Interstate Hotels regains its footing: Is an IPO in the future?

November 27, 2011

When Jim Abrahamson takes the helm at Arlington’s Interstate Hotels & Resorts on Dec. 1, he will inherit a company that has fought its way back from the brink of collapse to regain its position as a hospitality powerhouse.

The firm, one of the nation’s largest independent hotel managers, has made six major acquisitions in the past 11 months and brought in new blood, leading some industry analysts to wonder whether it is preparing to go public.

Owned by a joint venture of Annapolis-based Thayer Lodging Group and China-owned Shanghai Jin Jiang International Hotels, Interstate serves two masters with divergent investment strategies. Thayer, run by hospitality veteran Frederic Malek, has a propensity for fixing — then trading — investments, while Jin Jiang is known for taking a long view, said analyst David Loeb of Robert W. Baird & Co.

Taking Interstate public is not on Abrahamson’s to-do list, but he said the company will “always look at opportunities. We’ve been public in the past and it remains one of our options in the future.”

Right now, he said he just wants to “build upon the team and platform that we currently have in place.”


Chief executive Jim Abrahamson.

What’s in place is a global portfolio of 400 hotels under management, nearly half of which came into Interstate’s possession in the past year.

At the start of this month, the company acquired the hotel operating business of Atlanta-based Noble Management Group, which oversees 60 properties, for an undisclosed price.

Weeks later, Interstate inked a deal for its first managed property in Eastern Europe, a 136-room Four Points by Sheraton Kecshemet in Hungary. That deal arrived two months after a joint venture agreement with Dutch hoteliers TVHG Budget Group Beheer to invest in a collection of nine hotels in the Netherlands.

Negotiating more deals of that caliber is exactly what Abrahamson hopes to achieve during his tenure. He believes the company is poised for growth through individual contracts and further consolidation.

“With the challenges in the financing market today,” he said, “there will be some changes in ownership in 2012 that will create opportunities for us to pick up more management contracts.”

Abrahamson, an alum of Hyatt and Hilton Worldwide, comes to Interstate from InterContinental Hotel Group, where he served as president of the Americas division. He is widely credited with leading the turnaround of the company’s flagship brand Holiday Inn through a capital investment program.

“Jim has had great success and this is his chance to bring some of his immense talent to Interstate,” Loeb said. “With Tom and Jim it’s really a generational transition.”

Chairman Thomas Hewitt said he gladly relinquished his CEO title to Abrahamson, who he will support through the transition.

“I thought it was time to let a new pair of eyes, especially someone of Jim’s caliber, come in and take over,” he said. “There’s no doubt there will be a liquidity event down the road, whether its an IPO or new investor. And whenever you have such an event, you want your CEO to have been in the saddle for a couple years and remain there for consistency. That could be a four- or five-year commitment and I wasn't prepared for that.”

Hewitt, who in 2002 stepped down from the company’s predecessor Interstate Hotels Corp., came out of retirement in 2005 to lead the company.

At the time, Interstate was embarking on a buying frenzy that left it open to massive debt exposure once the credit markets froze and hotel property values plummeted in late 2008. Things got so bad that the following year the company had to eliminate 45 corporate positions and reduce pay by up to 10 percent. Thayer and Jia Jiang swooped in shortly after and took the company private.

Given the company’s bad luck with aggressive dealmaking, it’s hard not to wonder whether it is in danger of repeating history.

“Interstate has always been aggressive. The biggest challenge they had in the past was they were too small and that limited their access to capital,” Loeb said. “This time around they are much bigger and prepared.”

Danielle Douglas covers the banking industry for The Washington Post.
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