Flynn Holdings’ purchase last week of a controlling interest in 89 hotels won’t be the mega-sized restaurant franchisee’s last foray into the lodging market—nor its last push into other franchise businesses.
With 2,400 restaurants operating within its Flynn Restaurant Group (FRG) division, the holding company isn’t ruling out an expansion into such “consumer-facing business built on franchising” as gyms and home-healthcare services, says founder and CEO Greg Flynn.
“Twenty years ago, we were focused on full-service restaurants,” he says. “We originally set out to build an Applebee’s portfolio, to run Applebee’s at scale. We spent 12 years doing nothing but that.”
That effort has made FRG the largest Applebee’s franchisee by far, with 444 of the chain’s 1,670 domestic stores.
A deep diversification into limited-service restaurants, all through acquisitions, would follow. Today, FRG is one of the largest operators of quick-service and fast-casual restaurants ranging from Taco Bell to Panera Bread, Wendy’s, Arby’s and Pizza Hut.
If FRG’s restaurants were a chain, it’d be one of the industry’s 25 largest brands, with revenues of about $4 billion.
To keep the parent company growing, Flynn is watching for deals in lodging’s limited-service market, a sector that has been quicker to recapture business travelers than luxury properties have. The market tier is epitomized by Courtyard by Marriott and Hilton Garden Inns—concepts that offer clean, comfortable rooms but limited public-area amenities.
And there’s no shortage of opportunities arising, according to Flynn.
Nor is capital a problem. The 89-property deal, valued at about $1.1 billion, was done in collaboration with Varde Partners, a self-described “alternative investment” firm. The joint venture acquired an 80% stake in the properties, with the remaining 20% retained by the sellers, Cerberus Capital Management and Highgate, a hotel management company.
The deal was consummated through Flynn Holdings’ real estate arm, Flynn Properties.
As with Flynn Holdings’ restaurant operations, the hotels will operate under what Greg Flynn terms a state-and-federal approach. The businesses have considerable autonomy to manage their business affairs, just as a state does. But certain big issues and constants are set by headquarters, the federal government in Flynn’s analogy.
“We don’t want to be a command-and-control, top-down organization,” says Flynn.
There are some departures from the company’s usual model, however. For instance, the 89 properties will all be run by Highgate, not any Flynn holding.
“We know what we don’t know,” says Flynn. “We’re going to school here. I wouldn’t rule out us operating hotels down the road.” His company already runs several high-end resorts and had a base of about 20 inns it acquired in August 2021.
Does Flynn Holdings’ bigger plunge into hotels mean it’ll be putting restaurants on the pads of the lodging properties?
“Maybe,” says Flynn. He’s quick to add, “there are lots of different types of synergies. They could be in financing, personnel, IT. Many of those functions we developed for one type of business could be applied across the whole portfolio.”
One of the big corporate benefits, he stresses, is the additional opportunities that can be provided to employees, a major recruitment advantage. “Now someone can say ‘I want to run a hotel,’” he explains. “You can grow with us.”
The path Flynn says he’s unlikely to take is selling his company to the public through a stock offering. Access to capital isn’t an issue, and there are means of incentivizing employees beyond stock options, he explains.
Besides, the 58-year-old says, “it tends to lead to short-term thinking,” with a quarter-to-quarter focus. “We are playing a very long game.”