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Bethesda proves to be “Ground Zero” for hotel businesses Featured

Bethesda is one of the top places in the country for companies on both the ownership and management sides of the hotel business.

J.W. “Bill” Marriott, Jr., CEO of Marriott International Inc. from 1972 to 2011 and still executive chairman, led the lodging industry’s separation of management and ownership functions for larger, higher-end properties. Until the 1980s, hotel owners in all price ranges generally managed their own properties, and chains had either central ownership or franchising deals holding them together.

Marriott concentrated on the management side of the business, developing the powerful marketing synergies of nationwide and worldwide hotel brands, as well as expertise and cost savings in hotel operations.

Of course, Marriott International is the “giant kid on the block” in Bethesda’s hotel business. Brendan McManus, senior manager for global communications and public affairs, said Marriott has more than 6,100 properties in 124 countries, with about 1.2 million rooms under management or franchise arrangements, citing company data. More than 4,000 of the properties are in the U.S. It runs 13 hotel brands, including well-known names such as Marriott, Residence Inn, Ritz-Carlton, Courtyard and Fairfield Inn, plus resort and corporate housing brands. Consistent with the separation of management and ownership functions, Marriott owns or leases only 2 percent of its managed properties, McManus said.

The company is growing rapidly. Worldwide, Marriott has 2,540 properties with 430,000 rooms at various stages of the development process, McManus said.

In the U.S., 1,340 properties are under development, McManus said. In Maryland, 10 are under development.

Marriott has a huge presence in Montgomery County. McManus said about 3,900 people work at its headquarters on Fernwood Road in Bethesda and an administrative center in Gaithersburg. An additional 2,000 people work at the company’s 18 hotels in the County. In Maryland overall, it has 93 hotels and 10,000 employees. Nationwide, 101,000 people work for Marriott.

But Marriott is far from Bethesda’s only major hotel business. Five “real estate investment trusts” (REITs) that own hotels around the country are all located in downtown Bethesda, according to the National Association of Real Estate Investment Trusts website. They have companies such as Marriott International, Westin, and others manage and market the hotels for the REITs.

REITs are notable for paying dividends on their shares at far higher rates than current rates paid by banks on savings and checking accounts. According to Yahoo Finance data retrieved June 19, five hotel REITs located in Bethesda are paying dividends on their stock prices as follows:Host Hotels & Resorts, Inc., 4.27 percent; LaSalle Hotel Properties, 5.76 percent; RLJ Lodging Trust, 6.27 percent; DiamondRock Hospitality Company, 4.32 percent; Pebblebrook Hotel Trust, 4.54 percent.

The National Association Real Estate Investment Trust said REITs can avoid paying federal corporate income taxes provided they distribute 90 percent of their taxable income to shareholders. That is an incentive for the high dividends.

Host was spun off from Marriott International in 1993, originally under the name Host Marriott International, according to Marriott. Richard Marriott, Bill Marriott’s brother, chairs its board. Host said in its first quarter earnings for 2017 it has 89 hotels nationwide and seven outside the U.S., for a total of 96, amounting to approximately 53,500 rooms.

One of Host’s hotels, Gaithersburg Marriott Washingtonian, is in Montgomery County.

RLJ, another Bethesda REIT, has 122 hotels, according to RLJ’s first quarter earning press release. Most of its properties are not full-service, but rather, as the company calls them, “focused-service hotels” such as residence and corporate inns. These include the Marriott Residence Inn in Bethesda and the Marriott Residence Inn planned for Silver Spring.

Robert L. Johnson, founder of Black Entertainment Television, started RLJ and he remains its chairman. While owned by its shareholders, RLJ Lodging functions as part of the RLJ Companies based in Bethesda.

According to their respective 2017first quarter earning press releases, three other Bethesda hotel REITs are LaSalle, with 42 hotels (none in Maryland, eight in DC); DiamondRock, with 28 hotels, including Bethesda Marriott Suites; and Pebblebrook, with 29 hotels (none in Maryland, one in DC).

Marriott International plans to move to downtown Bethesda in 2022.

Bridget Schwiesow, spokesperson for the Maryland National Capital Parks and Planning Commission, said Mariott submitted its concept plans to the Montgomery County Planning Department in May. The public may view the plans on the commission website. The County Council took the plans into account in recently promulgating a new master plan for downtown Bethesda.

The hotel industry concentration extends beyond Bethesda to the entire D.C. metro area. Choice Hotels International Inc. is based in Rockville.

 Choice, as a hotel franchiser company, performs central office management functions but not local on-site management of individual hotels. Sarah Lee, spokesperson for Choice hotels, said Choice franchises approximately 6,400 hotels, with about 500,000 rooms, with brands such as Comfort Inn, Quality Hotels, EconoLodge, Rodeway, Cambria and Sleep Inn.

Hilton Worldwide Holdings Inc. said its headquarters are in McLean, Virginia. Hilton recently spun off a REIT of hotels it owned, much like the Marriott spinoff of Host Hotels in the 1990s. The many hotel companies in the area cross-fertilize talent. “There are a number of people who ‘grew up’ in the hotel business at Marriott and have gone on to form REITs and/or work for other hotel companies,” McManus said.

Airbnb and other web-based housing rental service (HRS) companies pose a competitive challenge to hotels, McManus said.

“We cannot quantify [the Airbnb/HRS] impact on our revenue-per-room or occupancy levels,” McManus said. “However, we believe [such services] may depress our occupancy [levels] in slow times, and limit our ability to push rate [hikes] during peak times, including special event periods in key urban markets such as New York City and San Francisco.”

Hotel firms appear to have advantages over HRS firms with business travelers, McManus continued. “Most employers evaluate [employee] lodging alternatives … through a lens that includes privacy and safety…. Hotels have security processes in place and relationships with local authorities … You just don’t get that with an owner of a small residential unit.”

HRS firms have important regulatory and cost advantages over hotels, and the hotel industry is seeking a more level playing field, McManus said. In this still early stage of HRS firms’ development, they don’t have to collect hotel sales taxes or comply with hotel zoning restrictions, the Americans With Disabilities Act, or life safety standards. “Particularly, the commercial operators with multiple units using [the Airbnb] platform,” McManus said, “have an obligation to pay taxes and follow the law like any other business.”

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