Highgate explains Kessler partnership

NEW YORK CITY – Owner-operator giant Highgate looks at acquisition and partnership deals every day and after 40 years knows a good opportunity when it sees one – this time leading to a unique strategic alliance with Orlando-based luxury and lifestyle owner-operator Kessler Collection.

A new management company for Highgate called Kessler Hospitality will take over operations of all Kessler-owned hotels – seven existing properties plus another under development – while Kessler and its investors will continue to hold ownership of the properties. Kessler’s property-level employees and key corporate leaders will transition to Highgate’s new division and actively participate in the bigger picture management decisions surrounding marketing, positioning, menu selection in bars and restaurants, design – everything but the day-to-day grind, according to Highgate Principal Richard Russo.

Richard Russo

Where Highgate comes to the table is with its institutional platform and how they operate, measure results, formulate around distribution, marketing, revenue, management, sales, use its buying power and technological know-how.

“Over the years, they’ve done a tremendous job in building out very interesting, eclectic properties,” Russo continued. “They have seen what we’ve been able to do on the operational side. And some of these smaller founder-led organizations, as they want to continue to scale, want to focus on what they do best, and let groups like us focus on what we do best.”

No deal terms of what is expected to be a long-term alignment are being disclosed but one thing is a certain – growth of the new group is in the cards via acquisition by either party, maybe together, and via third-party management opportunities for owners who want a taste of this new partnership’s secret sauce. Hotels will ideally be branded under Kessler’s Grand Bohemian and Bohemian brand. Russo said some hotels potentially won’t have the branding but will always have Kessler’s creative flair.

“Kessler has been super acquisitive over the past few years. We obviously have been, as well,” Russo added. “So, I think it’ll be a true partnership in how we look at some of these opportunities. We have a lot of flexibility in how we structure new deals.”

Grand Bohemian Greenville in South Carolina joins Kessler Hospitality

If they do third-party deals, Russo said it would have to include like-minded partners that would give the Kessler the kind of the latitude to show their creativity and brand of “performers” who are able to do special and interesting things at the hotels.

Russo said the one additional hotel from Kessler to be announced shortly is opening later next year and there is another “handful of deals,” acquisitions, third-party deals and ground-up deals that are in various stages of development.

Bottom line, Russo sees a fair amount of upside opportunity for existing and new assets joining Kessler Hospitality.

“These hotels are in very strong markets that have changed characteristically over the past five to 10 years,” he said. “Some of them are much more high compression markets than they have been in the past – markets where Highgate has historically done very well because we bring a different level of discipline around revenue management. It allows us to push on ADRs during the busier times and hold on to rate during the weaker time periods.”

This deal allows them to kind of step back and focus on where they can do what they do best. We can focus on what we do best and allows us to scale without taking away from elsewhere in the organization.

Richard Russo

Share this quote

Russo added that the bigger platform will also provide growth opportunities for both Highgate and Kessler employees who want to grow their careers.

As to why this deal makes some much sense, Russo said that Highgate has found this subset of highly entrepreneurial owners that have built their business very similar to them, have had a firm hand on the steering wheel, and don’t quite want to give that up.

“I get that, but then they have limits to their growth because they’re spending so much time on stuff that we can solve for because we have this huge platform,” Russo said. “So, this deal allows them to kind of step back and focus on where they can do what they do best. We can focus on what we do best and allows us to scale without taking away from elsewhere in the organization.”

Ultimately, Russo added, these combinations give Highgate an extra edge to go out and buy and develop real estate. “Every day, we’re looking for our edge,” he said. “How can we afford to pay more than the next guy? How can we afford to build more than the next guy so that we can create valuable real estate.”