One on One with Jay Shah
vp of development for Shamin Hotels

November 2008

Q. Shamin Hotels just opened three hotel properties—a Hampton Inn, a Holiday Inn Express and a Courtyard—across Virginia and now has another 15 hotels in its construction pipeline. How are you building in such a difficult market?

A. We’ve actually been pretty conservative with the way we underwrite our developments. We’re mainly a hotel management company, so we look for operational efficiencies even on the development side. We use the same plans again and again. We try to put multiple properties on the same site.

Q. Can you give an example of how Shamin Hotels puts its developmental talents to use?

A. For example, we’re doing five of the new Holiday Inn prototypes, which are basically the same set of plans, so we save money by doing that and by using the same contractor. We gain more efficiencies with each building. We also have an in-house design and construction team. So, for example, we can send a Shamin employee—a project manager, so to speak—to each construction site to really manage that job and help the contractor lower costs. We also have an in-house architect who has designed a number of our buildings. Also, just like with Hampton Inn, we have five of those projects going and all are pretty much the same building. Four will be designed in house and one will be designed by an outside architect. For all these projects we also do in-house purchasing, so we save money there too. We’re able to streamline these projects down, so we minimize the unforeseen costs that can plague a construction project. That’s been a great help.

Q. But how are you able to finance these projects effectively in light of the ongoing credit crunch?

A. First, we have a pretty good track record in development. We’ve been able to perform and develop in previous down cycles. In 2001, we were able to build a Courtyard and two Homewoods. And by doing that and making projects sensible, the eyes of our lenders are less stressed. As you know from what’s going on out there with the banks, some are not lending at all. And it has been difficult for us on some new projects. But in our last round of deals before the credit crunch we reached out to other banks even though we’ve worked with Wachovia a lot through the years. So those relationships are paying off now. Banks in general are not doing a lot of new relationship lending and are saving their existing balance sheets for existing customers. So we’re going back to some lenders who have worked with us and we show them our strength.

Q. Are you concerned about an oversupply situation with all of the new hotel development that has been going on, including your own?

A. We’re always concerned about supply from an overall perspective. But we’re not too concerned because we’ve really focused on our core set of brands that we feel are the gold standard. And what will happen in a down market is the better brands tend to do better, so we focus on Holiday Inn, Hampton Inn, Hilton Garden Inn, Courtyard and Residence Inn. Also, with this downturn, what will be helpful is that it will weed out some of the projects and the lower end brands that are maybe not as strong. In an upmarket you see these projects come out of the ground and wonder how they’re getting done.

Q. You have a high concentration of open hotels and projects in the Richmond, VA, area, where you’re based. What is the rationale behind this strategy and are you concerned you’re putting too many eggs in one basket?

A. We are heavily concentrated in Richmond, but it works well for us. Some say we’re crazy doing what we’ve done in the same market. But we go back to the brands and if there is a need for a Hampton in the market we can provide that. We feel good about it. We’ve opened three hotels so far this year in the area. We know the future is strong for the market.

Q. You also like to “cluster” hotels. Please elaborate further on that strategy.

A. We try to segment them exactly right and cluster them. So we’ll have the extended-stay side covered and the full-service, but not through a big box, but rather a Courtyard or a Hilton Garden Inn. And then we’ll cover the mid-market with a Holiday Inn Express or Hampton Inn. With the clusters we get operational efficiencies and also on the sales side. In the end, it really provides an advantage for the customer.