Five years ago, Choice Hotels — the Silver Spring company behind budget chains such as EconoLodge and Comfort Inn — opened its first upscale hotel, a Cambria Suites in Appleton, Wis. It was meant to be a watershed moment for the company as it transitioned from the familiar to the fancy.
Then the recession hit. The company opened a few more locations in Wisconsin and in towns such as Aurora, Colo., and Maple Grove, Minn., but financing began to dry up and fewer developers and franchisees came calling.
Today, as the economy wobbles back from the brink, Choice Hotels is trying its hand at high-end lodgings again, this time backed by a new chief executive and a plan to target major cities such as New York City and Washington.
“It's a cornerstone moment for this brand,” said Steve Joyce, who became chief executive of Choice Hotels in 2008. “We have been very successful in serving the 99 percent, but Cambria is really much more about the business traveler. It’s focused on inside-the-beltway urban projects.”
Last week, the company broke ground on three Cambria Suites hotels in New York — first in White Plains, and the next day, in Times Square and Chelsea. Locations at O Street Northwest in the Shaw neighborhood and Rockville Town Center, next to the company’s future headquarters building, are also in the works.
One of the first things Joyce, a former Marriott executive, did when he took over Choice Hotels in 2008 was talk to developers about Cambria Suites. It was a good brand, they all agreed, but the company needed a new approach.
“At that point, the company was doing pretty well selling lots of franchises, but the markets they were getting into were not the markets I thought they should be in,” Joyce said. “When you start a brand — no offense to anybody from Wisconsin — but that's not usually where you want to start.”
Joyce decided that simply waiting for third-party franchisees to approach the company with ideas wasn’t working. If Cambria Suites was going to make a splash, the company would have to invest its own money — and time — into getting into major cities.
“We said we’re going to have to go into New York, find the best developer and do this proactively,” said Michael Murphy, senior vice president of Cambria Suites.“We just can’t sit back and wait.”
Choice Hotels set aside $250 million to help finance new Cambria Suites and began scooping up coveted new sites, such as the one in Times Square, that it would later sell to developers.
Choice Hotels has emerged from the recession in good shape. Profits during its most recent quarter were up 5 percent since last year to $44.38 million. In July, the company gave shareholders a special cash payment of $10.41 a share, which amounted to about $600 million.
“Choice has a very strong balance sheet,” said David Loeb, an analyst for Robert W. Baird & Co. in Milwaukee. “They are a cash-flow-generating machine.”
Even so, Loeb said he is doubtful that an upscale brand such as Cambria Suites can do well under a company that has built its reputation on low prices. Several Cambria Suites, including one in Pueblo, Colo., have already closed.
“Cambria is an excellent product, it’s a very attractive option for business travelers and their families,” Loeb said. “The problem is, the Cambria brand means nothing to customers. It’s a very small chain, and [Choice Hotels] customers are looking for value rather than product or location.”
That’s not stopping Choice Hotels from making an aggressive push, though. Seven Cambria Suites are currently under construction, and Joyce said the company plans to break ground on at least 20 more locations next year.
In early 2013, Choice Hotels will open its first international Cambria Suites in Canada, but for the most part, Joyce said he plans to focus on large American cities such as San Francisco and Chicago.
“The focus, initially, will be establishing Cambria in the United States,” he said, adding that the company hopes to woo business travelers away from hotels such as Hilton Garden Inn and Courtyard Marriott. “And then we’ll clearly go international.”