Shilo Inns struggling amid slump

By

Posted 9:43AM on Monday, February 18, 2002

PORTLAND, Ore. - Shilo Inns owner Mark Hemstreet defaulted on $30 million in loans, leading to a lawsuit by Bank of America, but he said the hotels remain profitable and in better financial health than most of the chain's competitors. Hemstreet last week reached a temporary agreement with the bank on repayment of his loans, and has made some adjustments. He has laid off about 120 employees since Sept. 11, about 8 percent more than during previous slower fall and winter seasons. The company also has offered discount rates to attract more guests. "This is one of the most challenging times in the history of the hotel industry," he said. "But, in light of recent events in the general economy, I don't know anybody that's doing better than we are." Industry observers say Shilo, which is privately held, will have to overcome many obstacles to remain a strong competitor in the hotel industry. Potential problems include the age and condition of Shilo's 47 properties -- several are more than a decade old -- to the inconsistent mix of facilities and amenities offered from site to site. Eric Aebi, president and chief executive of Portland-based consulting firm Ethos Hospitality, said most sales projections in the industry fell short in the fourth quarter. "But if you're a healthy institution, you should be able to survive a three-month downturn," he said. "It sounds to me that the Shilo situation is a little more dire than that." Hemstreet founded Shilo in 1974, using some of his own money and $50,000 he borrowed from his mother, her life's savings. Within 15 years, he had bought or built 43 properties, creating a well-known business with the motto "affordable excellence." Expansion leveled off by the mid-1990s, when the chain extended into 47 sites across nine Western states. More recently, many of Shilo's properties have faced increasingly heavy competition from similar limited service national chains such as Courtyard by Marriott, Hampton Inn and Comfort Inn, industry observers said. The competition likely has most hurt older properties, such as many Shilo Inns, industry experts said. "It's a problem when you have a chain and you want to keep your market position and newer products come in with newer designs and amenities," said Ed Dundon, owner and president of The Dundon Co., a Portland real estate brokerage firm specializing in the sale of hotels. Shilo, on average, invests about $2,000 to $15,000 a room every five to eight years for renovations, Hemstreet said. "I have some properties 25 years old in better shape and in newer condition than 3-year-old properties down the street from me," he said. Hemstreet has indicated that the chain benefited from its combination of offerings. "It's very diverse, that's why we held up so well during these challenging times," he said. Stephen Barbieri, a vice president for WestCoast Hospitality Corp., a Spokane-based company with 93 hotels said he wasn't surprised to hear that Hemstreet had defaulted on his loans. "You'll see a lot more defaults this year from individual hotel owners and chains like that," he said.