Sam Nazarian on the LA hotel market and potential merger with Hakkasan Group
From the Los Angeles print issue: UPDATED April 18, 10:40 a.m.: Sam Nazarian is the founder and CEO of SBE Entertainment Group, a hospitality firm that develops and manages hotels, condos, restaurants and nightclubs.
The properties SBE owns or manages in Los Angeles include the SLS Hotel in Beverly Hills, the Redbury in Hollywood and the Mondrian in West Hollywood.
Nazarian supersized his company last year with the acquisition of Morgans Hotel Group after lengthy negotiations spanning two years. Post-acquisition, the firm operates a combined 22 hotels with nearly 7,000 rooms. Morgans shareholder Ron Burkle, the private equity billionaire, now holds a 25 percent stake in SBE. Morgans was a public company prior to the acquisition.
In March, SBE announced that it was in advanced discussions to merge Hakkasan Group, the global nightlife and lifestyle brand, into its business. The move comes less than a year after Khadem Al Qubaisi, the Emirati-born chairman of Hakkasan, resigned from his role amid an investigation into his business by the U.S. Justice Department. Both he and Hakkasan’s former CEO Neil Moffitt, who stepped down from his role on Monday, have been linked to an investigation into the disappearance of billions of dollars from the sovereign fund 1Malaysia Development Berhad.
The Real Deal caught up with Nazarian on his current projects, the hotel market and his mergers-and-acquisitions spree.
SBE is expanding all over the world. How important is L.A. to your plans? L.A. is one of our most important markets, and it’s home to a lot of our homegrown brands like SLS and Umami. As we’re looking at markets around the world, we’re constantly reinvesting in L.A. and taking a lot of these brands and putting them around the world.
You always say you’re in the brand business. How do you feel about hotel-branded condos? If done right, there’s a demand for urban residential integration with hospitality — it could be the future of residential. There’s the opportunity for developers to really have amenities that are relevant, whereas in a straight condo, food and beverage doesn’t really work. Having shared services between the hotel and residences, you’re going to get a much better product. The hospitality brands also add a lot of value to the residences as an expectation level of quality. It depends on the market and the product, but we’ve found through our development partners that they see 20 or 30 percent difference.
You did a hotel-branded condo in Miami’s Brickell neighborhood with SLS. How did it go?
In Miami, the SLS [towers] both sold out within two weekends. We have our Hyde brand in the Design District, which also sold out quickly. Mainly, the buyers were coming out of Latin America and Europe.
How is the hotel market performing in L.A.? The L.A. market in the last 24 months has seen the biggest compression in rates and occupancy. People are looking at this market a lot more seriously. It’s becoming a lot more relevant of a city, and it’s still a huge value proposition in terms of price per key, on a multiples basis. L.A. is showing rates never seen before. West Beverly Hills is having the best 12 months it’s ever had. Year over year, it’s up about 20 percent in rates and occupancy — we’re seeing that now at the Mondrian — and it’s bringing the whole market up.
We’re seeing a slew of new hotel product coming to Hollywood. Do you think supply will begin to outpace demand? There’s still a huge barrier to entry — it’s very difficult to build hotels in this market compared to other cities. The James Hotel is opening up right next to us at the Mondrian, which we’re doing the food and beverage for. That was really the first ground-up hotel on the Sunset Strip in West Hollywood since 1968. That just shows you how difficult it is.
Do you have plans to develop your Hyde site on Sunset Boulevard? Right now, we’re focusing on other developments — our pipeline is so large.
How have things changed for you since SBE bought Morgans? It’s meant we’ve been able to attract global talent, like Jorge Giannattasio, our new COO. When a smaller company like we were pre-Morgans goes through M&A, you get to a point where you’re differentiating yourself. More people are getting into the hotel business on the smaller side and big companies are merging, like Starwood and Marriott. Mid-sized companies have gotten few and far between. With mergers and acquisitions, we’ll be one of the biggest in the space globally, with 7,500 keys and a footprint of F&B of 120 properties. It’s not addition anymore, it’s multiplication.
What’s it like working with Ron Burkle? He’s a great strategist — he’s seen everything, so he can see the mistakes before we make them. He gets involved when we ask him to or when he feels he needs to. Otherwise, he lets us run the business from a day-to-day perspective.
Why did the Morgans deal take so long to come together? We had to wait for it to become right. You had a very dynamic board that had a lot of different ideas. Ultimately, when they realized that they needed to be part of a bigger company to be successful, the deal happened very quickly, all cash, and we took it private.
You recently announced that you may be merging with Hakkasan. What can you tell us about that deal?The statement was really to address a lot of rumors in the market. We want to leave it there. It was to quiet everything down.
Hakkasan chief Neil Moffitt has been tied up in the 1MDB scandal. Did that play a part in why he’s doing this deal? No comment.
Would you think about taking SBE public at some point? You never know. You never know what the future holds. Right now, we’re very happy being a mid-sized private company.