Why this CEO says branded residences are ‘here to stay’

According to its CEO, SH Hotels & Resorts’ upcoming 1 Hotel and Homes project in Melbourne, Australia, fuses two things integral to the company’s success — appealing to the luxury customer and sustainability.

Raul Leal is CEO of the Miami-based company, an affiliate of Starwood Capital Group, which operates the 1 Hotel brand and three others: Baccarat Hotels, Treehouse Hotels and the SH Collection. He was interviewed last week at the Hotel Investment Conference Asia Pacific: Australia-New Zealand in Sydney, which is run by The BHN Group.

Leal spoke on numerous topics, including the 1 Hotel and Homes project, SH's first branded residence and part of a $550 million Seafarers project by Riverlee.

“In today’s world, especially luxury consumers are looking for a place where they can indulge in the hotel amenities and also have their private residence there as well," Leal said. “We continue to differentiate ourselves as a brand by the eco-side of it. Everything we look at is through positive climate impact… But it’s still about providing services at a very high luxury level and providing an environment where people can enjoy themselves as well.”

Leal said the concept of branded residences, which has come and gone through the years, will now become mandatory for some companies.

“It’s here to stay — for certain brands, given the cost of real estate and the cost of construction,” he said. “The luxury and high-end lifestyle consumer is looking to work and play in the same place. But I don’t think it will bounce around too much more in the future. I think that certain brands are going to have to have residential to be able to get the projects off the ground, actually.”

Leal said SH Hotels & Resorts is looking to expand in Australia and will also be setting up a regional office in Melbourne.

[Branded residential is] here to stay — for certain brands, given the cost of real estate and the cost of construction.... I think that certain brands are going to have to have residential to be able to get the projects off the ground, actually.

Raul Leal

Share this quote

He has worked for legends in the hotel industry like his current boss, Barry Sternlicht, chairman and CEO of Starwood Capital, and Virgin Group Founder Richard Branson. He said working with both has been an amazing experience and taught him a very important lesson.

“The most important thing, when dealing with individuals like that, is just to be a good listener. Richard once told me, ‘You’re a very good listener,’ which I thought was a great compliment coming from [him.]

“The level of detail in the types of products that they create is significant. So, you have to pay attention. And I think that makes them easy to work with, and you’re paying attention to executing their vision… I learn from Barry every day about things that I never knew anything about because he’s so prolific in how he understands the world and the world economy.”

Leal said his experience starting at age 15 in the back of the house at a hotel gives him a unique perspective on the current hospitality industry’s labor shortages.

“I think the industry has changed quite a bit. And the expectations of the hotel team have changed quite a bit, especially after COVID,” Leal said. “Now’s the time, if we want to reinvigorate the industry, to start focusing a lot on the employee journey, and what matters to people today… If we don’t create a different environment for the industry in general, across the board, I think it’s going to be tough for a while… I think providing people the tools to succeed in the future, maybe even outside the hotel business, is something that we probably haven’t done well. And I think today’s employees are looking for that.”

He said while the expectations are the big brands will take the lead on the labor front, smaller brands like his can make a huge difference, too.

“Even smaller brands like us that are growing, we’re trying to make sure that everything that we do is integrated on the employee side and that we’re not using practices that were a little bit archaic on the training side… We certainly believe that the people closest to the work have the answers. So, if you want to find out what will attract people to the hotel business, why don’t we ask them? And let them tell us instead of us dictating to them what we think it’s going to be.”

Leal said his background in hotel operations also helps inform his decisions on the financial side.

“My father was an immigrant who came from Cuba and started working at a hotel. And then, I went to work with him as a part-time dishwasher and room service waiter… My idol was the guy who was the general manager of the hotel,” he said. “I thought he was such a cool guy. And I used to see him every day coming in, having breakfast and lunch, and entertaining people. I said, ‘I want that job.' And I still want that job!”

Leal added that operations still have to run the properties today and learn how to execute using new technologies to streamline processes. “But don't think about getting rid of people that are going to be your front-facing representation to save maybe half a point on GOP because it’s going to hurt you in the long run,” he said. “One thing for sure that I’ve seen post-COVID is people still want as much face-to-face interaction as possible. We have apps and text messaging and everything else. But when they have a real issue, they still want a real person.”

Sustainability quotient

Raul Leal speaking at HICAP ANZ

Leal said sustainability is built into his company’s DNA, and it often doesn’t take sophisticated tools like artificial intelligence to get that mindset.

“It’s a mentality shift around the world about educating people about what sustainability is and what it isn’t, but also not being afraid of tackling it,” he said.

He offered an example: Leal had just attended a wedding at a significant branded hotel in Orlando, Florida, located on a lake. His room faced the lake, where he could see garbage — plastic cups of bottles or whatever else — just 100 feet from his room. “I was on the third floor, and it was so obvious that it was disturbing,” he said. “You don’t really need any broad-based technology to clean that up, right?”

When asked if customers would pay more for sustainable hotels, he pushed back on the concept that sustainability has to factor into a hotel’s cost.  

“Well, if all the hotels in the world were sustainable, it would become a commodity for people, wouldn’t it? Then you’d get back the limited-service or full-service pricing… It doesn’t really cost you more money to have an eco-sustainable hotel. That’s just a bit of a myth. As a matter of fact, when you’re locally sourcing, it actually costs you less.”