Bidder won't share plans for The Chattanoogan, but experts say rebranding likely

Bidder won't share plans for The Chattanoogan, but experts say rebranding likely

October 31st, 2017 by Tim Omarzu in Business Around the Region

The Chattanoogan is seen on Monday, Oct. 23, in Chattanooga, Tenn.

Photo by C.B. Schmelter

The Chattanoogan is seen on Monday, Oct. 23, in Chattanooga, Tenn.

The Chattanoogan is seen on Monday, Oct. 23,...

Photo by C.B. Schmelter

Now that the city of Chattanooga has accepted a $32 million purchase offer for The Chattanoogan luxury hotel and conference center, what changes might take place after the sale closes about a month from now?

Will the hotel join a chain or stay independent? Be remodeled? Get a new name — or see other changes?

No comment is forthcoming from the Schulte Hospitality Group, the Louisville, Ky.-based hotel management and development company that made the winning bid to buy the city-owned hotel.

But industry experts praise Schulte Hospitality Group, saying a rebranding of The Chattanoogan is likely and tout the hotel's sale as more proof of Chattanooga's tourism appeal.

"I almost guarantee you they'll brand it to something," said Louisville, Ky.-based hotel broker Brandt Niehaus, the three-time past president of Hotel Brokers International. "I'd be surprised if they'd try to run it as independent."

Tom Morsch, the Chicago-based consultant the city hired to sell The Chattanoogan, said Schulte will weigh the benefits of putting a brand on The Chattanoogan.

"Let's say we want to make a Marriott flag on that Chattanoogan," said Morsch. "They're going to weigh the value of putting in that brand."

A layperson who sees a Hilton, Marriott or Holiday Inn might assume those hotels are owned by their respective chains — but that's rarely the case these days.

"Most of the general public think Holiday Inn is owned by Holiday Inn," Niehaus said. "Just like McDonald's or Wendy's, there are franchisees that own them."

In a typical setup, investors own the hotel building, he said, they get a franchise for a hotel brand and then they hire a company to manage the hotel.

"But you run them according to the standards of that franchiser," Niehaus said. "You have to decorate it the way they want it done. If they want 30-ounce carpet, then you have to have 30-ounce carpets in certain areas."

A boutique brand?

That said, some brands offer more latitude.

The Chattanoogan is seen on Monday, Oct. 23, in Chattanooga, Tenn.

The Chattanoogan is seen on Monday, Oct. 23,...

Photo by C.B. Schmelter

For example, Niehaus was involved in the sale of The Admiral Hotel, an Art Deco-style boutique hotel that opened in 1940 in downtown Mobile, Ala. Among its claims to fame is that a young and then-unknown Jimmy Buffett did solo gigs singing and playing his guitar in the bar.

The current owner of The Admiral Hotel completely renovated it and made it part of Hilton's Curio Collection, a "collection of unique hotels" in the four- and five-star range.

"If the Chattanoogan name is good, then [Schulte] might just keep that name and make it part of the Curiou collection," Niehaus said.

Schulte Hospitality Group is led by two brothers, Darryl Schulte, Jr., the chairman and CEO, and Ray Schulte, the chief operating officer. They're third-generation hoteliers who founded the company in 1999 with their father.

Schulte Hospitality Group had its first management agreement in Detroit, the company's website says, and now manages more than 65 properties in 21 states, with ownership interest in 57 of the hotels.

Schulte has key institutional partners — Starwood Capital Group and Apple REIT — as well as various independent owner and investor groups, the website says.

Patel didn't bid

Schulte Hospitality Group has a good reputation, Niehaus said.

"They're a good operator. If they're going to buy it, they'll fix it up and make it into something," he said. "As far as I can tell, they don't do anything halfway."

Sometimes Schulte Hospitality Group will "flip" a hotel and keep managing it after the sale, according to Niehaus.

"A lot of times what they'll do is they'll buy stuff, fix stuff up, renovate, turn it around and sell it and keep the management contract," he said. "They still want to keep the management contract and still be running it."

Five companies made offers on The Chattanoogan during the first round of bidding, and that was narrowed down over two more rounds to three bidders. Morsch declined to name any of them — except for Schulte.

None of the bids came from Chattanooga's biggest hotel developer and manager, Mitch Patel, the president and CEO of Vision Hospitality Group Inc.

"Did he bid? No. But we certainly met with him." Morsch said. "He's already long on Chattanooga. He's got a lot of property there. He would have been great, but he probably wouldn't have paid the same number."

The $32 million offer for The Chattanoogan was a good amount, Morsch said, and it shows this was a good time for the city to sell.

"This tells me that Chattanooga is on an upward trajectory," he said. "This is a great move by the city to take advantage of the market uptick."

Contact staff writer Tim Omarzu at tomarzu@timesfreepress.com or www.facebook.com/MeetsForBusiness or on Twitter @meetforbusiness or 423-757-6651.