The Standalone Lifestyle Hotel Management Company That Won’t Be Rolled Up

Owners of U.S. hotels have long turned to third-party management companies, such as Sage Hospitality Group, to run their properties. Sage stands out because, since 2017, it has grown from having 17 independent, soft branded, luxury, or lifestyle properties in largely suburban areas to having 47 lifestyle hotels in major urban areas (out of 60 hotels total).

Sage made a big, deliberate shift in its total portfolio. To understand its bet on lifestyle, and what that bet says about the broader sector, we need to cover some backstory.

Sage does many things, but it’s best known for third-party hotel management. Most hotel managers are essentially mom-and-pop players — overseeing roughly a few dozen hotels each, on average.

But a push is on to consolidate the hotel management players.

• Aimbridge, the largest hotel management company in the U.S., manages more than 1,500 properties on behalf of about 400 owners. Advent International, a private equity firm, took a majority ownership interest in the third-party hotel operator Aimbridge Hospitality in 2019, merged it with competitor Interstate Hotels & Resorts, and plans to try to take Aimbridge public once the markets settle down.
• Highgate, another giant hotel management company, is privately owned by founders Mahmood and Mehdi Khimji. In 2014, the company gave a minority stake to private equity firm Trilantic Capital Partners. It has more recently done deals to expand in cooperation with Cerberus Capital Management. In December, Highgate bought Viceroy. It plans to turn Highgate into a brand recognized by consumers. This consumer branding is relatively unheard of among management companies.
• In 2021, investment backers Gencom and TZP Group forged the merger of Benchmark Global Hospitality and Pyramid Hotel Group into a new company, Benchmark Pyramid, which is embracing its inner conglomerate.

The case for hotel management consolidation is that bigger is better.

• Businesses scale up to save on transaction costs partly by negotiating volume discounts on purchases and haggling for better interest rates for borrowing. Hotel management companies spread their development, legal, technology, and management skills — cross-fertilizing ideas across teams.
• Aimbridge, for example, has said that its giant size lets it provide hotels with better IT, accounting, and revenue management tools than smaller rivals.
• By offering a broader range of jobs, larger hotel management companies can, in theory, help to deepen a long-term worker’s skills. This labor investment could help the companies more easily attract the best talent. That, in turn, could give them an edge in the labor-intensive field of hotels and hotel restaurants.
• In reality, however, the real motivation for the dealmakers doing mergers and creating IPOs is their dream of financial riches. They often personally benefit financially from cutting deals to scale up companies today, regardless of the long-term impact on the companies.

Sage Hospitality Group is making a different bet — namely, having specialty expertise in “lifestyle” is an effective competitive advantage.

• “We’re in this for the long haul as one of the truly privately owned hospitality companies,” said CEO Walter Isenberg. “We have a strong desire to remain independent.”
• Isenberg founded the company in 1984. But by 2013, its portfolio had begun to sprawl across a variety of types of properties.
• The company decided to change its mix to become a specialist in what it believed would be a growth area: lifestyle hotels.
• Over nearly a decade, Sage has let its management contracts with select-service properties lapse to replace them with lifestyle clients.
• The company has about 60 hotels in its portfolio today.
• “We’re about 95 percent of the way there toward our ideal mix,” Isenberg said. “We’re more purely urban and resort in location and lifestyle in concept.”
• Sage believes its focus on these high-touch, complex products helps it hire and develop the best talent. Its commercial, operations, development, human resources, and technical teams are now focused on developing capabilities serving urban and resort lifestyle hotels rather than suburban select-service properties, with different needs.

Isenberg, who founded the Denver-based company in 1984, has given it four interlocking capabilities.

• Hotel management.
• Restaurant concepts for its hotels.
• Real estate investments, which are increasingly focused on mixed-use projects.
• An in-house “studio” for creating lifestyle designs and products for hotels, restaurants, and residences.

Sage is doing a brand refresh to solidify its position in lifestyle hotels.

• “We want to be the most–beloved lifestyle hospitality company out there,” Isenberg said.
• Sage tapped consultancy G+G to create a new “brand architecture,” which will inform a new website to debut this summer.

Sage aims to innovate in the lifestyle hotel space.

• Sage runs 18 lifestyle properties that are purely independent and unaffiliated with any of the big brands. It will launch an affinity program for these independent hotels later this year.
• “Today’s loyalty programs are all performance-based around generic points,” Isenberg said. “We see a whitespace to create an experience-focused affinity program.”
• In 2020, it joined Pebblebrook, a real estate investment trust, and Springboard, and Davidson, in becoming a founding member of Curator, which helps independent hotels choose technologies and optimize their direct marketing strategies.
• “We’re effectively creating in Curator a cooperative, banding independents together to get more buying power for technology and marketing,” Isenberg said. “We’ll never get the same pricing as a Marriott, but the effort will pay dividends.”

On the one hand, Sage was smart to see back in 2013 that lifestyle hotels in urban and resort areas would grow in popularity. Big brands are now racing into the segment.

• In December, Highgate bought Viceroy, as mentioned above.
• In November, Hyatt bought Dream Hotels.
• This year Accor has poured resources into its lifestyle joint venture with Ennismore.

On the other hand, Sage is betting somewhat significantly on independent lifestyle hotels at a time when big brands appear to be on the march worldwide. Will it be outgunned?

• “We’re still big franchises of groups like Marriott, Hilton, and Hyatt,” Isenberg said. “But even there, we’ve leaned into their offerings in the soft-branded luxury and lifestyle segment.”
• “Our view is that the hotel business has been commoditized, yet a segment of consumers with disposable income are seeking out collectibles instead of commodities, so to speak,” Isenberg said. “More consumers are gravitating toward memorable experiences. While, yes, lifestyle is more complicated to execute against, if we do it well, we will get a premium in revenue.”
• “Our 2022 systemwide revenue was within one-half of 1 percent of our 2019 level,” Isenberg said. “We will far surpass that in 2023, knock on wood, thanks in part to the rising demand for unique assets that are experience-driven.”
• Over time, Sage will face competitors, such as OTH, who are eying a similar playbook.

Sage also does real-estate investing, which it sees as creating capital it can use to fuel its innovation efforts.

• “We have a lot of private equity partners, but they tend to buy hotels with a plan to sell in two to four years,” Isenberg said. “In those situations, we’re going to be a co-investor on the promise that, when we sell in a few years, we’ll build, and share in, the value created — which we wouldn’t if we just signed a management contract.”
• For management contracts, Sage prefers working with partners planning to hold properties for long-term horizons, like a decade or more.
• “We need to make sure that we’re taking great care of our associates and that we’re very focused on our customers, that they want to come back,” Isenberg said. “If we do those two things extremely well, we’ll get good real estate returns. Not the other way around, though. If we’re thinking about profitability without first focusing on people, things will go wrong.”