Once Dunfey-owned Omni Hotels Seek Bargains as Other Chains Divest Properties

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Dunfey's Wanted Chain's Headquarters to Remain in Hampton

By Leslie Miller

New Hampshire Business Review, August 7 - 30, 1992

Former Dunfey Hotels employee and current president of the New England Hotel Realty in Portsmouth, Patrick H. Ford conducted a recent hotel study which showed the average hotel room price has declined from $23,630 in 1988 to $18,400.

There's a small hotel along Rte. 1 (Lafayette Rd.) in Hampton, as well as a number of motels, bait shops, mini golf courses, convenience stores and the world headquarters of Omni Hotels, a company that owns or manages 45 luxury hotels in major cities and prime resorts in North America and the Far East.

The one-story office building -- a former First National Stores, Inc. grocery store — can barely be seen from Lafayette Rd., and southbound motorists can't even see its tiny sign. But the headquarters location seems to have helped Omni. In partnership with its Hong Kong-based parent, the company is extending its brand through acquisition at a time when major hotel chains have saturated key markets and little capital exists for hotel purchases, according to industry analysts.

If a converted grocery store seems an unsuitable headquarters for a luxury hotel chain, consider this: Partly because Omni did not overpay for luxury hotels in the '80s, as did many of its competitors, it can now afford to go bargain hunting at a time when other hotel chains are divesting properties.

The Omni Hotels story began in 1945 when the five Dunfey brothers started a fried clam stand at Hampton Beach. Their successful clam business allowed them to acquire other properties, including Lamie's Tavern, which still stands next to Omni Headquarters (and now called The Old Salt Eating and Drinking Place in 2009). According to Jon Canas, now Omni vice chairman, the Dunfeys just wanted to buy the restaurant, but they had to buy the inn as well.

With the Lamie's purchase, the Dunfeys adopted the theme of "Good Old New England hospitality" and later used "Cracker Barrel Lounges" in the hotels they purchased. The brothers added a 332-room motel in 1958, having realized they could make more money in the innkeeping business than in food service.

Over the next few years, they bought hotels throughout New England. With operations and sales offices in Maine, Massachusetts and New Hampshire, Jack Dunfey, then president of Dunfey Hotels Corporation, decided to consolidate the operations in the Hampton headquarters.

In 1968, Dunfey Hotels bought the near-bankrupt Parker House in Boston, marking their strategy to buy existing hotels and renovate the facilities. The strategy required capital, and so in 1971 the brothers sold the business of 18 hotels and motor inns to Aetna Life Insurance Company of Hartford, Conn. Aetna continued to acquire properties, retaining the Dunfeys to manage them.

This was not unusual; most hotel owners enter into agreements with hotel management chains to franchise hotels or to manage them or to do both. Aetna wanted the Dunfeys to find a new headquarters, but Jack insisted on staying.

Aer Lingus, the Irish National airline, bought Dunfey Hotels' from Aetna in 1978. By 1980, the company owned or managed 8,950 rooms, from the luxurious Ambassador East on Chicago's Magnificent Mile to the Meadowbrook Motel at Portsmouth traffic circle.

In 1980, Canas became president and chief operating officer of Dunfey Hotels. Three years later, the company decided to buy from Omni International Hotels, Ltd., the rights to its name with management contracts for three hotels down south. That, said Canas, was when the company decided to expand and to manage properties under its own new name. To develop and maintain their brand, said Canas, they needed to have similar properties. So Omni began to divest motor inns and motels and focus on upscale downtown properties. "We wanted to cater to the business market, instead of the driving market", said Canas.

Although Omni/Dunfey Hotels tried to distance its brand from motor inns and motels, the headquarters still did not move from the commercial strip full of motor inns and motels. "We were so busy expanding the company it was a moot point to move the headquarters", said Canas.

The company also reorganized into two operating divisions: Omni International Hotels and Dunfey Hotels, which included 14 hotels owned and managed under independent or franchise names as well as under the Dunfey franchise. Since then, Omni has slowly divested the Dunfey properties, franchises and management contracts. The last of the Dunfey Hotels, the Dunfey San Mateo, is now in the process of being sold. The Dunfeys themselves sold their interest in the company, and formed the Dunfey Brothers Capital Group in Portsmouth, a venture capital company with social concern criteria.

As Omni divested during the 1980s, real estate developers overbuilt the U.S. hotel market. Today there are 3.3 million hotel rooms in the country, and all but 200,000 are in configurations of 20 rooms or more, according to Randy Smith, president of Smith Travel Research in Gallatin, Tenn. In 1991 — a year in which the Gulf War and the recession resulted in Armageddon for the hotel industry — occupancy rates hit a 20-year low of 56.7 percent, according to Smith.

In 1988, Aer Lingus sold Omni for 135 million to World International Holding Limited and The Wharf Holding Limited of Hong Kong, a 5.6 billion diversified trading company representing 10 percent of the Hong Kong stock market.

According to its sponsoring statement, the firm has a strategy of buying at the bottom and building assets aimed at the preservation of capital. The Hong Kong companies' conservative style matched the Dunfey brothers' early strategy of buying near-bankrupt hotels and refurbishing them. It also made sense during a decade when many investors overpaid for hotels.

This is a good time to buy hotels that will increase in value, says industry observers. A recent hotel industry study conducted by Patrick Ford, president of New England Hotel Realty in Portsmouth, (and a former Dunfey Hotels employee) showed the average hotel room price has declined from $23,630 in 1988 to $18,400, or a 22 percent devaluation over three years. Occupancy rates are below break-even throughout the industry, and the average hotel built since 1985 lost $5,000 per available room, according to J. Paul DeMyer, partner with Kenneth Leventhal & Company. The Resolution Trust Company is now selling hotel properties that have plummeted in price; according to Douglas Billing, asset management specialist for the RTC, some hotels are only worth ground value. Additionally, said Ford, little or no bank financing exists for hotels with 75-plus rooms.

That's why Omni Hotels has been able to do some selective bottom fishing with the help of its wealthy parent. Omni has made a strategic decision to control its assets in all key markets, said Canas, so they can better manage their capital expenditures and operating costs. Acquisitions allow Omni to protect its brand, he said, especially since hotel owners are less likely to maintain their properties during a recession.

"It's likely you will accumulate deferred maintenance," said Canas. "One or two years is not a problem, but three, four, five years is a real problem. You realize problems when you don't control your assets."

And so, in the past nine months, Omni or a sister company bought the Omni Houston Hotel, formerly the Four Seasons Inn on the Park, the posh Omni Berkshire Place in Manhattan, and the remaining 55 percent interest in the Omni Parker House in Boston, in which it had a 45 percent interest. The company is buying the Marriott Mandalay in Los Colinas, Calif., and is on the prowl for luxury properties in Los Angelas, San Francisco and Dallas.

Still, said Canas, Omni about moving into a fancy-shmancy head-quarters like Hyatt or Sheraton. Over the years they've discovered that Hampton is really a suburb of Boston -- they're an hour from Logan -- and New Hampshire is not only beautiful but a good place to raise a family. So it looks as if the large hotel chain headquarters will remain nestled among the small hotel and the wishing well on the mini golf course in little Hampton, New Hampshire.

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