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Hospitality at its Finest

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If Michael Gallegos' hotels are anything like his office near University Towne Centre with its firm butter-colored leather couches and, possibly, the most comfortable conference room chairs ever manufactured, it's no wonder he's successful.

The headquarters of American Property Management Corp. has an understated luxury that makes a reporter waiting to meet the company's chief executive want to order room service. Not just any room service -- the five-star hotel kind with sterling silver trays.

Gallegos, 45, said his hotel guests benefit from mom's age-old advice: give more than what's expected. Judging from the walls of hotel photographs that deck the company's halls, thousands of people around the country are being treated exceptionally well every day. And those numbers are likely to increase since Gallegos earned widespread recognition by winning the prestigious national 2004 Ernst & Young Entrepreneur of the Year award in the real estate, hospitality and construction category.

The award is given to entrepreneurs with high-performing businesses, innovative ideas and strong leadership. The screening process includes a rigorous examination of the company's financial statements going back three years, as well as interviews with the nominee, personnel, partners, accountants, attorneys and investors.

Previous local winners include Dennis Mudd of MusicMatch, which was acquired by Yahoo (Nasdaq: YHOO) last year, and Irwin Jacobs, chief executive of Qualcomm (Nasdaq: QCOM). Prior winner Massih Tayebi, the former chairman and co-founder of San Diego-based Wireless Facilities (Nasdaq: WFII), nominated Gallegos for the award.

The story of Gallegos as one of 11 children from a poor northern New Mexico family appealed to the judges' sense of achievement over adversity.

"It was a great story," said Niki Krutop, an audit partner with Ernst & Young, and head of its San Diego entrepreneur award program. "He started with nothing much and now employs thousands of people."

Gallegos has built one of the nation's largest hotel companies by buying bankrupt hotels in difficult markets and turning them around. He rejects a suggestion that he's in the real estate business.

"I really buy an operating business with a large real estate component, and there is a difference," Gallegos said. "Real estate investors that made a lot of money in multifamily, office and retail have mistakenly thought that they could get into hotels and they have not always been successful. In fact, more often than not, they are unsuccessful."

American Property Management (APMC) has acquired 48 hotels in 14 years and sold only six. Gallegos and his partner Jim Long started the company with the purchase of a bankrupt Comfort Inn in Albuquerque for less than $2 million. Some renovations ensued, followed by frugal living and the purchase of a second bankrupt hotel -- the Hilton Las Cruces.

Gallegos and Long soon began buying up nonperforming properties across the Southwest. APMC owns the Prava and Radisson Harbor View hotels in downtown San Diego. APMC sold its original property last year earning a 762 percent return on the investment, Gallegos said.

Now, with 42 hotels and resorts stretching from California to Florida, the company has 11,550 rooms and more than 5,000 employees. The portfolio is valued at $800 million and returns more than $300 million in annual revenue. Recent growth following the company's move to San Diego in 2000 propelled APMC to a No. 10 ranking among the top 120 independent, third-party management companies by Hotel & Motel Management magazine last year. Meanwhile, Hotel Business magazine listed the company as the 16th largest hotel owner in the United States.

Gallegos is now focusing on upscale hotels in the four- and five-star range, where wireless high-speed Internet connectivity and organic foods are the norm. Paper-pushing executives are nonexistent. The bar manager is the head bartender. The executive housekeeper cleans rooms and the executive chef works in the kitchens. The arrangement saves labor costs and ensures that management personnel are in the hotel responding to guests' needs and continuously training lower-level employees to take on greater responsibility.

The policy is one more hotels should emulate, according to Robert Rauch, a hotelier and director of the Center for Hospitality and Tourism Research at San Diego State University. The hotel industry has "too many ivory tower people who sit in their offices and run numbers and we need to get away from that," Rauch said.

Life pursuits

When Gallegos was 11 he asked the owner of a local four-star hotel for a job because he wanted to start contributing to the family's finances. The owner eventually gave Gallegos a job as a parking lot attendant on the condition that he never drive any cars. But that was the only way to earn money.

By 16, Gallegos was front desk manager. And when Gallegos graduated from high school he became the hotel manager, overseeing all operations while paying his way through the University of New Mexico, where he majored in economics and political science.

"I always believed I could do anything," Gallegos said.

Rebounding -- a team sport

Although APMC has enjoyed a steady growth pace since its founding, the company suffered along with its travel industry peers after the technology industry meltdown, Sept. 11, 2001, terrorist attacks and SARS epidemic that slowed travel from Asia.

Gallegos dipped into his own pockets and put about $5 million back into the company to avoid layoffs. The decision paid off in dividends, according to Gallegos -- a reserved man who turns boisterous as a conversation about his business and team progresses.

"If you take good care of your people they will take good care of your guests and of your hotel," Gallegos said. "We love our personnel."

The company boasts a 16 percent turnover rate in an industry that averages between 38 percent and 50 percent.

Gallegos is so focused on building his team-oriented corporate culture that he had to be convinced to agree to Tayebi's nomination for the Ernst & Young award. Tayebi said he has been fortunate to see Gallegos at work.

"He treats everybody like a member of his family. He takes care of the guy who cleans the floor all the way up to corporate executives," Tayebi said. "If you're looking for a horse to bet on, he has all of it. I look at him and I see a lot of vision and a lot of execution."

Gallegos consented to the nomination only after Tayebi and other prior winners convinced him that the entrepreneur award is a great way to recognize the contributions of an entire company. In fact, Ernst & Young reports that 52 percent of prior winners indicate that the award improved employee morale.

"It was a little embarrassing, honestly, to win an individual award like the Ernst & Young award because in our company it's always been about the team," Gallegos said. "Now, every leader in my company gets to post on their resume that they were a member of the national Ernst & Young entrepreneur of the year award team."

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