RAR acquisition positions Hostmark for future growth
 
RAR acquisition positions Hostmark for future growth
15 MAY 2020 8:27 AM

San Diego-based hotel management firm RAR Hospitality’s portfolio brings a West Coast presence, limited-service focus and flavor of innovation, especially in boutiques, to Hostmark Hospitality Group in a deal that closed just as news of the pandemic was breaking.

REPORT FROM THE U.S.—Hostmark Hospitality Group’s acquisition of RAR Hospitality was negotiated and finalized in late February to early March, just as the news and impact of the COVID-19 crisis was spreading.

The world and industry have changed dramatically in the short period since then, but Hostmark President and CEO Jerry Cataldo said he feels “as positive and strongly about (the RAR deal) as when it happened.”

“Nobody in our industry likes where we are from a performance standpoint, but we feel this marriage … will bring nothing but strength for us,” he said.

In a deal announced in a news release Thursday, Shaumburg, Illinois-based Hostmark bought the 20-hotel portfolio of management firm RAR, which will keep its headquarters in San Diego.

The combined company, under the Hostmark name, owns and operates 40 hotels comprising more than 5,000 rooms that are both branded (under flags including Hilton, Marriott International, InterContinental Hotels Group and Best Western Hotels & Resorts) and independent, as well as limited-service and full-service.

The value of the deal was not disclosed, though RAR Hospitality President Cameron Lamming, who will assume the role of chief development officer for the western region at Hostmark, said due to the transaction’s timing there might be a perception that this is a “distressed sale.”

“It’s not. This happened right before everything went down,” he said, noting that operations between the finalizing of the deal and the announcement have been fairly independent, but there have been conversations about what’s best for the company’s future in light of the current crisis.

“We looked at each other across the table, virtually of course, and said, ‘What’s best for the company to survive?’ We tweaked some things here and there, to do what’s best for the future without sacrificing anything, and said, ‘Here’s the ultimate goal. What’s the best way to get there with this new roadblock that just smacked us in the face?’”

Lamming said ultimately, the strategy hasn’t changed much at all, and the integration of RAR’s portfolio into Hostmark is very complementary.

“We have more limited-service; they have more full-service … to show strong knowledge in each of those categories complements nicely,” he said. “From an independent perspective, we now have a pretty big portfolio, seeing some expansion on that boutique side with operators that think differently. But we still have that branded experience to bring those staples of operations.”

From Hostmark’s perspective, Cataldo said the RAR buy “helped us to gain more visibility on the (U.S.) West Coast, and gave us some resources located in California from a development and operations standpoint.”

He noted that Hostmark “historically has operated many properties in the western half of the country – in California, Colorado and Arizona – but we didn’t have a big presence in our current portfolio.”

Youth and energy
Beyond geography, Cataldo said Hostmark will benefit from the RAR team’s entrepreneurial spirit, particularly with boutique hotels, and that is reflected in Lamming’s leadership.

“To bring someone like Cameron into the fold, who I believe is a very young and up-and-coming leader in our industry … to bring that perspective and that fresh set of eyes and approach is a positive as well,” Cataldo said, noting that Lamming and the RAR team will also benefit from being added to a “much stronger, a bigger platform than they had.”

Lamming joined RAR in 2016, forming a partnership with RAR founder and CEO Robert Rauch, whose title and role in the new company is still being decided, according to Lamming.

“Bob is still on board. We’re kind of managing the San Diego office the way we were before,” Lamming said. “He has freed up more time in business development to go help owners. He’s good at that partnership piece and is still best friends with every owner. He likes finding those relationships. That’s his main focus now.”

As a millennial, Lamming has taken a “tech startup” approach to leadership to “harness creativity,” but he looks forward to balancing that with the “much more steady, family-oriented” culture of Hostmark. RAR Hospitality marked its 30-year anniversary in 2019.

He said Hostmark’s foundation (the company was founded in 1965) is just what the RAR portfolio needed to grow.

“As you accelerate your growth in this environment, it’s really easy to kind of start to go side-to-side, instead of straight,” Lamming said.

“As you grow, it gets more chaotic, and we struggled with that at one point as we pushed out of the Southwest. We decided we needed to get back to our roots … walk away from some deals … to shrink back down to get the formula right so we can scale. We figured out we needed long-standing processes to put a foundation under our growth. We are adapting that overnight. We don’t have to grow that organically.”

Growing during a downturn
Cataldo said with RAR’s portfolio, Hostmark is positioned for more growth, as it capitalizes on the opportunities presented during a challenging climate for the industry.

“We intend to grow the platform organically through the management business, but also aggressively out looking for acquisition opportunities with our equity partners as well as more potential platform transactions similar to this,” he said.

“There will be more consolidation in the industry, and a certain scale and size of resource is going to be more important than ever. Yet to have the flexibility and size to be responsive and give the individualistic attention properties need, in our opinion … that’s what we think is important.”

He said the pandemic and its impact on the industry will require some shifting of strategy.

“The world since the transaction has changed, and certainly will be changed for the foreseeable future,” Cataldo said. “Some of the strategies obviously will evolve as we all understand the environment we’re working in. I always see that as a strength for us in terms of we have been expanding our resources.”

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