NEW YORK—Sage Hospitality’s appetite for hotel growth is also nourishing its restaurant expansion.
Denver-based Sage is on a mission to bolster both types of businesses as it celebrates its 30th anniversary. The hotel ownership and management company has invested capital in more than half of its 76-property portfolio, and uses those hotels to feed its restaurant business.
“We’re a little weighted toward select service, but a lot of our growth is coming in the premier, lifestyle and full-service (segments),” said Walter Isenberg, Sage’s co-founder, president and CEO, during a break at last week’s 36th annual New York University International Hospitality Industry Investment Conference. “We have been successful in creating some interesting assets that have become market leaders.”
The first half of 2014 has been busy for Sage:
- In late May it added the management of the Courtyard Portland (Oregon) City Center Hotel and the Embassy Suites Irvine-Orange County Airport in California that are both owned by RLJ Lodging Trust.
- Also in May, Sage announced it is teaming with BMC Investments to develop and operate a $60-million, seven-story, luxury independent hotel with restaurant and retail space in Cherry Creek, Colorado.
- In February it partnered with Whitman Peterson to acquire 11 hotels on top of a 2013 partnership deal that added seven properties. The newly added properties are located in several metropolitan areas including: Denver; Austin, Texas; Indianapolis; and Dallas.
- In January the company announced it was assuming the management of nine hotels owned by The Blackstone Group. The properties are located in North Carolina, New Jersey and New York.
Isenberg has welcomed that growth with open arms.
“It’s hard to believe that five years ago we were all singing the blues,” he said. “I’m pleasantly surprised by both the speed and trajectory of the recovery.”
Where the growth is
About one-third of Sage’s portfolio is in Colorado. It’s also where the company is based, and Isenberg is high on the portfolio’s prospects.
“Denver leads the country in job growth, and as a result of that (Sage is) probably outpacing the industry,” Isenberg said. “We’re continuing to see the (revenue-per-available-room) indices grow and outpace the competition.”
Isenberg said Sage’s approach to operating its premier and lifestyle portfolio is positioning them to be interesting and different enough to attract millennials and baby boomers. The company in March hired Arthur Berg as senior VP for its premier & lifestyle division and chief marketing officer.
“We can compete with what traditionally have been called 5-star hotels by the strong positioning of a solid 4-star premier and lifestyle hotel without all the costs of running a 5-star hotel,” Isenberg said. “You have to appeal to a broad section of consumers.
“Traditional luxury has in a lot of ways been intimidating to some customers,” he said. “People have to feel comfortable in a place. It’s got to be interesting, but they have to want to be there.”
An evolving portfolio
As indicated by the deals so far this year, Sage’s portfolio continues to evolve. Isenberg said the company has equity in a little more than 50% of the properties in its portfolio. The number has been as high as 75%. In a typical deal Sage uses its co-invest fund to place between 10% and 20% of the equity in a deal.
“Like most of private equity groups, we are buying and selling and changing the mix of our portfolio based on opportunity,” Isenberg said.
Isenberg said Sage acquired 18 select-service hotels in 2012 and 2013—largely through the acquisition of portfolios. Now it has turned its attention to full-service hotels.
“We have shifted our focus, and we have several full-service assets that we have under purchase and sale agreement that we think our examples of types of assets we’ll be focused on looking forward,” Isenberg said. “They’re larger full-service assets that need significant capital repositioning, not necessarily rebranding.”
The return of group business—Isenberg said it’s starting to happen—is a significant reason for the executive’s desire to be involved in more full-service properties. The company is primarily looking for complicated deals in the top 50 metropolitan statistical areas.
He said Sage specializes in complicated deals that often involve multiple layers of financing tools. That includes the story behind the Westin Cleveland Downtown Hotel, which opened in May after an 18-month complete overhaul.
“Cleveland was pretty complicated,” Isenberg said of the $9-million deal in 2011 that landed the property. “We bought the building; it was a pretty tired Crowne Plaza, and shut it down for a little over 18 months. We spent $150,000 a key renovating it.”
Sage partnered with Optima Ventures, which owns a number of office buildings in downtown Cleveland. Sage also has five select-service hotels in the Cleveland market.
“At the time we did the deal, nobody was particularly interested in Cleveland,” Isenberg said. “We saw the opportunity to come into a market that has some good brands in it—Marriott, Renaissance, Ritz-Carlton, DoubleTree—but there was basically no Starwood (Hotels & Resorts Worldwide) product in the market. Based on the physical conditions of the other assets in the market we felt we could create something to compete at the top end of the market. The initial feedback is very positive.”
The company likes urban locations for its full-service options, but it will look elsewhere.
“On a select basis we think there are opportunities in suburban big boxes,” Isenberg said. “Suburban full-service hotels are more difficult to solve. You have to have the ability to have a robust group dynamic.”
The company’s portfolio includes six independent hotels in its portfolio—No. 7 will come with the 12 July opening of The Crawford Hotel in Denver’s Union Station.
Restaurants are a big part of the future
Independence is a major thrust behind the company’s restaurant efforts. The expansion of Sage Restaurant Group is tied to the company’s full-service hotel expansion. SRG independently operates 11 restaurants at Sage Hospitality hotels.
“They are only in our hotels but act as a standalone restaurant,” Isenberg said, adding that they attract more than 80% of their business from non-hotel customers. “These restaurants are doing north of $5 million (in revenue) each. Kimpton (Hotel & Restaurant Group) has a similar model, but no one else in our space is doing it with branded hotels.”
The restaurants are located in a wide variety of branded hotels, including Starwood Luxury, JW Marriott, Renaissance and Springhill Suites. Restaurants include the Hello Betty Fish House, surfer fare outlet in a Springhill Suites property in Oceanside, California; the Urban Farmer farm-to-table restaurant in the Westin Cleveland; and the Kachina native-American offering in the Westminster, Colorado, Westin.
“A lot of hotel companies look to lease out (food and beverage) … when you’ve got a large hotel with significant meeting space that becomes complicated,” Isenberg said. “You don’t want a third-party operator catering your group business.”
Isenberg said Sage went full bore into the separate restaurant business when executives realized F&B directors at individual properties were focusing more on the catering business because it is more profitable.
“Hotel restaurants tend to be run not as independent restaurants,” he said. “We thought it would make more sense to increase revenue per square foot and profits per room.”
Peter Karpinski, co-founder and COO of Sage Restaurant Group, joined the company nine years ago to lead the effort.
“We have a lot of confidence that that is going to be a big part of our future,” Isenberg said. “Five years from now we will be more urban, premier lifestyle, full-service Sage Restaurant Group focused.”