New SH Hotels CEO on Taking Founder Barry Sternlicht’s Vision to Next Level

Leaders at SH Hotels & Resorts — the Barry Sternlicht-founded company behind the 1 Hotels, Baccarat, and Treehouse hotel brands — are charting a post-pandemic growth trajectory at a time when bigger competitors want exactly the kind of brands it offers. 

The company’s new CEO, former Virgin Hotels CEO Raul Leal, believes that kind of independent growth is still possible, no matter what kind of bigger-is-better sales tactics the likes of Marriott and Hilton toss around.

“It’s really a dream portfolio because if you take a look at the three different brands, they all have distinctly different demographics and appeal to a different customer base,” Leal, who took over from Arash Azarbarzin in late August, said in an interview with Skift. “They’re all poised for pretty significant growth.”

Leal noted Treehouse, SH’s more environmentally minded brand, as one that has a particularly strong growth opportunity due to its greater appeal to younger travelers. But this growth, whether at Treehouse or the company’s other two brands, is unlikely to scale up in the same vein as some of the major, global hotel conglomerates. In other words: quality over quantity. 

“We’re not going to be a 500-hotel brand company,” Leal said. “It’s a very specialized, very unique segment of the market.”

Leal’s appointment as CEO comes only months after Azarbarzin succeeded Sternlicht as CEO. 

Azarbarzin, who declined to be interviewed via a representative, left SH Hotels to take over as CEO at hotel management and investment firm Highgate. But Azarbarzin previously told Skift “we might lose our DNA” if SH Hotels were to merge with a bigger hotel company. That mentality is likely to continue under Leal’s watch.

“Raul will continue to lead the company’s rapid expansion and help polish and continue to redefine the very definition of excellence in guest service as SH moves into the ranks of a major independent management hotel company,” Sternlicht said in a statement.

Virgin Growth: Leal previously served as president and CEO of Virgin Hotels for 10 years. His tenure there included the launch of five hotels and the buildout of a 10-hotel development pipeline. 

Leal was also a president and partner at hotel management company Tecton Hospitality and launched the firm’s Desire Hotels division that focused on boutique hotels. That collective experience will play a role in advancing the development of more of SH’s brand of lifestyle hotels that cater to local experiences. 

“There’s always lots of pretenders who try to jump on a trend or jump on the bandwagon and then try to ride the wave,” Leal said. “Today’s consumers are so well educated, especially the younger consumer, that they’re going to know the difference between a company that does cultivate the best sustainable design and architecture and who does it right. They’re going to look under the hood and think, ‘This company is really doing what they’re saying they’re going to do.’”

Building Up: Leal sees plenty of opportunities for SH Hotels & Resorts to beef up its presence around the world. The company has a small hotel-branded residential portfolio under the Baccarat and 1 Hotels brands, but that offering is likely to grow. 

Major companies like Marriott, Accor, and Four Seasons have ramped up their own hotel-branded residential offerings in recent years. From a development angle, these kind of projects make luxury hotel projects pencil out financially, as the condo portion provides a more stable level of cashflow. 

“Given the cost of construction for luxury hotels and maybe some of the higher-end lifestyle hotels, that makes a lot of sense,” Leal said. “Customers are gravitating to these and have been gravitating to these types of products for a long time. Now you’re able to monetize that hotel with something that feels very similar to the design or ecosystem of a hotel.”

Trump’s D.C. Hotel No Cash Cow

The Trump Organization’s Washington, D.C., hotel wasn’t as profitable as the company would have some believe. The hotel lost $74 million between 2016 and 2020, according to financial reports released late last week by the U.S. government and obtained by the New York Times. 

The figures were made available due to the Trump Organization not actually owning the property — formerly the Old Post Office building — but instead having a long-term ground lease with the U.S. General Services Administration. The financial loss comes after the Trump Organization painted a profitable portrait of the property by reporting its overall revenue figure, which showed more than $40 million gains in the years leading up to the pandemic, instead of its operating loss. 

The property, criticized for the way lobbyists and even foreign governments booked rooms to curry favor with the Trump White House, tanked in performance from the pandemic as well as reputationally following the Jan. 6 Capitol Hill insurrection spurred on by Trump supporters. Brokers have begun marketing the hotel to sell, but industry experts think its $400 million list price is too much.

The Democrat-led U.S. House of Representatives is pushing whether Trump violated federal rules by continuing to operate the hotel, even with family members in charge, while he served as president. The financial statements released last week show the company garnered close to $4 million in revenue from foreign government officials during Trump’s first three years in office. 

NYC Hotel Worker Severance Pay Mandate Draws Ire

The New York City regulation widely seen as the motive behind the recent reopenings of some of the city’s largest hotels is getting flack from the city’s largest hotel trade group. 

The Hotel Association of New York City sued the city late last week regarding legislation mandating hotels to reopen or pay severance to laid-off staffers. Hotels that closed in light of the pandemic or laid off 75 percent of their workers must provide $500 a week in severance under the new legislation. Properties can sidestep the severance mandate by bringing back at least 25 percent of their workers by Monday or reopen by Nov. 1.

“We’re disappointed that the city chose to risk future tourism and our local economy by passing this legislation which forces hotels to pay money they do not have,” HANYC CEO Vijay Dandapani said in a statement to the Real Deal. “Ultimately, this bill may force owners to close and leave New York altogether.”

More than 200 hotels closed in New York City during the pandemic, but the new legislation is widely seen as the driving factor behind the recent reopenings of the 1,900-room New York Hilton Midtown and 1,400-room Grand Hyatt. 

While the city’s 61-percent average occupancy rate in August was an improvement from the worst of the pandemic, it was still well off the 90-percent occupancy rate seen in August 2019. 

The legislation also comes after the second consecutive month of a disappointing jobs report for the hotel industry, leading some analysts to believe workers have permanently left the hotel industry. 

“Attacking hotels and their employees in the midst of the worst crisis the industry has ever faced is senseless in every way,” American Hotel & Lodging Association CEO Chip Rogers said in a statement to the Real Deal. “It is as if the Council has purposely set forth on a course to destroy the New York City hotel industry and the jobs it supports.”