To The

For a man in the hospitality business who's traveled widely, Ted Torres didn't fall far from the tree, nor did he want to. "My father, a first-generation hotelier, was my mentor, teacher, coach, and partner," says Torres, who at 43 has been in the business for 20 years.

His most far-flung project, building hotels for Hilton across Russia, never came to fruition--through no lack of willingness on his part--but it was a fabulous month-long adventure just the same.

Torres had teamed up with a business associate who was a former government minister in Armenia. "I had a very strong relationship with Hilton and we came up with a business plan to develop hotels in Russia under Hilton's mid-market names. We found a private equity firm in LA and they said, 'Sure, let's check on the opportunity. We'll send you and an associate over to see."

Before departing, Torres had negotiated a preferred franchise agreement to develop five Hilton-branded hotels in five years in Russia. "I was there to perform initial due diligence to ascertain how easy or difficult it was to do this. I spent a month there. It was December and minus 20 degrees--and me from Phoenix."

They traveled to several cities, met with attorneys, architects, and local officials. "As a developer, I knew who to talk to. A lot were referrals from Hilton people already there," says Torres. "The people I met were warm and treated businessmen with great respect." His conclusion? There were "terrific opportunities" in Russia's 20 regional cities with a population of 1 million or more (except in Moscow and St. Petersburg where, he says, the property is too expensive and there's too much corruption).

On their return to LA, they showed the equity firm a 300-slide PowerPoint presentation with a strategic plan for building hotels in five cities. "At the end, they said, 'Great, you could do it, but it's the other side of the planet.' They said no." That was somewhat puzzling, says Torres with a rueful chuckle, since they knew where Russia was before they went. "It was a terrific life experience, but time to move on," he says, adding one of his favorite sayings: "You always learn something, and something great is about to happen."

Today Torres, who has developed award-winning Hilton, Ramada, Holiday Inn, and Marriott hotels, is looking to Wyndham's Microtel brand to be that "something great." In these tight economic times, he's looking to diversify risk and ride wave of a growing brand that he says is right for the times.

"I can build four Microtels for the cost of one Hilton Garden Inn, and the four Microtels will make more money than a Hilton Garden Inn," he says. "They're in four areas, so if one area suffers a little bit I don't take a monumental hit. It's diversification of risk, an easier operating model, and they're easier to develop and build."

He also likes the prospects of Microtel in the limited service, budget economy hotel sector. As he explored the sector, he asked such questions as, "Where am I going to find a hotel in an area that isn't already taken? Where am I going to find a good, high-quality product that has the necessary product distribution already in place, a good franchising system that is fair, and has available markets?"

Torres says what attracted him to Microtel is its low cost of construction, ease of operation, small parcel requirements, and the redesign effort undertaken about 18 months ago. Today, he says, "They have a budget/economy product superior to the competition--and oh, by the way, they make money, and I'm in it to make money."

And with the sale of the brand this year from Hyatt to Wyndham, he feels optimistic about his future with the brand. "Wyndham knows how to grow brands, to market, and to create greater consumer awareness of brand names. That's what Microtel needs. They have 300 properties now, but they need more PR," he says.

"All of those hotels are new builds, there's not one conversion from an older, other-brand hotel." And, he says, it's written into the franchise agreement that if Wyndham decides to do conversion, "We have an opt-out, with no termination fee written in."

A prototype Microtel unit contains 83 rooms, he says, with a range of $6 million to $7.5 million to build (without land cost it's typically about $5 million). He's agreed to build 20 in the next 5 years, across Texas and the Southwest, starting with southern Nevada, northwestern Arizona, and three in central Texas. He likes his hotels to be no further than a two-hour flight.

That, of course, takes money. "Because of the economy, the availability of debt capital is the biggest challenge today, particularly with hotels, capital-intensive and dependent on real estate. Without debt capital, there is no ability to grow," he says. "In the past couple of months it has become extremely challenging to source that debt capital--not because of challenges or reasons to do with me."

The "capital stack" for financing a hotel has a percentage that's debt, and a percentage that's equity, the land and your own cash, he says. The investors and joint venture partners are in the equity portion of the stack. "There's no problem there," he says. "The challenge is the debt financing from institutions."

Torres has a partner, a close family friend, also a lifelong hotelier, who's been in the business about 40 years, to his 20. They developed the plan to build Microtels about two years ago. "We said, 'We know a lot of people with capital just sitting there. If they like what we're doing, why not bring them along for the ride? That's where the joint venture partners come into play."

Looking ahead, Torres is optimistic, despite the commercial and residential real estate collapse that has hit Arizona and Nevada particularly hard. "Everybody's a winner, depending on where you sit. McDonald's profits are up 8 to 10 percent. Microtel is like the McDonald's of the hotel industry," he says. "The more established names, when the dust settles--and I don't know when that will be--the ones that have the brand staying power, are the ones that will excel and thrive."

QUESTIONS

Name: Ted J. Torres, CHA
Title: Founder and president
Company: International Hospitality Development Alliances
No. of units by brand: 1 Hilton Garden Inn, 5 Microtel Inn and Suites (under development), 1 Hampton Inn & Suites (under development)

PERSONAL

Age: 43
Family: Wife, Donna, 1 daughter, Bianca, 11; two Yorkipoo dogs, Elvis and Caesar

Years in current position: 4
Years in franchising: 20

Key accomplishments: The reflagging of two hotels through major renovation. The biggest accomplishment is always the ribbon cutting of any new hotel opening, as it is a big sigh of relief of a very difficult job that was done well.

Biggest mistake: Not thoroughly investigating the financial wherewithal of a previous employer prior to accepting the position. They were out of cash in less than one year.

Smartest mistake: Working in partnership with my mentor, who is my father.

How do you spend a day, typically? Non-travel days: Take my daughter to school, cup of coffee from Starbucks, office by 9 a.m., finish at 4 p.m., do the 500 workout, go home, dinner with family, help my daughter with her homework, play with the dogs, bed before 10 p.m. Travel days: First meeting breakfast 7 a.m., go nonstop through dinner meetings.

Work week: If my cell phone is on, I am working.

Favorite fun activities: Racing my 350Z, downhill skiing, golf, tennis, wine collecting, international travel

Fave stuff/tech toys: I don't need the latest tech. I had a "Crackberry" but gave it up. Too much technology paralyzes people. At the end of the day, I am in the hospitality business, which means I am a people person. You can't deal with people if you are always checking your email, texting, or looking down at a computer screen.

Exercise/workout: The 500--a variation of the 300 workout - the movie - buff guys - saw it on local news - have all the equipment in my office. Every exercise you do has 25 repetitions. Do it till 500 and you're pretty well exhausted. Every other day is cardio after that.

What are you reading? The Broker by John Grisham. It is partially set in Italy, a country and people I dearly love.

Do you have a favorite quote or advice you give? "Don't dwell on the past, Something Good is about to happen."

Best advice you ever got: "When you are dealt a royal flush, do you check your bet or go all in? Go All In." That is how I went into the family business 20 years ago.

Formative influences/events: My father, a first-generation hotelier, was my mentor, teacher, coach, and partner.

How do you balance life and work? "One day at a time"

MANAGEMENT

Business philosophy: Set a goal, and do everything within yourself to achieve that goal. Be fair with people, and they will continue to work with you. Your integrity is worth more than money.

Are you in the franchising, real estate, or the customer service business? I am in the customer service business. Hotels are all about providing my guests with an extension of their home away from home. So this is a very personal experience for the thousands of guests I serve every year. The vessel of my customer service business happens to be real estate. Franchising allows me to finance my hotel projects, and set a minimum standard level of expectation for which the consumer wants me to deliver.

What gets you out of bed in the morning? My family. I love and adore them all. Simply put, I work to live, not live to work.

What's your passion in business? Satisfaction in a job well done. Making and maintaining great relationships through the years. I am fiercely loyal. However, the one item that I absolutely go nuclear on is inefficiency. If something is done correctly the first time, there should never be a reason to go back and have to do it again.

Management method or style: Instructive and Inclusive. The more my managers know the better.

How close are you to operations? Very close. Technology allows me to independently manage my properties in a number of states and from far distances. Site visits are necessary to always get a feel for the operation. I always speak to the housekeeping staff upon every visit in Spanish. This is always informal and usually throws the managers off. Most people do not know this secret: Room technicians are some of the most informed staff in a hotel. If you want to know what is really going on, ask them they will tell you and be direct about it.

If you want to know what people are really like, talk to the maids.

Greatest challenge: Currently, financing.

Personality: I am a Gemini and know many people that are also Geminis. We share a common trait: there are two sides to each and every one of us.

How do others describe you? Direct, loyal, intelligent, passionate, goal-driven.

How do you hire and fire? I hire the hotel manager, they then hire their staff. My managers have to be smart, level-headed, goal-oriented and have an innate ability to communicate from their level down and up. Every termination I have made, the person knew it was coming, which is usually due to their own shortcomings. Essentially, they fire themselves, I just make it official.

How do you train and retain? Quality permeates every organization, whether high or poor. I hire quality people, and provide them with all of the tools necessary for them to accomplish their tasks. I can then hold them accountable to the mutual goals that we set. Retention of quality personnel is through a variety of incentivized systems that are both economic and morale driven.

BOTTOM LINE

Annual revenue: $8 million
2009 goals: $20 million
Growth meter: How do you measure your growth? Number of properties I develop.
Vision meter: Where do you want to be in 5 years? 20 properties owned and operated, 400 very happily employed team members.
10 years? Retired, living in a villa in Tuscany tending to my own vineyard.

How is this economic cycle affecting you, your employees, your customers? All of the hotel assets are substantial multimillion dollar assets, where the only successful business model requires an adequate level of debt financing. Today, the debt financing is the single hardest challenge facing my growth plans.

What are you doing differently in this economy? Working harder for less money, being creative, and forming joint ventures and partnerships with other like-minded, smart, hard-working individuals and companies.

Where do you find capital for expansion? Equity: through joint ventures, private investment funds, and private placements for individual investors. It is all about touching as many sources as you can that have a belief in you, your business model, and at the end of the day a fair return on investment. Debt: through banks.