Skift Take

SH Hotels & Resorts has many of the boutique qualities bigger brands covet, so its new CEO simply has to stay the course. But he also has to hit the ground running, quickly finding revenue substitutes for the depleted international travel sector.

Billionaire investor Barry Sternlicht’s SH Hotels & Resorts has a new CEO who aims to navigate the pandemic recovery with organic growth rather than tie up with any of the global behemoths salivating at what the smaller, boutique-minded brand offers.

Arash Azarbarzin succeeded Sternlicht earlier this month as the CEO at SH Hotels & Resorts — owner of the 1 Hotels, Baccarat, and Treehouse hotel brands and a subsidiary of the investor’s Starwood Capital private equity firm. Azarbarzin was president of SH Hotels for three years prior to his new role and previously held leadership positions with brands like St. Regis Hotels and W Hotels, which Sternlicht founded while serving as CEO at Starwood Hotels & Resorts.

Sternlicht will stay involved at SH Hotels as chairman of its board.

The leadership shift comes at a critical time for any hotel company, as the industry is still suffering from catastrophic revenue and demand declines from the pandemic. But it is especially so for SH Hotels, which relies significantly on international travel but also has the kind of boutique hotels many bigger companies are pursuing.

The big brands should probably look elsewhere if they’re in pursuit of an acquisition target.

“I wouldn’t put it out of the question that Barry would acquire another small hotel company, but it’s not really our intention today to partner with any of the bigger brands because we feel we might lose our DNA if we merge with one of the bigger hotels,” Azarbarzin said.

SH Hotels & Resorts CEO Arash Azarbarzin

While the hotel industry has grappled with its worst year for business during the global health crisis, the one consistent growth story involves major brands boosting their holdings in lifestyle hotels — a debatable term but generally means a hotel with an emphasis on food and beverage outlets and highly personalized experiences. Accor even describes a lifestyle hotel as one that makes as much as half its revenue from its restaurants and bars.

Companies from IHG to Wyndham have all pushed into the lifestyle hotel sector, either through organic growth or brand acquisitions like Hyatt’s Thompson Hotels takeover in late 2018.

Accor even spun out its lifestyle brands into a distinct entity with Ennismore, owner of the Gleneagles and the Hoxton hotel brands. This industry pursuit had several industry analysts drawing comparisons to what Sternlicht did with W Hotels before Marriott acquired it through its 2016 Starwood Hotels & Resorts acquisition.

Bigger brands want to operate in this space, as they feel leisure travelers increasingly want more tailored experiences at hotels and not just the reliability of a bigger brand like a Sheraton.

But not every smaller brand wants to help accelerate this new trend for the global giants. The leaders of companies similar in size to SH Hotels, like Dream Hotel Group and Proper Hospitality, previously indicated to Skift a desire to remain independent and not just get swallowed up by a larger company.

“We’d like to continue to evolve this brand and grow it organically,” Azarbarzin said of SH Hotels. “We’ll have 20 to 25 hotels over the next two to four years, and that’s just organic growth of the deal pipeline we have in the works. I wouldn’t be surprised if we buy a smaller company.”

Keeping a Sustainable Mission

The pandemic presents a unique challenge to SH Hotels’ 1 Hotels division, as the brand is particularly focused on sustainability and reducing the carbon footprint of the hotel industry.

But the global health crisis is seemingly at odds with any kind of sustainability mission, as single-use plastics are once again on the rise as a matter of disease prevention. That doesn’t have to mean completely doing away with 1 Hotels’ environmental mission, Azarbarzin said.

“This is a time where we may have slightly more waste and a couple of single-use items that we have to use to ensure that we’re safe,” he added. “But our core competency hasn’t changed.”

The 1 Hotels team worked to offset some of the rise in single-use plastics by rolling out a new aluminum, reusable cup to use around pool areas where glassware isn’t allowed. Team members wash and sanitize these between uses.

The company also installed energy monitoring systems at each of its hotels to observe potential leakage in order to be better positioned to address and use less energy. There are even zero-waste kitchens to avoid food waste.

“You can’t go against the recommendations of local authorities, but you can overcompensate in other areas so, when the pandemic is over, we can be even more efficient with a smaller [carbon] footprint,” Azarbarzin said.

Finding New Business

SH Hotels may be committed to organic growth and sustainability, but it still has to adjust some of its pre-pandemic business model.

The company’s hotels in Miami and Brooklyn generally performed well with leisure travelers during the pandemic, Azarbarzin said. But properties in West Hollywood and Manhattan that catered to international travelers must adapt and find new revenue streams while travel restrictions prevent many of their usual guests from getting to New York or California.

As much as a quarter of the business at the Baccarat Hotel and 1 Hotel Central Park in Manhattan came from international travelers. The 1 Hotel in West Hollywood also had a significant customer base from the Middle East and Asia.

“It’s a really significant piece of the business for our hotels,” Azarbarzin said. “What is the timeline for 2021? For me, it’s inserting ourselves into the mix and be very nimble with the ability to capture business travelers and leisure travelers as much as we can until international travel opens up.”

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Tags: Barry Sternlicht, coronavirus, coronavirus recovery, sh hotels & resorts

Photo Credit: Part of the mission for the new CEO at SH Hotels & Resorts is finding new business to replace a loss of international guests at hotels like the 1 Hotel Central Park (pictured). SH Hotels & Resorts