Sortis Execs Reveal More About Their Ace Hotel Acquisition

Early Check-In

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On January 17, I reported that Sortis Holdings would acquire Ace Group International, owner of Ace Hotels, for $85 million in cash. Executives for Sortis Holdings, a Portland, Oregon-based hospitality firm, weren’t available to speak when I wrote that article. But I’ve since interviewed them. Here’s some more color on their plans.

Post-deal, the Sortis hospitality portfolio includes:

• Eleven open Ace lifestyle hotels.
• The hotel management company, Atelier Ace, and its management contracts. Every owner of an Ace hotel will use Atelier Ace to run their properties.
• The luxury Maison de la Luz brand, with one property open in New Orleans. “We feel this luxury guesthouse model could work well in very specific markets with specific building types,” said Sortis’ Kelly Sawdon, who previously was a longtime exec at the Ace.
• The intellectual property rights to the minimalist lodging brand Sister City, not open anywhere. “We hope to maybe re-open the one in New York or open ones in other major cities,” Sawdon said.
• Sortis in 2021 became a co-owner of the Ace Hotel Portland in Washington state, along with Ace executives.
• Sortis manages, and is half-owner of, the Mayflower Park Hotel in Seattle. Atelier Ace will take over the management.
• Sortis has the management contract for the Woodlark Hotel in Portland.
• Sortis owns the Rudy’s Barbershop chain (co-founded by a co-founder of Ace).
• Sortis owns Bamboo Sushi, a restaurant chain that claims to use sustainable business practices.
• Sortis owns a handful of restaurants and a half-dozen coffee shops.
• It has lent millions to two hotels in New Orleans, the Whitney and the Frenchmen.

Sortis sees Ace as the latest iteration in its bet on lifestyle.

• Paul Brenneke, executive chairman of Sortis, has been a real-estate developer for about three decades and has long been fascinated by how lifestyle offerings can drive traffic to a district, bringing buildings to life.
• “I constantly preach to developer friends who are always trying to squeeze nickels out of street-level retail that lifestyle offerings are how to create identity in a local community,” Brenneke said.
• With several real-estate investments in Portland, Brenneke was jealous of Ace’s ability to drive buzz in the West End.

“Ace itself was certainly not a distressed purchase,” Brenneke said.

• “I think we paid fair value,” Brenneke said. “The hotels are doing well, many of them are at or above 2019 levels.”
• The distress that exists today for many U.S. lifestyle hospitality brands is the lingering challenge of several years of poor performance and now rising interest rates combined, Brenneke said.
• During the pandemic, his company assisted a few struggling lifestyle businesses with financial services and capital.
• Now Sortis is creating “a lifestyle platform” to replicate “spirited cultural hubs” in multiple locations. It will pick from its portfolio of brands a la carte as appropriate. Ace will sometimes be the anchor tenant.

Ace won’t change its DNA much with the new owner, Sortis said.

• Acquisitions of lifestyle companies don’t always go according to plan.
• But Sortis said this isn’t the typical acquisition where there’s a whole new group parachuting in.
• Brad Wilson, a co-founder, will remain in the CEO role.
• Corporate office members — several of whom started off at a single property and are now at the corporate office — will be encouraged to stay.
• The Ace business model will remain, too.
• It’s not a franchise. Owners don’t pay a royalty to use Ace’s brand. They will bring in Atelier Ace to manage a property and license the Ace name as part of that management contract. Owners can optionally buy into receiving additional services, such as for designing on-premise “activations.”
• “A lot of other lifestyle hotels have been really focused on exclusivity and sort of took the velvet rope model,” Sawdon said. “We always wanted Ace to be a place that’s approachable and that locals gather regularly. That’s still core to our DNA.”
• But there isn’t a set design playbook for each Ace. The Brooklyn property has a large shared space for co-working, but the Los Angeles property has a refurbished 1927 theater, used mainly by local arts organizations and performers for activations. The Palm Springs property has a swimming club.

Sortis says it has a good capital base, which will help Ace become proactive about development.

• Ace will begin to put capital into deals as often as possible, rather than be reactive to receiving deals that come in from developers with capital access.
• “But if the right partner in the right location and the right building comes in-bound, we will continue to do just strictly management contracts as well,” Sawdon said.
• “The idea isn’t to start stamping out Aces like we’re Marriott,” Sawdon said.
• Sortis hopes to grow its portfolio of open hotels — a majority of them Aces — to about 30.

Sortis is looking beyond urban markets and beyond Ace.

• The Ace Hotel & Swim Club Palm Springs, a five-acre resort, is seen by Sortis as a model for other beachside locations with higher demand than supply and demand from the typical Ace demographic — which tends to care about the arts, especially music.
• Sawdon said Ace’s core market remains “maybe a little less resort driven and more focused on larger metropolitan areas.” But she said that “if there’s a resort opportunity that pops up in, say, Australia, or somewhere else, we’ll look at it.”
• During the pandemic, Sortis picked up a distressed land asset, a 2,400-acre area near Bend, Oregon. Sortis is now considering offering a lending facility to the developer there to do a ground-up deal for a small luxury hotel on this land. The deal isn’t signed. Groundbreaking might not be until 2024. The brand may not be Ace.

Find more details and analysis in my original report. I always read tips and feedback. Contact me at [email protected] or through my LinkedIn profile.