With the successful debut of The Logan Philadelphia in December and accolades still pouring in for The Crawford, which opened at Denver Union Station in summer 2014, Sage Hospitality is making a splash in the independent hotel space. The Denver-based investment, management, and development firm got its first taste of independence back in 1990, when it assumed operations of The Oxford Hotel in the city’s Lower Downtown neighborhood. CEO Walter Isenberg discusses the appeal of going independent, projects in the works, and how to drive value.
What makes now a good time to embrace independence? Up until the last five years or so, the risk profile of operating an independent hotel was very different. As we’ve watched the world of social media and travel sites like TripAdvisor come into the mainstream of how people are choosing to buy hotels, we felt better about taking that risk. It’s difficult today to have a successful independent hotel in certain markets, especially suburbs. It really depends on the location, and, for us, our knowledge of and experience in a particular market.
What are the benefits of going independent? Part of what we’re seeing is consumers are really attracted to the notion of an independent hotel where they can experience a sense of discovery. From a cost perspective, not paying franchise, reservation, and marketing fees to the big names also can be a benefit. About 80-plus percent of our portfolio is branded, so we’re still believers in the brands, but we think there is a time and place for really great independent hotels as well.
How many non-branded hotels are in Sage’s portfolio? Today we have nine independent or soft-branded hotels and another four under development. That’s going to be about 15 percent of our portfolio, so it’s growing. In May, we’re opening the Halycon, which is located in a high-end residential neighborhood in Denver called Cherry Creek. It will have a real high touch residential feel and all the comforts of being in someone’s home.
Sage is finding a lot of success right in its backyard. How has Denver changed for the better since you founded the company? In 1984, I think there was a 40 percent office vacancy rate downtown, and hotel occupancies were in the 50s. It was a pretty depressing place. You look here today and the economy is very diversified—there is a lot of tech and medical. And the infrastructure that has been built around transportation, sports, and entertainment, all being focused on the city center, has made downtown Denver a really great city.
When does it make sense for Sage to have an ownership stake? Today we have ownership in a little over 50 percent of the properties in our portfolio, and that number has gone up and down over time. It just depends on the cycle. We have assets we’ve owned for a long time and others that we’re buying, fixing up, and then selling, which is more of private equity-type model. We’re trying to be smart about how and where we’re investing our capital. We’re still looking at acquisition opportunities, and we’ll also continue to selectively grow our third-party management portfolio.
How does that ownership experience make Sage a better operator? We really want to have the lens of thinking like an owner. We fundamentally believe if our people are thinking like owners, they’re going to do a better job and make better decisions about the business, not just in the short term, but over the entire ownership horizon we have for the asset. Organizationally, that has helped us be better operators.
What challenges do management companies face today? Keeping up with the way consumers are buying and all the different tools they have today to find the best price is our biggest challenge. All the online travel agents and the transparency they put in the market cuts both ways, and you have to stay on top of it all. We’re still focused on driving the fundamentals. If we take really great care of people and provide them with a great product and a great experience, then we move out of that commodity business because not everybody is buying in our business solely on price—it’s how you deliver that value to the guest. You want them to say, “Hey, this is where I want to stay.”
