotel portfolio topped the industry’s main performance benchmark – an earnings measure calculated monthly by Hendersonville, Tenn.,-based Smith Travel – by 20 percent this winter. Only two hotels in CSM’s portfolio fell short of the Smith Benchmark. Both were recent acquisitions however, and both were rapidly making up ground after major renovations.
Dann points to a recent Twin Cities transaction as another demonstration of the CSM model.
The company bought the underperforming Hilton Inn in St. Louis Park in 2004, adding $10 million in improvement before reflagging the property as a Marriott and CSM’s first full-service hotel. Since the conversion last summer, revenue per available room (RevPAR, the hotel industry’s main profitability measure) at the new Marriott Minneapolis West exceeded the prior year’s performance by close to 50 percent each month.
Many other tools that produced those results were put in place in 2004 and 2005 by Dann’s predecessor-and-mentor Robin Kirk, who left CSM last summer to return to New Jersey for family reasons.
Kirk beefed up CSM’s ability to hone in on the nuts and bolts of corporate operations – from its accounting and revenue management systems, to purchasing and marketing programs.
Dann, whose career has focused on operations, will continue to emphasize strong day-to-day performance through the company’s three regions and in each hotel, “looking to add the extra point or point and a half of EBITDA,” he says.
That campaign waged in regular meetings with his regional and local managers that focus on each unit’s challenges, giving Dann the opportunity to put his considerable experience to use.
“I’ve learned a lot of tricks over the years,” he says.
His strategy includes steady investments in details that can sweeten each guest’s stay. For instance, CSM’s 31 Marriott-flagged facilities are all getting new, high-count cotton linens this year.
Another initiative this year is a new training regimen for staff members who are in daily contact with guests – from desk clerks to housekeepers.
The goal is more efficiency in performance, but even more importantly, a better experience for guests – which leads directly to the bottom line, Dann says.
“The best way to RevPAR growth comes through customer loyalty, the customer who finds an experience that makes him want to come back time after time,” he says.
Buying and building
Dann is simultaneously working his strategy for finding ways to expand CSM’s portfolio. That strategy avoids the glossy high profile hotel markets that attract Wall Street and REIT bidders, and instead looks to secondary markets where commercial travel is growing.
“We want to find the markets that the locals believe in,” he says.
That approach works if a company has the market knowledge needed to uncover those opportunities, says Ted Leines, a hotel broker with GVA Marquette in Minneapolis. “It takes a lot of footwork that you don’t see from the outside, but CSM’s very good at that,” Leines says. “They’re well-connected; they’re good at uncovering good markets. And they’ve got the tools to make the rest of the pieces work.”
Dann says he’s looking now in a number of markets for either acquisitions or new development opportunities. The company will be opportunistic – CSM has enough cash to acquire any property or portfolio that fits its goals, Dann says – but it is targeting markets where the company already operates.
“I like the way CSM has clustered in markets,” he says.
That concept includes a downtown Minneapolis development that placed a Courtyard by Marriott and Residence Inn side-by-side. The combination cuts down on construction costs and enables properties to share parking lots, food service and other infrastructure investments.
Those clusters also give CSM time to develop better knowledge of each city’s opportunities, he says.
At the top of Dann’s shopping list are sites in both the Twin Cities and in Naples, Fla, where the company’s Residence Inn has been a strong performer.
But CSM also has its eye on new markets where Dann says the company has room to grow.
“In any of those markets where we have just one or two properties, we’re looking to add brothers and sisters,” he said.
