Inside European budget brand B&B’s entry into the US

According to Valerio Duchini, the international budget chain's U.S. president and CEO, triple-net leases and scooping up distressed properties are the core of building success in the States.

“We don’t want to copy and paste what the other supergiants of the hospitality business are doing — Marriott, IHG — that [use] the franchising model. We would like to develop our business based on the triple-net lease agreement,” he said, noting leases have been the modus operandi since the company’s founding in 1990. “We work with our [investment] partners, in which they buy the property and we rent the property from them,” he added.

Duchini acknowledged that such agreements are not the most utilized options within American hospitality (although they have become more popular as sales leasebacks have increased in the wake of COVID) but pointed to numerous other industries that have them in place.

“The U.S. is more than familiar with the triple-net lease agreement in student housing, retirement homes, car washes, retail, restaurants, and in a lot of businesses. Why do we not apply the same rules for a hotel?” asked the CEO. “We don’t want to create a franchising network. We would like to create a hotel network in the U.S. where we directly manage our hotel and pay the rent to our investor.”

Florida a key stepping stone

B&B Hotels is already on the way to establishing a domestic toe-hold, notably in Florida, where one of its investment partners, Delaware-based Batipart Immo US 4 Inc., bought two hotels over four months.

In March, it acquired its initial U.S. property, the 218-key Floridian Express International Drive Hotel in Orlando, from a private owner for an undisclosed price. In June, it added the three-story, 170-room Diamond Inn Motel Jacksonville West in Jacksonville for approximately $11 million.

While the Floridian’s signage is still in place and rooms can be booked, according to its website, a multimillion-dollar overhaul, which Duchini described as basically a gut renovation, has been underway, with expectations for completion in a few months.

The property, which could easily be described as “distressed,” had earned scathing reviews, coupled with substantiating photos, on TripAdvisor, with one reviewer calling it “the scariest ride in Orlando.” Still, regarding the buy, the CEO brought it back to the industry’s mantra: Location. Location. Location.

“When my real estate investors buy a property, you have to close your eyes and see the potential of the hotel, and this hotel has a huge potential, because it is walking distance from Universal Studios and is really visible from the highway,” noted Duchini.

Similarly, the Jacksonville property had received negative reviews with supporting images and had been shuttered for several years. Still closed, the property will undergo a comprehensive renovation to bring it to B&B Hotels standards, said Duchini, again noting its location is “super” due to its proximity to area highways.

With these types of renovations, the CEO said B&B Hotels will depart from its international budget-hotel classification and look to slot itself into the midscale/upper-midscale segments in the U.S. He added when properties have completed renovations, the company will initiate strong marketing campaigns to alert potential guests on the turnarounds, particularly of previously sub-par properties. For example, the Floridian Express is now on B&B Hotels' website, showcasing several rooms.

‘Not here to win a race’

The rapidity of the property plays might signal an aggressive stance by B&B Hotels, but Duchini stressed, “I’m not here to win a race. I’m here to open hotels that are profitable for our investors, our shareholders and for ourselves. If I’m able to open 15 hotels a year, that’s good, but if I open only 10, that’s good, too.”

That said, Duchini indicated he’s open to bringing in other investors and is currently working with a U.S./Mexico fund but declined to identify the entity. He added joint ventures would not be part of the company’s plans.

With its U.S. headquarters in Miami, the company's current area of concentration will be Florida. The CEO noted there are a variety of opportunities throughout the state, ranging anywhere from establishing several hotels across what he described as the “super-center” of Miami to a highway exit location in Tampa. Case in point: when speaking with Hotel Investment Today, Duchini was headed for Gainesville to assess some hotel properties and mentioned cities such as St. Augustine and Kissimmee could offer possibilities.

Similarly, he said growth could come via a range of tactics, including takeovers, conversions, greenfield development and adaptive reuse of office space. “We are really flexible,” said Duchini.

“What is important is that we are able to offer a customer experience that is perfectly in line with the customer’s needs. And the customer needs are different when you are speaking about something at the exit of the highway for Tampa or in the super-center of Brickell,” he observed.

As a global enterprise, B&B Hotels, headed by president/CEO Fabrice Collet, has some 770 hotels spread across 17 countries, pulling in $1.3 billion in revenue in 2023, according to the company, whose main shareholder is Goldman Sachs.

Earlier this year, at about the same time B&B Hotels was launching in Orlando, reports surfaced that Goldman Sachs, which acquired the chain from PAI Partners in 2019, was “mulling” a sale, with Bloomberg putting a price tag of €3.5 billion/$3.8 billion on a potential divestment, according to the news platform’s sources.

Asked if this was still being floated, Duchini deferred to B&B corporate in France, where a spokesperson declined to comment.

How or if any such transaction could affect B&B’s U.S. plans is unknown.

While the CEO declined to comment on what type of overall ROI might be expected when taking on properties “in need,” he said when he presents opportunities to his investment committee, he would not present a property "below our minimum expectations.”

In advancing the brand domestically, Duchini hopes to have the same type of support from guests and investors as B&B Hotels experiences in Europe. “We believe we are able to offer our customers a super-nice experience… and we are able to create a story. For investors, I would like them to know making an investment with us in real estate in the U.S. is profitable, safe and can give them a real vision for the future. Our triple-net lease agreement is for 20 years, and we are able to give them a good yield as we are a big, secure company… and in the U.S., there is no shortage of properties to buy,” he said.

“I will be happy if, in the future, we can achieve roughly 1% of the U.S. market. That’s a nice target,” said Duchini. “We would like to develop our company without becoming crazy.”

BY STEFANI C. O’CONNOR