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Leveraging Changing Market Forces

Driftwood Hospitality Management reinvented their business model to leverage the morphing lodging market. Here’s what they did.

Wednesday, May 29, 2013
Jeff Heilman
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Quick thinking and flexibility have defined North Palm Beach, FL-based Driftwood Hospitality Management since its inception in 1999, but when faced by the downturn in 2008, the company’s entrepreneurial executive team, led by Principal and President David Buddemeyer, charted an exceptionally agile course through the gathering storm.

“While open to third-party management opportunities on a referral or joint venture basis, our focus before the recession was primarily on property ownership,” explains Driftwood EVP Michael Diaz. “As distressed assets hit the market, though, we saw a new strategic direction for the company.”

Responding to the hotel foreclosures and other troubles brought on by the recession, Driftwood adjusted its model to focus on third-party management and receivership, along with strategic acquisition and development. “This represented a cultural change that is now a major part of our growth model, taking us from a 75 percent ownership mark to a 50 percent stake,” Diaz says.

With a growing portfolio of nearly 40 hotels and resorts across the U.S. and in the Bahamas and Costa Rica, including relationships with Marriott, Starwood, Hilton and other major brands, Driftwood is presently advancing an aggressive acquisition strategy.

“We are always looking to expand in our own backyard, which makes resurgent south and central Florida a natural target area,” Diaz continues. “Opportunistic in our approach, though, we look across all regions and asset classes—and of late, have found strong appeal in the large, full-service sector.”

Towards that goal, Driftwood formed a $400 million joint venture partnership in July 2011 with a real estate investment fund managed and advised by affiliates of Apollo Global Real Estate Management to purchase, renovate and reflag full-service hotels throughout the United States. To date, the partners have acquired five properties totaling 1,479 keys nationwide.

Along with the 217-room DoubleTree Hotel Downtown Wilmington Legal District in Wilmington, Del., 249-room Hilton Raleigh-Durham Airport at Research Triangle Park in Raleigh-Durham, N.C. and 420-room Sheraton North Houston at George Bush Intercontinental Airport in Houston, Texas, the partners have established a growing footprint in downtown Columbus, Ohio.

The first property, acquired in late 2011, was an underperforming Hyatt. Following a $9.5 million top-to-bottom overhaul—its largest-ever renovation—Driftwood reopened the property, reflagged as the 400-room Sheraton Columbus Hotel at Capitol Square, in January 2013.

Acquired in December 2012, the 194-room DoubleTree Suites by Hilton Columbus Downtown will continue operating under the DoubleTree flag as part of Driftwood’s management collection, with planned upgrades including the guestrooms and on-property restaurant.

Why Columbus? As Driftwood EVP Brian Quinn explains, it met squarely with the company’s core strategy of reviving underperforming assets in secondary markets.

“Our expansion into Columbus fits the model in several ways,” Quinn says. “On the property side, we saw the opportunity to reposition two undermanaged, under-branded, and frankly, under loved hotels.” Putting the love back into ailing hotels—and generating above-market returns--is what Driftwood does best. Led by talented industry professionals with extensive experience in hotel ownership and operations, and offering the full-gamut of hotel resources, Driftwood holds the keys to every aspect of the turnaround process.

“From controlling expenses and improving revenue management to adding meeting space and enhancing the overall guest experience, we were able to fundamentally stabilize the Sheraton and set the foundation for revival and profitability,” explains Quinn. “In terms of the Columbus market itself, we liked the diversity of demand generators,” he continues. “You have a major university, Ohio State, business and entertainment districts, and as Ohio’s capital, state government. Plus, you have a distinct, centralized location that is not competing with the likes of Chicago or San Antonio. All the stars were lined up in Columbus.”

Driftwood’s ambitions also extend into Latin America, with Principal and EVP Carlos Rodriguez leading the way. Born and raised in Costa Rica, his background includes five years working for the Costa Rican government, and experience as an investment banker on Wall Street. Prior to joining Driftwood in 2003, he founded a successful Miami-based group of affiliated hotel management, ownership and development companies. Typical of the Driftwood executive team, his acumen, which includes expert insight into the workings of the Latin American market, is a key competitive differentiator.

“In Brazil and Chile especially, there are plenty of attractive growth opportunities, but across the region, each country comes with a distinct set of rules, regulations and risks,” Rodriguez says. “As we come in to tell our story, we take time to understand the local story as well.” In meeting with potential investors and partners across the region, which include large investment funds and high net-worth individuals, Rodriguez sets the stage with integrity, straight talk and versatile thinking. “We do not take a rigid institutional approach to contract negotiations,” he explains. “Instead, we are open to adjusting the deal to fit local customs. This approach goes far in establishing the right comfort levels.”

Driftwood’s impressive record is another ready source of assurance. Take the company’s successful multi-year turnaround of the oceanfront Flamingo Beach Resort & Spa in Costa Rica, for example. “Since assuming management of the property in 2004, our capital investment of more than $5 million has created impressive gains,” says Rodriguez. “Annual occupancy has increased by 127 percent, ADR has more than doubled, and RevPAR is up 254 percent.”

Among the diverse enhancements orchestrated by Driftwood: the removal of smaller buildings that were blocking ocean views, installation of high-speed Internet access, environmental conservation programs, new social media platforms and the creation of a U.S.-based reservations call center. It’s just one example of what the company promotes as the “Driftwood Difference,” with passion and excitement also part of the company DNA. “Fun and success go hand-in-hand,” says Rodriguez. “If it’s not fun, it’s not worth doing.”

Jeff Heilman
Hotel Interactive® Editorial Division
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