The last few years have been challenging for everyone in the hotel industry, but imagine being a brand company with almost 200 corporate-owned properties — more than half the entire system — underwater. On the same day Andrew Alexander took over as acting president of Red Roof Inns in 2009, the company defaulted on loans securing those properties.

With the acting label officially removed and the final phase of recapitalization complete, Alexander spoke freely and confidently at this week’s brand conference in Orlando.

“Even more than putting our financial house in order, we’ve really focused on the basics of our business: quality and service,” Alexander told a crowd of approximately 500 franchisees, general managers, vendors and corporate employees at the Buena Vista Palace Hotel & Spa. “With our new capital partners in place, we’re poised for serious growth.”

Alexander explained the recent investments from Five Mile Capital Partners and Dune Real Estate Partners. As part of the recapitalization, he told attendees of $90 million slated for complete renovations of those 194 properties now corporate managed and franchised, but no longer owned by Red Roof. He unveiled details of the new Next Gen II prototype and interior designs, a new development website for franchisees and other programs and initiatives. He said he expected the system to grow by 50 properties through 2012, and that number could become even larger with potential acquisitions of smaller chains or portfolios with the help of the opportunistic and aggressive new capital partners.

As strong as the future appeared, Alexander also detailed the current success of the brand, naming several of the guest satisfaction awards and ratings it has received from Market Metrix, J.D. Powers and others. He said Red Roof’s occupancy was up 8.6% this summer, and the brand’s 6.9% RevPAR growth this year has bettered the overall numbers from the economy and midscale segments.

‘Clean Slate’
On Aug. 22, the two years of financial and emotional distress ended, when Westmont Hospitality — the buyer of the Red Roof brand, system and corporate-owned assets from Accor in 2007 for $1.3 billion along with Citigroup — partnered with Five Mile Capital to take ownership of 143 Red Roof Inns. As part of the deal, the joint venture is investing $70 million to renovate those assets in the next two years.

Earlier this spring, a similar deal was reached when Westmont partnered with Dune Real Estate to take ownership of the other 51 previously corporate-owned Red Roof Inns. Renovations that will total $20 million are already underway at those properties.

During an interview at the conference this week, Alexander admitted that in a perfect world, maybe Westmont and Red Roof would have been able to maintain ownership of those 194 assets, but ultimately the new partnerships have allowed the brand to move forward.

The Red Roof Inn conference in Orlando featured a fun TV-themed format, with the opening of the general session a Larry King Live show with an impersonator, President Andrew Alexander, center, and CIO Jeff Linden.

“If we had limped along and somehow squeaked it out, we’d be living day to day in a 90% leverage situation,” Alexander said. “In a sense, we’ve wiped the slate clean from a financial standpoint, which has put us in the position to move forward on some of these initiatives.”

The new partnerships shift control of the 194 assets from brand owner Westmont to these two separate joint ventures, and all those properties are locked in with franchise agreements and will be managed by Red Roof. Alexander says the contracts and fees are the same for those as the approximately 140 other franchised locations throughout the U.S. and Canada.

NextGen II
The original NextGen prototype was introduced in June of 2008, created largely through the work of the brand’s previous owner, Accor. The sleek and modern look was well received, but the ensuing downturn limited franchise development and corporate development was stunted as a result of the defaults.

A complete build-out of the new NextGen II king guestroom was on display in Orlando, and franchisees got their first look at the modified prototype and interior package. The look and feel created by Glavan Feher Architecture is very similar, but with enhancements like new carpeting added to the mostly hardwood flooring, less costly lighting, more outlets and a switch back to traditional showerheads. And the new prototype will actually cost a little less than the original, Alexander said.

Renovations are already underway at some of corporate managed locations and all 194 of those will feature the new look by early 2013. Franchisees will also begin renovations through property improvement plans and Alexander estimates that within four years, the entire chain will feature the NextGen II look. By the end of 2012, all of the approximately 350 Red Roof Inns will feature 32-inch flat-screen TVs in standard rooms, and 37-inch versions in the Superior King Room.

The brand conference was Red Roof’s first since 2008 in Columbus, OH, where the company is headquartered. Alexander admitted Red Roof wanted to wait for both the economy to improve and some good news, and the recapitalization allowed for the “coming-out party” in Orlando.