Luxury more than a photo opp

PHOENIX – Everyone wants to know what’s next in luxury hotelkeeping. For one of the turnkey luxury developers, The Athens Group, the answers are simplicity, authenticity and timelessness. It’s always been that way and likely always will as the true luxury traveler values their time and is likely not looking for gimmicks.

Those are the thoughts of Principals Rob McIver and Dick Holtzman, who’s Phoenix-based group has quietly been developing noteworthy luxury properties, including the Montage Laguna Beach, Montage Deer Valley, Four Seasons Hualalai, Ritz-Carlton Bachelor Gulch, the Asher Adams in Salt Lake City last November, and their latest project, Nekajui, a Ritz-Carlton Reserve, is now open in Costa Rica. Next up: Naples Beach Club, a Four Seasons Resort and residential community on Florida’s Gulf Coast.

Founded by CEO Kim Richards more than 35 years ago, The Athens Group is a full-service development company and minority investor in most of their projects. Most all of the partners have been together for at least 25 years, and they are a “soup to nuts” business, finding sites, entitling them, pulling together visions and business plans, bringing in capital partners, overseeing design, construction and FF&E selection, and asset managing some of the hotels they open. Branded residential is usually a part of their projects and they also oversee the execution as well as the residential sales and marketing side.

Hotels Investment Today talked to McIver and Holtzman about several luxury investment related topics. Here are some of the highlights.

Hotel Investment Today (HIT): What’s next in luxury hotelkeeping?

Rob McIver: There’s been a lot of talk about wellness and the next evolution of the spa experience… For us, it’s always been about authenticity – authenticity of place, being a part of the culture, having the people and the ethos around the service, being authentic and of the place… Whether it’s environmental or cultural or whatnot, we think that luxury customer, especially multi-generational, demand, real immersion and not just a photo opp.

It's about providing a place that allows them to connect on a personal level in a way that adds value to their life. We do it with the physical box, working with our operating partners on the delivery and how the experience will take shape.

Dick Holtzman: I have a personal view that what a real sophisticated luxury traveler wants as much as anything else is simplicity. I think the more we can develop a sophisticated experience in its feel and its touch that comes across in a very simplified fashion, the better. We tend to work against ourselves on that concept.

Simplicity includes ease of access. I’m always quick to look at the airport situation.

I’m very committed and fond of the Hawaii experience, but I can’t tell you how many people I saw leave Hawaii because of the simplicity of going right down the California coast to Cabo San Lucas.

HIT: Are there any underdeveloped luxury niches or locations?

McIver: I think a number of tertiary and secondary markets that historically haven’t gotten $1,000 ADRs have opportunity. Some of the non-coastal markets.

We continue to explore places that have a rich and deep history, that have an ability to provide that authentic regional experience. It’s similar to what we did at Palmetto Bluff with our ability to come in there and create a truly southern resort experience that worked financially. It leveraged a lot of things that the developer [Crescent Communities] had done with the community but was authentic and true to that southern hospitality. Southern hospitality is a real thing.

We would love to do another project in the South, and we’re looking at cities like Charleston and Savannah, which typically don’t have luxury hospitality experience with that super high ADR. We know our customers are going there and want something special.

Holtzman: The Naples Beach Club had the benefit of being the ‘oldest pier on the lake.’ Being able to take that, respecting what was so special of the past, respecting the community – I think that’s what you’re going to see a lot of going forward. You have those ‘best locations on the lake’ that aren’t competitive anymore and not yet renovated that can be completely redeveloped for the next 70 years.

Dick Holtzman

HIT: How is the profile of the of the new luxury developer/owner evolving?

McIver: There have been a lot of one-off development opportunities done by a billionaire or a group. They’ve stayed in a lot of hotels, and they try to replicate it. They find out it’s a little harder than they thought it might be. And, ultimately, we built a business around that.

The investors and owners usually have a long-term view. It’s not typically a five-year model with a quick turn, IRR sort of thing… It typically has been the billionaire class that wants to own this type of special asset at cost basis instead of buying it at a premium later… The billionaire class is getting more and more institutional. I think they’re getting more and more sophisticated, which is great.

HIT: Ground-up development has become so expensive. What are the keys to make it pencil?

McIver: Branded residential has always been a big component. Residential pricing has gone to a place with strong margins that help the hotel with early cash flow that makes lenders a lot more comfortable.

But we’ve seen that for 20 years. Luxury resorts are really hard to underwrite without residential. They have been all along. It’s how you go about it. What’s the execution? How sophisticated are you on the residential program? Are you bifurcating the residential? You just can’t build more residential and think it’s all just going to work. There’s a balance there, and the hotel itself still needs to work.

HIT: What works on the luxury conversion side?

McIver: What works for us is obviously a great location. A lot of the historical properties have fantastic physical settings.

I think a number of tertiary and secondary markets that historically haven’t gotten $1,000 ADRs have opportunity. Some of the non-coastal markets. We continue to explore places that have a rich and deep history, that have an ability to provide that authentic regional experience.

Rob McIver

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Then the bones you’re working with – they are often something that you need to completely redo. At the luxury level you have meet super high expectations and hopefully exceed them. We find ourselves more often than not making the decision to start over – even at very special locations.

At some point you make a few too many compromises. And that luxury guest is pretty discerning, and they know if you’re delivering or not… There are certainly product and property out there that have great bones. Maybe it’s a little too small to be economically efficient and needs an expansion and maybe meeting space they didn’t have or something to help soften the shoulder seasons.

Our objective with Palmetto Bluff was to expand the market, add groups, meeting space that could grow the business, but also make it more kid friendly and provide those elements that are going to allow kids to have a great time while the adults have a great time… Some of its programming, some of its expansion, some of it is just figuring it out.

HIT: What are the biggest challenges in the building process right now?

McIver: It’s uncertainty, and some of that uncertainty is driven by where you’re sourcing materials and what the tariff structures are. Labor is always a question that may not be a problem, but it’s a question that you need to answer.

It’s not being able to put a firm number on the table and say, ‘Hey, this is what it’s going to cost because there are going to be a few things outside of our control that we have to deal with.

We are doing a lot of research, and it’s not just on the construction cost side, but the FF&E side and where you source it.

Doing Nekajui was great because it forced us to think about different supply opportunities and getting things from Central and South America that may have less tariff duties. We were able to expand our supplier network, essentially for very high-end custom furniture that is now embedded within an ultra-luxury experience.

HIT: Are brands more flexible with their standards, and are they more willing to participate on the equity side?

McIver: I wouldn’t say they’re more flexible on their standards, but I think they have a level of trust in Athens and what we execute that we may get a little more bend than others. But ultimately, it’s a different way of getting to the same place.

Some of the brands are very institutional; some are earlier in their growth. Depending on the brand and their appetite for the market, I think there’s an ability to have some level of investment – mostly they stick to key money or a mezzanine loan and maybe some other incentives here and there. Ultimately, you try to do your best to get the right alignment.

HIT: Stand-alone luxury branded residential is having a moment. What are your thoughts?

McIver: It’s a real opportunity because the pricing has proven out.

We’ve been hesitant historically because a lot of the value for us in thinking about the residential owner is the body heat, the energy, the service levels and things that come with the core hotel.

I don’t know where the transition is, where you’re a big enough standalone residential project that you could have enough body heat, enough to support a staffing level and an experience level long term.

But we’re definitely exploring it because it’s something that brings in a number of more equity players at the end of the day because it’s a shorter-term execution. It’s simpler underwriting. Those are getting done essentially because they’re projects that can be capitalized in today’s world.

HIT: Your big picture message to the investment world?

McIver: From Athens perspective, we feel really good about that luxury consumer. The wealth in America and around the world isn’t going anywhere. There’s a tremendous amount of it, and if you can deliver what that customer wants, there’s a built-in pipeline of business for years to come.

It’s a niche that is hard to replicate. You have some protection in terms of new supply, but it’s all about execution and finding the right partners to go on the journey with you.