<I>Dallas</I> - As the first hotel real-estate investment trust to acquire a major hotel chain, Patriot American Hospitality is on the verge of turning the 102-property Wyndham chain into a heavyweight multibrand contender.
The merged company, renamed Wyndham International, will include more than 220 Wyndham, Wyndham Gardens, Homegate Studios & Suites, Grand Heritage and Carefree Resorts properties. All will use the Wyndham reservation system after the Wyndham deal closes this fall. Rumors also have the REIT set to buy another brand, perhaps Carnival or Clubhouse.
James Carreker, chairman and chief executive officer of the 15-year-old Wyndham brand, will serve as chairman and CEO of Wyndham International, while Paul Nussbaum will continue to serve as Patriot chairman and CEO.
Patriot, which owns several independent properties--as well as hotels under the Doubletree, Embassy Suites, Four Points by Sheraton, Hilton, Holiday Inn, Hyatt, Marriott, Radisson and WestCoast flags--plans to transform a number of its hotels into Wyndhams, said Patriot president and chief operating officer Thomas Lattin. Post merger, Lattin will become executive vice president of Wyndham International, overseeing development of the Wyndham brand through third-party management and franchising.
While Lattin wouldn't estimate the number of conversions, one analyst predicted that about 25 to 30 properties would take on the Wyndham flag. "If I had to guess, Wyndham might represent a third of all Patriot's assets a few years from now," the analyst said.
The $1.1 billion Wyndham deal will end Patriot's strategic alliance with Hilton Garden Inns, however, and might shake up its alliance with Doubletree Hotels.
"Since we hadn't kicked off the Hilton relationship, we mutually decided it didn't make sense to continue," said Lattin.
The year-old Doubletree alliance, however, already has spawned hotels in Anaheim, Chicago, Denver, Houston (two), Kansas City, Miami, Minneapolis, St. Louis, Tallahassee and Tulsa, Lattin said.
"We've been very pleased with the type of hotels that Doubletree has brought to us," Lattin said. "We've been very pleased with their management and the financial results, and we get along very well with their corporate management people. They seem to have the same philosophies and same innovative approach to the future--they're a pretty aggressive company as well. So we'll continue to do business with them."
While Lattin said the Wyndham deal would not interfere with the Doubletree alliance, "Doubletree is probably unhappy because it thought it had a really special deal," one analyst said. "Now it has a deal, but it's not as special. Doubletree was really looking for Patriot to be a major growth vehicle, but now only hotels that don't make good Wyndhams will become Doubletrees."
"I'm certain that there will be some times when Patriot will be in the middle of a squabble," added Ted Mandigo, director, Landauer Associates, Chicago. "It certainly creates some challenges for Patriot. If they throw a Wyndham flag on a hotel that might have made a good Doubletree, there will be some conversations about it."
Patriot is one of only two hotel REITs, along with Starwood, that can acquire a hotel chain. "They can manage and franchise hotels, whereas the other REITs can't accept those forms of income without losing their REIT status," explained Bjorn Hanson, Coopers & Lybrand hospitality industry chairman.
For a short time, Congress allowed REITs to have two separate corporate entities under one umbrella, but then "decided it was too good a deal," and grandfathered existing paired REITs, Hanson said. "Both Patriot and Starwood have purchased old REITs and reengineered them to what they are today."
Paired-share status--which Patriot will acquire via a deal to buy the California Jockey Club and Bay Meadows Operating Company--should go far in boosting Wyndham's expansion. "One of the things that we provide is the strong access to the capital with our paired REIT structure," Lattin said. "It's ideal for putting the real estate in the REIT, and then Wyndham becomes the world-class operating company."
As a first global step, Wyndham will soon venture into Canada, Mexico and South America, said Ed Stahl, Wyndham's vice president of marketing.
"All of a sudden we have resources to think about deals and expansion that we couldn't have done in the past," he said. "A North-South expansion seems more natural for us. We're the largest upscale chain in the Caribbean now, so it's a natural to look at Mexico and then to start moving South. And in the U.S., we have some obvious holes; we need to get into New York City, downtown Chicago, Miami and San Francisco."
But, he said, "I don't know if we'd take the Wyndham brand to Europe; I'm not sure that Europe needs another chain right now."
The deal also will forge a Historic Hotels Division, as Patriot inked an agreement in March to acquire the Grand Heritage Hotels group for $46.4 million.
The 67-property group, which gives Patriot a toehold in Europe, will add a Wyndham tagline as well as several hotels from Patriot's portfolio--including the Bourbon Orleans in New Orleans, the Crockett in San Antonio, the Fairmount in San Antonio, the Pickwick in San Francisco and the Tremont House in Boston.