BERLIN—The problem with the hotel industry, said hotelier André Balazs, is the bifurcation between owner and operator.
In a business landscape where performance is based on scale and growth, hotel companies have dispersed risk by specializing in one discipline or another. Global chains manage, investment funds own and a wealth of other players adopt similar roles in the value chain.
“Growth is for publically traded companies. The publically traded management companies don’t actually own anything that they’re putting into the pipeline. By definition, there’s just a blandness,” Balazs said during a general session titled “New thinking from those who have broken the mold—Redefining the art of hotel keeping” at last week’s International Hotel Investment Forum in Berlin.
“It’s not a very hospitable concept,” he added.
Case in point: Ask someone to name their favorite restaurant, hotel or bed-and-breakfast, and they’ll likely point to a small-yet-memorable business that is operated by the very same people who own it, Balazs said.
“We all probably are familiar with small restaurants, small hotels, bed-and-breakfasts where we just love it. … Invariably, what distinguishes that experience is that the owner is the operator. As people, we all intuitively feel that,” he said. “But because of the capital intensity of being in the hotel business, more so than restaurants, you get the divorce of personality of ownership.”
A name for himself
Personality is something on which Balazs has made a name for himself. As president and CEO of André Balazs Properties, the man has created a small yet memorable portfolio of chic luxury hotels in New York, Los Angeles and Miami.
Balazs approaches development similar to an “old-school studio head.”
“The way movies used to be made in the old, classic studio system, someone would say, ‘Let’s make a movie about surfing,’ (and you hire a screenwriter, director, stars, etc.) and sort of orchestrate this story, which has a personality,” he said.
And like that old studio system, everything is done under one roof. Balazs’ team runs the hotel, restaurants, clubs, as well as takes care of the financials and asset management.
“This industry is sort of segmented into these silos,” he said, explaining there are rooms, food and beverage, and they’re seemingly all different businesses. “In our world, they coexist,” he said.
The more segmented a hotel company is, the worse the experience is for guests, Balazs added.
Developing with the experience in mind
The hotel industry places too much emphasis on cost when developing, Balazs said. Instead of worrying about the necessary diameter of pipe needed to deliver enough water pressure to each guestroom, for example, developers think only about cost per foot.
The same applies to hotel construction in general, he said. Instead of the guest experience being the driving factor behind every decision, developers are more concerned about cost per square foot.
Management companies are retained primarily based on price, and because they’re not financially tied to the asset, they have no incentive to fight for a unique feel or aesthetic, Balazs said.
“There are very few hoteliers who build their own hotels with the intent and capability of running it every day,” he said.
But Balazs would count himself as one of them. When developing his properties, the hotelier brings an overarching perspective that ties together every piece of the value chain.
It’s like hosting a good dinner party, he said. You’re responsible for the venue, the food and, most importantly, the guest list. That’s what a good hotel should be, after all—an interesting mix of people sharing in a good and hospitable experience, he said.