The Robert Johnson Show
A coffee table off the entrance to the offices of RLJ Companies predictably displays the day's Washington Post and Wall Street Journal. It also features books about Africa, the blues and African-American painter Romare Bearden. It's clear that Robert Johnson, the owner of RLJ Companies, has taste. It's also clear that he values his heritage.
A self-made billionaire who founded Black Entertainment Television, Johnson sold BET to Viacom for $3 billion almost six years ago. In February, he became the most powerful African-American hotel owner: he paid White Lodging Services $1.7 billion for 100 hotels, most of them Marriotts. White Lodging continues to manage them. Bob Johnson continues to build his brand. To Johnson, entertainment and lodging overlap.
With an ace up his sleeve by the name of Tom Baltimore, who is the president of RLJ Development, one of Johnson's companies, Johnson aims to increase a presence in lodging that already looms large.
Not only does the White Lodging deal make RLJ Development a major national hotel owner, it turned RLJ into one of Marriott's largest franchisees. In one stroke, it gave RLJ Development control over $3 billion in assets and operator of 130 properties throughout the U.S. It also elevated the profile of Johnson, not one to waste words, money or time.
“We were the largest black-owned hotel company when we purchased our first six hotels from Hilton seven years ago,” Johnson says in a recent interview at his Bethesda, MD heaquarters. “I served on the board of directors of Hilton Hotels and had gotten to know the hotel business. When Hilton acquired the Promus Hotel Co., Steve Bollenbach came up to me and offered six hotels as a block.”
Intrigued, Johnson tentatively agreed, but told the Hilton Hotels president and CEO he didn't have anyone to oversee the assets.
So Bollenbach introduced him to Thomas L. Baltimore, a soft-spoken operations specialist who has become Johnson's right-hand hotel man. At the time, Baltimore was a Hilton vice-president.
Johnson is 60, Baltimore 42. They differ stylistically. They also complement each other. Not to mention compliment.
Bollenbach — and John Malone, the cable-television pioneer who was Johnson's partner in BET — taught him that “the guy with the lowest cost of capital wins in certain businesses — if you know how to operate them.
“I had access to low-cost capital and an operational guy who I figured could run hotels,” he says. “To me, it was a combination of a financial play, and also, from my entertainment background, I understood that hotels provide a certain emotional attachment to their customers, just like entertainment.
“If you know how to focus on providing the emotional attachment in the way you manage your property and you service your customers, you could do well.”
“Bob is a very smart guy and he's very forward-thinking,” says R. Donahue Peebles, another black developer of dramatic bent. “He visualized the power and the breadth of the cable industry before anybody else did when he started Black Entertainment Television. He' s got great vision, and as an entrepreneur, that's one of the things that makes you successful.”
Peebles, who developed the Royal Palm Hotel in South Beach, FL into the first 100-percent African-American-owned lodging property, considers Johnson a pure businessman. He has known him since both worked in Washington, DC in the late ‘70s.
“I'm a developer, and hotels are one of a number of products for us,” Peebles says. “He's focused on building a very strong hotel ownership company. I don't see an African-American angle to what he's doing; in terms of attracting capital, there's a diversity angle there. But I think in terms of what his company is doing and what his investments are making in the hotel industry, those are pure business ventures and market-oriented deals.”
“I want to create a brand much like Blackstone and CNL,” says Johnson. “I have a brand called RLJ, the initials of my name. What the vision of RLJ is is it's an enterprise that operates in the hotel real estate space, the financial asset management space and the entertainment space. They interrelate only in that I'm the controlling partner in all of them, it's my brand identity that they all carry, my vision that brings them together — and my resources that capitalize them.”
THE JOHNSON UMBRELLA
The arms of RLJ are RLJ Equity Partners, RLJ Select Investments, Urban Trust Bank, RLJ Development, Charlotte Bobcats (basking in a recent investment from Michael Jordan), Charlotte Sting and Charlotte Arena Operations, the financial technology arm RolloverSystems, and Caribbean Gaming and Entertainment (CAGE). As their names imply, they're synergistic; Johnson takes various business pulses, covering athletics, entertainment, sports, financing, banking, technology and development. With the White Lodging acquisition, his hotel ownership drive went high profile.
In 2005, Baltimore spearheaded RLJ's purchase of 19 hotels for about $630 million. In February, Baltimore signed the White Lodging deal. Five years ago, RLJ raised $315 million from pension funds; it's currently raising another $650 million.
“As we've gotten larger and gotten more scale, we've perhaps become more appealing, more interesting as a story,” says Baltimore, who plans to hold all the White Lodging assets in the new fund. “It is a lot of money.”
He credits the “sponsorship” of Johnson, the executive team and a focused, disciplined strategy for the success of RLJ Development. He calls Johnson “a brilliant visionary who's been a wonderful mentor. It' s been an extraordinary relationship. We've had a pretty good run in the last seven years, and we're optimistic about the future.”
Small wonder, with $400 million to $500 million in deals under evaluation or in the pipeline.
“We started in the peak of the last cycle when we bought our first seven hotels from Hilton,” Baltimore says. “We were a pretty active buyer in 2001, both pre- and post-9/11, buying when a lot of people were selling. Most of the assets that we bought after 9/11 have done quite well, in sort of a contrarian path. My only regret about that period of time is that we didn't buy more.”
In today's remarkably liquid market, buyers must be more competitive, Baltimore says. “We're still very bullish about the space,” he adds. “Even though it's very competitive and there's more liquidity, we still think the risk-adjusted returns in lodging are far superior to other asset classes.”
Will RLJ venture into the hot condo-hotel market? “We're straight hotels,” Baltimore says. “We have not spent any time studying that product type. It's not really part of our strategy.
“I think it's the buzz for now. We'll see if it's still the buzz a few years from now.”
A CALM, DELIBERATE STRATEGY
Bob Johnson says it's still a good time to buy hotels — if you can find properties for sale at below replacement cost. Having a “stellar management team” helps, too.
But money matters little without strategy, discipline and a “very, very value-oriented” management team, he suggests. Bring those to bear in gateway cities with high demand for top-branded, upscale hotels a notch below luxury and you can be a winner.
Key to that strategy is acquisition of limited-stay hotels bearing such familiar, trustworthy names as Hilton and Marriott in markets where cost of entry is high “if it's possible at all,” he says. Then keep costs low and maintain the properties.
He looks for markets with a robust corporate profile; transportation-center cities where land is scarce are particularly desirable. Geography is secondary. The White Lodging properties are all over the country, he notes, “and we are really good at analyzing on a market-by-market basis.
“What are the competitive implications of the market from other properties? What are the added values that come from the location?”
Synergy is key, too, he says, citing a Courtyard by Marriott in Birmingham, AL that RLJ owns. Because the property is next to the University of Birmingham Medical Center, it can be promoted as the medical center hotel. “We have explained to our pension fund investors that our primary focus is this up-market, extended-stay, limited-service brand of Hilton and Marriott,” Johnson says.
Another focus is discipline. “The other advantage we have even in down cycles is asset management, making sure you have the right team in place at the hotel,” Johnson says.
“You have to make sure the director of sales and general manager focus on all the operational requirements of the hotel, staying ahead of cap ex when hotels start to show their wear and tear and pushing the brands to do everything they're supposed to do.”
RLJ Development keeps the pressure on and the quality high by visiting properties five or six times a year.
What also helps is being a captain of industry. What matters little is skin color. Take a chance and that isn't a factor, Johnson advises. Be bold, too.
“The problem is that minorities with money have not been willing to take the risk of investing in hotel development or acquisition,” he says. “They don't understand the business. They don't have anyone who is operational in the business.
“There's only one Tom Baltimore. If you could go out and clone him, there'd be a lot of people in the hotel business.”
Minorities have to match entrepreneurs with capital, putting people like Shaquille O'Neal and Michael Jordan in the same room with equity sources like Wachovia or Wells Fargo, Johnson suggests.
“I know Steve Bollenbach is committed to seeing more minorities own hotels,” he says. “I know Bill Marriott is committed to seeing more minorities own hotels.”
Is the National Association of Black Hotel Owners, Operators and Developers, the key African-American hotel owner lobby, effective? Johnson gives a measured answer: “It's just that the organization, NABHOOD, has got to identify the people with money and put them in a room with the people, black or white, who know how to acquire hotel assets and maximize the return.”
“It took Bob Johnson over 20 years of building a billion-dollar company at BET,” says Andrew Ingraham, NABHOOD president and CEO. “But it took him approximately five years to build the same thing in the hospitality industry.”
The rising lodging profile of RLJ Development shows “many other African-American investors, both large small, that they, too, can seek opportunity,” Ingraham says. He notes that Baltimore is vice chairman of NABHOOD, which is holding its upcoming meeting July 19-22 at the RLJ-owned Atlanta Century Center Marriott. The hotel is undergoing a $14-million renovation.
“We all want to be thought of as business people,” says Don Peebles, the African-American hotel pioneer. “But as African-American business people, we've got to realize there are so few great success stories that it's impossible for someone to achieve the level of success that Bob has for him not to be a role model for young African-Americans.”
“I consider myself a smart guy with access to capital and the ability to attract talent to opportunities,” says Johnson. “If that's a role model, it should be a role model for everybody, black and white.”
THE BIG IDEAS
Buy in gateway cities with high costs to entry. Growth centers that generate business are good bets for hotel ownerships. So are cities where land is scarce.
Go with brands that are dependable and high-quality. Bob Johnson's hotel portfolio covers many brands, but Hilton and Marriott predominate.
Keep costs low and maintenance and quality high. Operations executives at the corporate and property level should stay ahead of the cost curve, fixing problems before they deepen.
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