While other hotel operators are checking out of owned properties and moving toward less capital-intensive franchising, Carlson Hotels Worldwide is checking in. The Minnetonka, Minn.-based hotel operator for the first time is looking to own and manage properties in the top 25 U.S. markets. Specifically, Carlson wants to push its upscale Radisson Hotels & Resorts brand a notch higher on the hospitality ladder to upper-upscale status. The company, which has traditionally focused on growth through franchising, believes it can better manage this transformative task than franchisees, who may turn over the properties. Carlson also plans to take some ownership of its luxury Regent Hotels & Resorts chain in the top five markets.

Steering this directional shift is Bill Sipple, a 30-year hotel veteran who was recently named corporate vice president of development. Sipple previously served in the same capacity for Carlson's full-service brands, where he was involved in both franchising and owned-managed development. "Any hotel company needs to control brands in top markets where they need to convey the brand image," says Sipple. "The best way to do so is via owning and managing."

Carlson is centering its higher-end brand ownership strategy on what are termed "gateway" cities. These locales are drawing growing numbers of foreign visitors, primed to spend by the slumping U.S. dollar. By setting up camp in these markets, Carlson can support the Radisson brand abroad, as foreign visitors that have a positive experience are more prone to pick the chain closer to home. Also, by upscaling its U.S. Radisson properties, Carlson can narrow the gap between those properties and its upper-upscale overseas Radissons, says Wendy Nelson, executive vice president and managing director of Carlson Hotels Real Estate Co., which also operates Park Plaza Hotels & Resorts, Country Inns & Suites by CarlsonSM and Park Inn.

Carlson's asset-intensive strategy contrasts with what Nelson terms the "asset-lite" path its peers are taking, forgoing ownership to use capital elsewhere. Mike Salinsky, an RBC Capital Markets Corp. analyst, calls Carlson's move "a little surprising," but says, "if that's what they need to get the properties locked into long-term management agreements, they may have to put down some equity to get the management contracts."

Of course, hotel operators have not escaped the squeeze of tightening credit markets, according to Sipple. "One of the biggest sources of debt capital for hotels -- securitized lenders -- has basically been sidelined." Privately held Carlson, owned by the Carlson family, must be particularly strategic about purchases, because it cannot raise public equity, relying rather on cash flow and private equity.

Still, the difficult lending environment has created a buyer's market, and solid operators that can obtain financing may have an easy pick of low-cost properties. "With what is happening with the debt markets, a lot of distressed assets are coming available," says Nelson. "For groups that are ready and have capital available, it is easy for them to step in and buy assets." The lending pinch has also left some projects to die on the vine. As a result, adds Nelson, "there is more opportunity for us to buy because developers already have shovels in the ground."

Over the next year, Sipple will work to sign six to 10 deals to increase Carlson's ownership of Radisson and Regent properties in the company's top five markets: New York City, Washington, Boston, Chicago and San Francisco.

The transactions may come in the form of ownership deals, where Carlson takes outright ownership of the property; management deals, where property owners pay a monthly management fee to Carlson; or joint ventures with developers, where Carlson provides some portion of equity or debt. The company plans to add six to 10 hotels in the top 25 markets each year.

Carlson is eyeing existing hotels, new development and buildings that can be repurposed.

"We tried not to create too many parameters because location, location, location is top priority," says Nelson, who adds the company is currently eyeing three new "ground-up" buildings for Radisson in San Francisco, Chicago and New York.

As it shifts gears, Carlson has not forgotten its franchise business. "If we have a strong brand in these [top] markets, we can leverage the brand in other markets via less capital-intensive franchising," Nelson says. The company plans to add 90 to 100 franchised properties this year. - Michael Rudnick

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