Long-time contrarian player Highgate began prolifically adding to its portfolio during the pandemic and last week told HOTELS exclusively it made another contrarian play – hiring its first-ever CEO in 30-year hotel lifestyle and luxury leader Arash Azarbarzin.
In an exclusive interview with HOTELS, Azarbarzin, who spent the past four years as CEO of the hotel portfolio for Barry Sternlicht’s SH Hotels & Resorts, talked about his new role with the New York City-based owner-operator and his plans going forward for one of the biggest hotel owners in the U.S.
Yes, Highgate has been on an acquisition spree during the pandemic, more recently adding to its portfolio Trust Hospitality and its 22 hotels with 3,100 rooms; Heavlin Management Co’s. 11 properties; and by making the biggest deal during the pandemic with highly valued and ongoing capital partner Cerberus Capital – the acquisition of Colony Capital’s 197-hotel, 23,000-room hotel portfolio in a deal valued at US$2.8 billion, including US$67.5 million of gross proceeds and the assumption of US$2.7 billion in debt. It is likely not done yet as it looks to grow for value-add opportunities, with a growing emphasis on limited-service properties and as it looks more often further afield to Europe.
Azarbarzin is now charged with managing the portfolio with some 350 hotels comprising approximately 65,000 rooms and said he took the job because his philosophies mesh so very well with Highgate principals Mahmood and Mehdi Khimji. In fact, Azarbarzin said he was not actively seeking a job and there was no active search underway by Highgate, but when he started talking more to the brothers he realized the moment for change was at hand.
“We’re so aligned on our vision of what the hospitality company needs to be and where the hospitality business is going,” Azarbarzin confirmed. “It was just a perfect storm where we’re having dinner and afterward I am scratching my head about whether he just asked me to come over. I had to call him the next day to reconfirm that we’re still good. Within a couple of days, we had a deal structured, and then we stuck to that deal.”
Azarbarzin added that while it was a difficult decision to leave SH the fit was right because of his skill set of building and growing teams, as well as building cultures and his luxury and lifestyle experiences. Not only has he worked for Sternlicht, but his career includes stints with the likes of Proper Hospitality, SBE Entertainment, W, Four Seasons, Luxury Collection and even as GM of the St. Regis in Los Angeles. “As we grow, we want to make sure that we can still deliver at the level that we have been delivering for these past years… They needed that leadership and experience of building brands, as well as building on their ability to execute on some of these luxury assets.”
Mahmood Khimji told HOTELS, “We will continue pursuing opportunities by adhering to the key principles that have contributed to our historical success – fostering high-fidelity relationships with great people and institutions; innovating around operational, distribution, and hotel positioning capabilities; acting as a highly-reliable and collaborative counterparty on transactions; being a worthy steward of employees’ career ambitious; and delivering exceptional guest experiences.”
Khimji added that Highgate will seek opportunities where it has a distinct ability to add value – whether through operational improvements, business plan repositionings, and/or partnerships with talented management teams. “We have been on a strong growth trajectory over the past few years. The recent portfolio additions have provided us with the ability to scale quickly in target markets and target segments.”
The other mission Highgate is focused on is sustainability, and having spent the past four years with Starwood Capital, where Sternlicht’s 1 brand is very focused on sustainability, Azarbarzin brings a lot of newly attained knowledge. “We’re going to start looking and continue building on our mission of being good to the earth and then being as sustainable as possible,” he said.
All of this, Azarbarzin said, gives the other Highgate principals more time and opportunity to find new deals.
Growth plans
As Highgate continues to look at deals, Azarbarzin said the group will be aggressive buyers if they love an opportunity. “If we want to acquire an asset, it will be difficult to get us out of the way. But we’re not just aggressively buying,” he said. “We’re looking for strategic assets that can that we can add value to from both an operational perspective and capital perspective… Once we like it, we will get it. But It’s not like we have a requirement to get a certain number.”
Growth will come through acquisition and pure management, Azarbarzin said, adding that Highgate has many potential deals in Florida, Latin America and the Caribbean, and across the continental United States. And then more importantly, Europe, he said. Highgate has big eyes on Europe, where Highgate has had a presence for more than 20 years. It is interested in not only single asset management deals but Azarbarzin said they are looking to potentially acquire other management companies in Europe. Highgate most recently took over management of the Grosvenor House Suites on Hyde Park.
Currently, Highgate has nine or 10 hotels set to open in the next six months, according to Azarbarzin, predominantly management deals and again mostly in Florida and Latin America. He highlighted the 2022 opening of the Amrit Ocean Resort & Residences on Singer Island, Florida, which he said is going to be the envy of the wellness community.
There are also a number of deals working through the pipeline in Highgate’s select-service business unit led by COO Rob Dann, which Azarbarzin said gives him the comfort and freedom to concentrate on the luxury and lifestyle portfolio, which currently sits at approximately 50 properties. Also reporting to Azarbarzin is a full-service brand unit with a portfolio that includes more traditional Westins, Sheratons, Hiltons and the like, as well as a development team for design, preopening, etc.
On the select-service side, Highgate is developing new four-packs and two-packs of hotels and is looking for sites in the secondary and tertiary markets. “Our pipeline calls are two- or three-hours long. We are circling multiple projects on any given day,” Azarbarzin said.
Also on his plate is a mission to create a food and beverage division to service luxury and lifestyle properties. Azarbarzin said he is not going to create a big in-house team, but rather tap his contact list to start developing exclusive agreements with some of the best thinkers and chefs.
There is another Highgate business unit working as receivers and doing loan resolution, but that business hasn’t yet taken off. “There have been a few that we have been involved with, but we haven’t seen the number of foreclosures that you would have expected when hotels are shut down for so long and businesses being down.”
While he thinks this unit will grow over the next six months, he doesn’t call it a core piece of Highgate’s business. “Our core business will be to acquire new hotels or portfolio of hotels, and acquire third-party management contracts,” Azarbarzin said.
As far as selling assets go, Azarbarzin said he doesn’t see the time as right to capitalize on the work Highgate has done. They are sellers when the timing is right, but he added that Highgate is a longer-term investor and not an opportunity fund with a exit strategy. “So, we look at it a little bit differently and potentially waiting for the results to come in to get the full value of our investment.
Bigger picture
Naturally, managing a big portfolio through the pandemic is an everyday focus for Highgate and now for Azarbarzin, especially considering the group’s exposure in big metro markets like San Francisco and New York where a number of properties remained closed in early September. But he is also quick to point out how well the group is performing in resort and secondary markets, and added how Miami is having the best year ever.
“We still have hotels that are closed because there’s not enough demand,” Azarbarzin said. “We haven’t staffed-up to the levels of pre-COVID yet in most of our urban city locations. So, we’re going to watch the space very, very carefully, and act very methodically. And as demand comes back, we can grow as quickly as anybody else.”
But Azarbarzin added that the impact of the pandemic is still affecting business, adding, “the balance of this year is going to be coughed up to the second or third variant of COVID. But I do feel strongly about next year, and I think 2022 will be one of those incredible years, with so much pent up demand from both the corporate and leisure side.”
Nonetheless, he adds resort destinations – without any European, Latin American or Canadian business – is strong. “You can look at our Hawaii numbers without any Japanese or Chinese business and we’ve been managing to stay afloat and do great,” Azarbarzin said. “So, once those borders open, it might not be the first couple of months in 2022, but it will definitely open, there is discretionary capital for people that have are dying to get out and do something fun. We’ll be ready for them.”
Bigger picture, Azarbarzin said he thinks the worst of COVID is over and hopes that by the middle of 2022 they will get back to 2019 numbers, hedging that he could definitely be overly optimistic, especially if corporate travel is slow in returning. “This has been an incredible year of showing resilience and really separating the good from the great, and how you survived and came through COVID,” he added.
When asked what he would say if standing in front of a group of his contemporaries, Azarbarzin said during difficult times you learn more and grow more than by three-fold. “This is the time to show your teams how you care for them, how you take care of them, and how you motivate and inspire them,” he said. “So, if you have the time, spend it with your team, educate them, spend it with your guests, make sure you touch as many people as you can, and then make it through this difficult time.”
He also expressed confidence, citing past cycles, that the eventual rebound will lead to incredible success. “The roaring ‘20s are around the corner, and I would inspire everyone to get ready mentally, physically, and be prepared for when the world comes back,” Azarbarzin said. “And how you do that is by cultivating and taking care of your team and making sure they are mentally and physically ready to take care of the biggest years that the hotel industry has seen.”