Rising Starwood
Another popular topic of conversation surrounding HHM is its partnership with Greenwich, Conn.–based investment firm Starwood Capital Group, the second-largest private equity real estate owner in the world. Of the 115 HHM-managed properties, 39 are owned by Starwood.
That formal partnership began in 2010, following roughly two years of conversations between the two companies. “It felt very comfortable that Starwood Capital not only would grow as a very active investor in the real estate space but would also serve as an important resource to us as we were building out our own capabilities and seeking to establish HHM in our industry,” Kakarla recalls.
The result, so far, has been mutual growth. Starwood was just outside the top 10 among private equity real estate owners in 2010. HHM was among the top 25 operators in the country at the time and now ranks in the top 10.
“Hersha is well-known but really only by those who follow lodging closely. Starwood Capital, on the other hand, is almost a consumer brand in some ways and is very prestigious and respected,” Hanson says. “So to have that relationship is very much a plus for Hersha, because even people who don’t understand the business model of Hersha would say, ‘Boy, if Starwood Capital believes in this company, it must be good.’”
Through its partnership with Starwood, among its many other growth strategies, Hersha is becoming, in Kakarla’s words, “a larger small company.” PKF’s Woodworth agrees: “While they’re getting bigger, they continue to operate with a very effective level of entrepreneurial approach to the business.”
As the industry continues to trend toward the use of operating managers, HHM is well positioned to continue steadily growing. The important thing, from Kakarla’s perspective, is to find properties, partners, and situations that Hersha and HHM are comfortable with.
“We benefit from having stable, longer-term agreements, because it is very hard for an operating business to take in short-term, month-to-month-type contracts and to make meaningful plans that benefit our associates and our investment in the company itself,” Kakarla says. “We’ve gradually developed better instincts for how to operate. And part of that is that every new owner we work with makes us a little bit better. Because they’ve worked with a number of other operators, they have their own approaches to solving problems, and we learn from that. What we end up with is a business that, at its core, remains very entrepreneurial around the things that drive performance results but has a careful structure and support system to ensure that we are catching balls that might drop as the business gets a little bit larger.”
Kakarla, like all successful executives or entrepreneurs, keeps an eye on both the big picture and the small details at the same time. In a casual discussion with a staffer at the Rittenhouse Hotel in Philadelphia as Kakarla took a momentary break from the Lodging cover photo shoot, he conversed with intimate knowledge about concerns regarding one of the luxury hotel’s newly introduced china patterns. That’s attention to detail that you don’t see from every president/CEO. That’s the “small company” in this “larger small company” coming out.
That’s the passion of a CEO who didn’t intend to stay long, only to quickly find himself fully invested.
