Sleep on it

Sleep on it

Strategy by Mark Gordon | Managing Editor

Turns out that turnaround jobs of underperforming hotels is management- and labor-intensive work. And a slowing economy only means growing opportunities.

An economic downturn could hold crippling potential for John Balliett and Jim Popielinski, who are in the fast-moving, thin-margin hotel business.

But this latest economic slump is actually proving to be something of a boon for the pair of executives who run Charter One Hotels & Resorts, Inc., a $34 million Sarasota-based hotel management company with a stake in properties in Florida, central upstate New York and most recently, North Carolina. In addition to a rush of potential opportunities and deals, the company is projecting at least a 15% growth in 2008 revenues.

"When the economy starts to get difficult, owners of hotel properties realize they need professional management," says Balliett, Charter One's chairman and chief executive officer. "We are the cavalry."

Balliett and his colleagues aren't the only ones who have been able to find a hook to grab onto while other companies dangle on the edge of tough times. Every economic downturn has its share of innovators and entrepreneurs that succeed while others struggle. Consider all the car repo outfits that appeared in the early 1990s and the splattering of foreclosure data and consulting businesses that are appearing these days.

At Charter One though, the strategic trick to capitalizing on the downturn is not nearly as ominous. Indeed, it's not really a trick, but a process of doing the things it has been doing for close to three decades, only with more focus and more precision. That goes from hiring to training to billing, its executives say.

And the inner workings of Charter One's stick-to-itiveness strategy is a valuable lesson for all companies seeking to figure out how to handle the slump, not just hotel management firms. It starts with focus, says Popielinski, something many business consultants agree is a key step for any business navigating an economic downturn.

"We don't deviate," says Popielinski, Charter One's president. "We don't get into warehouses. We don't do gas stations. We manage hotels."

That focus has fostered steady, if not spectacular growth at the company, which is run out of a non-assuming office on the edge of a blue-collar neighborhood a few miles south of downtown Sarasota. The company, founded in 1981 by Popielinski and Balliett, had revenues of $34.29 million in 2007, 3.1% growth over 2006, when it had $33.25 million. It's projecting at least $40 million in 2008 revenues.

Charter One has about 750 full- and part-time employees spread across its 16 hotel and resort properties, with another dozen working out of its Sarasota headquarters. The employees are scattered across the company's properties, which are mostly brand names such as Hampton Inn, Holiday Inn Express and Radisson.

"We could have been a lot larger," says Popielinski, a past president of the Sarasota Convention & Visitors Bureau. "We don't want to be large and out of control."

Turnaround projects

In fact, staying in steady control of several business parts that move simultaneously, yet in different directions, is a key to how Charter One thrives. The company essentially treats each individual hotel it manages as its own business.

"We can go into a hotel that's troubled," Popielinski says, "and put our formula to work and turn it around."

The starting point for the formula is marketing, which the executives say is "huge." In the hotel business, that means advertising in certain travel publications. It can also include pointing sales efforts toward customers in new areas, such as educational groups or religious organizations.

The second major step the company takes in its hotels is to do a big-picture dissection of costs. A sidestep in that analysis is to look into the owner's franchise agreement with the chain, to see how it can be more efficient. "Everything from toilet paper to insurance," Balliett says. "We shop it all."

Analyzing costs, however, doesn't necessarily mean cutting costs. To the contrary, Charter One's properties, cumulatively, have undergone about $100 million in renovations and upgrades over the past 25 years. The hotel's owners and franchisees have paid for those projects, not Charter One.

The renovations aren't just for window dressing. Charter One utilizes the projects to capitalize on the marketing part of its strategy, so it has the right location for the customers it targets. The combination of marketing the proper hotel to the right clients is integral to Charter One's bottom-line strategy of squeezing the most revenue it can out of each hotel room.

A third, and in some ways most important, part of the company's overall strategy is the employees. Sometimes Charter One will make management or other personnel changes at a hotel it manages, while in other cases it has kept the staff and put them through intense training programs.

Finding, training and motivating employees for its hotels is one of two big challenges the company faces, with the other being financing projects. On employees, the company sends a rotating team of Sarasota-based executives to each property regularly to check in, but the 24-hour-a-day cycle of the industry sometimes makes that cumbersome. "At the end of the day," Balliett says, "we aren't the people behind the front desk."

Still, the 'who' of the employees is usually trumped by what Balliett and Popielinski expect of them. That plays itself out through intense Friday afternoon and Monday morning conference calls the executives hold with top staff at each property. The information-heavy calls include daily room revenues, missed opportunities, threats and success.

Says Popielinski: "It's a what did we do last night kind of business."

'A cyclical business'

To reach such a detailed analysis, of course, the company must first take some type of financial interest in a hotel property. And Charter One uses three main ways of getting involved in a hotel: One method is to form a partnership with other investors who own or have a stake in the property; another is to manage the property for other investors who don't want to be involved; and a third method is through a foreclosure or a receivership process, where Charter One is asked by a court or another lending authority to take over the hotel.

The company has even begun developing its own hotels, such as a 78-room Wingate by Wyndham it's working on building in eastern Manatee County, near the State road 70 exit of Interstate 75. Construction on the property could begin this year.

Running a growing empire of hotels and resorts wasn't what Balliett initially set out to do with his career. The Rochester, N.Y., native has a bachelor's degree in physics and worked for Kodak in his hometown in the early 1970s. After running, and then selling, his own research company, he moved to Sarasota in the late 1970s.

It was there that Balliett met Popielinski, who did have an interest in the hotel business. Popielinski, who grew up in Buffalo, N.Y., not far from Balliett, earned a bachelor's degree in hotel administration from Cornell University. He went on to work in operation and sales for hotel companies such as Marriot and Westin, focusing on opening new properties.

The pair met though mutual friends and soon after, in 1981, bought an interest in a Best Western hotel in Venice. That hotel remained in Charter One's portfolio until 2005, when it sold it to homebuilder Taylor Woodrow, which turned the property into condos.

The company has grown steadily since that Best Western, to the point now where it sorts through many more opportunities than it accepts. Popielinski says Charter One might look at 70 or 80 proposals before narrowing it down to a final four to choose from. "We don't want to chase deals," Balliett says.

Instead, the company looks for properties that match its main criteria, such as the brand name, location and how much potential upside the property holds. Its most recent agreement, which closed in April, is to manage a Holiday Inn Express in Brevard, N.C., about 80 miles south of the Great Smoky Mountains National Park.

Other projects are pending, the company's executives say, including ones involving new construction.

"It's a cyclical business," Balliett says. "And we've been through these cycles and now, after 27 years, we are at a point where we can take advantage of them."

At a glance

Charter One Hotels & Resorts

Year Revenues % Growth

2006 $33.25 -

2007 $34.29 million 3%

2008 $40 million (projected)

-Source: Charter One Hotels

& Resorts, Inc.

REVIEW SUMMARY

Business. Charter One Hotels & Resorts, Inc., Sarasota

Industry:Hotel management, travel

Key: The company is primed to grow during the economic downturn by utilizing an ultra-focused approach to its entire business.