How The Marriott-Starwood Merger Will Affect The Hotel Industry

The $13.6B merger between Marriott and Starwood cleared its final hurdle this week when it received antitrust approval, and the deal is expected to be finalized before week's end. A merger of this size is bound to create shockwaves across the hotel industry, and when industry leaders convened at Bisnow's Lodging and Investment Series yesterday, it was a central topic of conversation. 

Loews Hotels chairman Jonathan Tisch, who is friends with Bill Marriott and was being interviewed by former Marriott EVP for global communications Kathleen Matthews, outlined the difficulties of combining two companies of this size but expressed confidence in Marriott's ability to navigate it successfully.

"You have two different cultures that overlap among the 32 flags," Jonathan said. "They have different guest loyalty programs, and everyone loves their points. They’ve got their different credit card deals...I’d never bet against Marriott because they’re really smart people, but they have their work cut out for them."

With thousands of operating hotels between the two companies, there will undoubtedly be locations where two previously competing hotels will now be under the same umbrella, HEI Hotels & Resorts partner and CFO Clark Hanrattie said.

"There’s going to be some impact as far as brand-loyal customers beginning to shift from one hotel to the other in certain locations like that," Clark said. "That’s something we anticipate having to have a lot of discussions with our owners about as this behemoth of a system merges."  

That same situation would also present challenges for financiers, Berkadia senior managing director Andy Coleman, right, said.

"It's going to add another level to the credit cycle," Andy said. "So if we're financing a Westin (a Starwood brand) in downtown DC and there's a full-service Marriott across the street, I should expect Wells Fargo is going to say, 'What’s the relationship between these two hotels going to be?'"

Aries Capital EVP Rushi Shah, left, said he has had challenges with Starwood and hopes the merged company will be easier to work with from a financing perspective.

"Historically, Marriott has been great negotiating comfort letters and Starwood has not been," Rushi said. "This is based on experience, not a lot of data, a dozen deals with either brand. Marriott’s good, Starwood’s not, typically. Hopefully that will change."

While most of the predictions involved long-term effects, Condor Hospitality Trust president Bill Blackman has an immediate decision to make because of the merger. His REIT just bought an Aloft hotel (a Starwood brand) in Kansas that is due for a room refresh, and Bill has to decide if he should do the refresh now with Starwood's existing standards, or hold off to see if the merged company creates new standards.

"You have to play that against maintaining our competitive position in that particular market with a rate premium against allowing the quality of the product to deteriorate," Bill, on the right next to moderator John Ratino of Goulston & Storrs and American Realty Capital Hospitality Trust's Jonathan Mehlman, said. 

Virgin Hotels head of development Allie Hope said the merger is beneficial for other hotel brands looking to grow their presence, because Marriott and Starwood aren't out there competing for as many projects. 

"Where a lot of owners and developers that we partner with would typically have other options where they can...work us against each other, they're in a place where there aren’t that many brands left to choose from that have a global distribution reach," Allie said. "So we’re finding some opportunities to get in markets that otherwise would have had higher barriers of entry."

Clark agreed the merger would present more opportunities for alternative hotel brands. 

"They’re going to be so large within the industry," he said of the merged company, "that I think it’s going to push some capital and I think some lenders as well to seriously consider some alternatives that are going to be out there that they wouldn’t otherwise consider when it was more of a bigger field."