While many of its lifestyle competitors are seeking the security and scale of big brands, this boutique group is making its mark with robust global development plans and a few surprises for consumers.
Standard International’s purchase of the 97-key Sixty Soho hotel from the Pomeranc family’s Sixty Collective earlier this month was a reportedly $100 million-plus reminder that small hotel groups can play alongside the giants—not just seek shelter under their corporate umbrellas. Ranked as the biggest ticket hotel deal in New York post-COVID, acquisition of the company’s third New York City property is just one facet of a multi-pronged development and operations strategy intended to grow Standard’s three-brand hotel family and capture even jaded Gen-Zs with bold moves from partnering with the ACLU to letting guests work out their modern tensions in bumper cars.
Amber Asher, Standard International’s CEO, and Chelsea Salamone, the group’s senior director, acquisitions and development, delved into what the future of the industry looks like from a highly independent point of view during their “Meet the Future” conversation at the Americas Lodging Investment Summit (ALIS) held last month in Los Angeles. This was one of five signature sessions moderated by BHN Group President Jeff Higley that provided a glimpse into the future of hospitality from the perspectives of a thought-leading CEO of today and an up-and-comer from that organization.
Here are the keywords for Asher’s and Salamone’s vision of what it will take to succeed in the years to come.
Development flexibility
Amber Asher (AA): We’ve always been asset light. This is the first time we’re starting to look at buying real estate assets in primary locations for the Standard brand. So, yes, we've felt the headwinds in terms of interest rates and factors like that. Standard International’s purchase of the 97-key Sixty Soho hotel from the Pomeranc family’s Sixty Collective earlier this month was a reportedly $100 million-plus reminder that small hotel groups can play alongside the giants—not just seek shelter under their corporate umbrellas. Ranked as the biggest ticket hotel deal in New York post-COVID, acquisition of the company’s third New York City property is just one facet of a multi-pronged development and operations strategy intended to grow Standard’s three-brand hotel family.
In terms of our development overall, we've had no issues. We’ve signed more letters of intent and deals to create a strong pipeline. It helps that we’re flexible both for Standard and Bunkhouse--more so for Bunkhouse--so we can do things that are cost effective. Investors and developers see our brands and what we're able to do as we cluster hotels and how we use that to get economies of scale. We can build on the level of service while still doing it in a cost-effective way. We have a lot of local developers and owners. It was more institutional before but now a lot of people want to get into the business.
We know the market goes through shifts, and right now some projects might be in the entitlement stage. Some might be using equity. As in previous downturns, we’re seeing a condo component helping reduce the cost of capital and control construction costs. But, we’ve also done quick conversions and we’re doing a standalone in Miami.
Chelsea Salamone (CS): Throughout COVID we saw our Bunkhouse brand really take off because it’s about smaller hotels in drive-to destinations and everyone wanted to be outside, far away from people. Now, their strength is in being easier to finance when interest rates rise. For the Standard brand, which is typically around 200 keys, we started to see a shift towards multi-use or multi-class assets about a year into the pandemic. So we weren't just seeing hotels or just seeing apartments or whatnot being built. We were seeing a combination between the two, offsetting some of the risk from a hotel and you know, balancing it with condominiums. So, it allowed us to be even more creative with our programming.
M&A’s Maybes
AA: I think the cycle will continue. But there has to be a reset on pricing that otherwise is high. We know owners think they can sell their hotels for a lot. But the cost of capital is high. There also will be some reset when these debts come due.
This next year is still going to be tricky, but the benefit of long-term hotel projects is they do take a while and cycles shift. Whatever the opportunities, hopefully we’ll be there and be ready.
Secondary, tertiary targets
AA: There’s a trend that we see with Bunkhouse, and even Standard, of going to secondary and tertiary markets. People have moved out of the big cities. There’s a lot of great smaller cities. We're opening a Bunkhouse in Louisville, Kentucky, and would consider a Standard potentially in a Dallas or Houston. We never would have done that when I started over a decade ago. There are other areas where we would go as well that probably weren't our marquee markets before.
CS: Developers are watching the numbers and catching onto the fact that that a lot of people have moved to better and easier ways of life, which are typically outside the mainstream urban markets. They may also want to avoid the pressures of New York or San Francisco deals.
Going global
AA: Travel demand is everywhere, and we’re growing in the U.S. and internationally. Chinese travel is coming back, which we need in our Asia and Maldives properties.
CS: Travelers like to consider themselves as global citizens. That’s where a lot of the environmental focus comes on. That makes sense, because, if they grew up with internet, they grew up with the ability to connect anywhere. So, they view it as easy to go global. Our expansion plan was a little bit unique in that instead of growing hotels that were closer together physically, we decided to go to markets where we're seeing people travel between. Maybe a consumer travels more frequently between New York and London than they do between New York and Philadelphia, even though they're closer. I think we’ll start to see more of this kind of travel. Typically, a growth strategy goes to the next closest thing because we can share resources. It’s often more sustainable to think about the destinations the traveler frequents [rather than planting general gateway flags]. That's also helped our loyalty profile a lot.
ROI of experiences
AA: Experience has always been part of our DNA for our Standard and Bunkhouse brands. In some cases, we build experiences like a hammam or a bumper car arena. Yes, that comes with a cost but we concept these features into the development phase to help control those costs. In the case of the bumper car stage, it actually opened up incremental revenue opportunities. For many years, we would have a big ice rink outside of the Standard High Line Hotel New York. If wasn’t the most profitable of ventures and then, with global warming and the Tesla building reflecting on it, we saw that could put a more sustainable product there. So we pivoted to the idea of doing bumper cars. Now, we have food offerings and attract families and kids from the community as well as guests. There are other ways to meet expectations that don’t cost a lot of money. For our consumers, those experiences are more purpose driven. We do things like bring in the guest’s [legislative] representative around political activism. We partner with great groups like the ACLU and similar organizations. These are experiences that create a following among our brands, that are authentic to what we do and cost little or nothing.
CS: We’re starting to see a shift from what we understand as experiences today towards looking into the next generation and what they'll be attracted to. We’re starting to see that experiences will need to immersive, which is much different than in the past. So the millennials are an Instagram generation. They want to experience things visually; they like pictures. Gen Z is really attracted to being involved in their experiences. So, a good example is the Apple store. You're using the product while you’re experiencing the retail store. There are a lot of museums that are starting to incorporate immersive experiences while you're walking through that and you're touching and feeling and being part of the experience, not just taking pictures of it. How can we match that for consumers? For employees? How do we develop alongside shifts that have occurred in the past couple of years and those we expect to occur in the future? I'm sure a lot of people know a millennial or two who have a hard time peeling away from their computer and making a distinction between work and life. Millennials tend to fuse the two which comes with its challenges, pros and cons. But based on what we’re observing in our offices and in our hotels, the Gen Z generation feels the opposite. They really have started to create boundaries and separation between work and life. So they’re having an easier time. going back to the offices than millennials. Hoteliers need to be aware of that polarization and distinction between those different generations as they become the primary travelers and primary employees.
Back to the office
AA: I brought everyone back days a week in September after everyone’s kids were back in school. I did feel that there was a chance that it would not work. But you know, we run hotels and our hotel employees and restaurant teams do not get to work from home. It didn’t make sense for everyone to be everywhere. There’s creativity that happens in an office setting, and the solidarity we have with our teams on property, and the approach of being very hands-on operators. So we all came back, but we had to really rebuild what it means to be in the office in order to bring people in, especially the millennials.
We have experiences at the office, we have yoga, we have lunches, we have happy hours, we have karaoke, but we also work really hard. And the return to office, at least for me, creates a break in the day I didn’t have during COVID, even on the train going home. A lot of Gen X employees were good with a return to the office; it’s just the big millennial group we need to get back in. That said, we all went back and no one quit.