Luxury Hotels Walk a Fine Line When Trying to Grow With More Non-Hotel Concepts

Major hotel brands are increasingly behind offerings that go beyond the business of selling guestrooms. But it’s a lesson in self-control for companies looking to beef up their most luxurious brands.

Companies like Mandarin Oriental and Four Seasons boosted their hotel-branded residential offerings in recent years. Four Seasons also offers a private jet service while Rosewood Hotel Group entered the private membership club business earlier this year. 

More are likely on the way: The new and incoming CEOs of SH Hotels & Resorts and Standard International, respectively, both told Skift in recent months about a desire to get a bigger footing in the residential sector. 

“Hotel companies or lodging companies are now looking to do everything [with] hospitality,” said Gilda Perez-Alvarado, global CEO of JLL Hotels & Hospitality, in an interview with Skift. “That’s where the blurring of the lines has happened with residential trying to move closer to hotel and hotel companies saying, ‘We’re not just hotel companies. We actually are a hospitality company, and hospitality has different connotations.’”

Hotel-branded residential offerings represent the biggest and fastest-growing example of companies moving into non-guestroom offerings. The number of these type of residences doubled in the last decade with the development of 52,000 units across 370 projects, according to Savills data quoted by the Wall Street Journal. 

Accor inked 17 deals for mixed-use hotel and condo projects last year, and leaders at the Paris-based hotel company indicated plans to beat that figure this year. The general industry consensus in the past for building hotels in this manner is that the pre-construction sales from the condo side of the project offered more of a financial foundation to a development while the hotel side took time to flicker to life. 

But developers these days aren’t always waiting around to build up a hotel’s market share. Four Seasons, Mandarin Oriental, and St. Regis — a Marriott International-owned brand — even have standalone residential projects without a hotel attached. 

IHG’s ultra-luxury Regent brand is behind the amenities and services at EchelonSeaport, a condo development in Boston across the street from a standalone St. Regis Residences under construction in the city’s Seaport neighborhood. 

“A lot of these companies just want to increase or capture more of their consumer’s share of wallet,” Perez-Alvarado said. 

There is also a labor component to the increased presence in sectors beyond the walls of an ultra-luxury hotel. A five-star hotel is extremely high-touch and labor-intensive compared to more affordable, limited-service offerings that don’t have amenities like a spa, restaurant, and other services. A residential development, while offering many amenities as a hotel, doesn’t require the labor a hotel does since there isn’t the nightly turnover involving housekeeping and other maintenance costs.

“In certain cities, it may be very expensive to operate a hotel [due to] the labor market dynamics of that particular jurisdiction,” Perez-Alvarado said. “Therefore, having branded residences is a great way for them to have a presence and deal with a different labor pool.”

The Exclusivity Conundrum: It’s a fine line balancing the exclusivity of some of these brands with the desire to make more money off more offerings to customers, from members-only clubs to high-end condos. Five-star brands like St. Regis and Four Seasons would lose some of their aspirational appeal if they have a condo in every city around the world. 

Retail brands like Tiffany & Co. and SoulCycle garnered criticism in recent years for losing some of their appeal as they looked to saturate markets across the U.S. and internationally. Hotel companies would need to be selective on where they deploy some of their non-hotel offerings. Growing some of these brands could eat away at the exclusivity that makes them so desirable in the first place.

Rosewood Hotel Group CEO Sonia Cheng got ahead of this in an interview with Skift earlier this year regarding the company’s push to launch Carlyle & Co., a private club in Hong Kong the company expects to turn into a global brand with locations around the world. Cheng noted the company would only consider major gateway markets like New York, London, Paris, Shanghai, and Miami for future locations. 

This is a more muted approach than other membership club companies like Soho House parent company Membership Collective Group, which has plans to open clubs in medium-sized markets like Nashville and leisure markets like Palm Springs, California, and Rhinebeck, New York.

A New Way In: Amber Asher, the incoming CEO of Standard International, and new SH Hotels & Resorts CEO Raul Leal both told Skift in recent weeks a desire the ramp up a presence in the residential sector. Part of it stems from financial opportunity, but part of it is also what they see as an untapped market for this kind of hotel-branded product. 

The kind of young crowd that would want to buy a condo at a Standard or 1 Hotel-branded project wouldn’t necessarily be the same buyer pool for a place at a Ritz-Carlton, the thinking goes.

While Ritz-Carlton is associated more with mature travelers and high-end luxury, The Standard brand as well as SH’s 1 Hotels and Treehouse garner more appeal with younger travelers craving these hotels for their appeal with celebrities, embrace of sustainability, and general hip factor. It’s the same mindset toward the the developer community.

“Brands like us bring something new to the table to the younger, second, or third generation developers who may not want to go with a legacy brand,” Leal said. 

Barry Sternlicht Has Billions to Deploy on Distressed Real Estate — Hotels Included

Starwood Capital raised more than $10 billion in a fund aimed at buying up distressed real estate assets, including hotels and residential developments. The fund, named Starwood Distressed Opportunity Fund XII, is expected to primarily focus on properties in the U.S. and Europe. But an announcement tied to the announcement of the fund indicated deals were also underway in Australia and Japan.

The investment group already committed to deals worth more than $3.5 billion, including the $6 billion joint takeover of Extended Stay America with Blackstone. 

Barry Sternlicht, the CEO of Starwood Capital, has been among the most publicly eager investors waiting to take advantage of the pandemic. He previously indicated some distressed asset sales could help beef up the SH Hotels & Resorts portfolio, which Starwood Capital owns. Sternlicht discussed buying hotels and resorts near major markets as one area to deploy capital from the new fund, according to the Real Deal.

“As an investor, I’m really kind of tickled to death … There’s going to be so much distress,” he said last year at the Saudi Arabian Ministry of Tourism’s Future Hospitality Summit. “I think there will be tremendous opportunity for investors, but your timing is going to be critical.”

A Beverly Hills Hotel Deal Goes Against Branded-Is-Better Logic

Hospitality investment group EOS Investors bought the 116-room Viceroy L’Ermitage Beverly Hills last year. While a single transaction like that may not be industry-wide news, it’s what the company has done since that strikes back against major industry logic. 

Major hotel parent companies like Marriott International or Hilton argue their global distribution and loyalty platforms are key to being a success coming out of the pandemic. Guests will generally favor the familiarity of a bigger brand, the thinking goes. But rather than link up with one of these companies for an ultra-luxury brand like St. Regis or Waldorf Astoria, the EOS team decided to take the hotel independent. 

The hotel, operating as the L’Ermitage Beverly Hills since late last week, is no longer affiliated with Viceroy Hotels & Resorts. The L’Ermitage team thinks going independent is an advantage rather than a headwind in winning business — part of a growing trend of smaller operators hitting back at the global conglomerates that would have the entire travel industry believe some of these companies and properties are sitting ducks for a takeover.

“To be the only unencumbered hotel in Beverly Hills is special,” said Scott Berger, the hotel’s general manager, in an interview with Skift. “What we strive to do is create a bespoke experience for every single one of our guests that walks in and an elevated experience than what they would get from a bigger brand. Being independent allows us flexibility to provide different service touches than others because, if you are part of the bigger brand, oftentimes you have to go to a corporate office to ask for assistance with initiatives or whatnot.”