Teague Talks with Arash Azarbarzin, Principal & CEO of Highgate

I'm gonna start with who are you a quick brief background on that and then we'll talk about whatever you want to talk about really I can actually interview you for the for the talks this time. We'll see I like that You probably can get away with it Arash thank you for joining me you are a busy man. So I appreciate you scheduling a few minutes out of your time for us to get together Always a pleasure. You know, we can't say no to you sir. So when you call we answer It does get a little uh, we're a tough crowd. We purchase persistent. This is what it takes All right, so welcome to the two timers club Right second time being on last time was I checked for we did this February of 21 So right doing all that COVID stuff for those viewers who have not seen you and who don't know you And because I love your story because it's fantastic. I will tell us please Who is Arash? Where were you born? How did you get here and how does that influence your decisions today? Great. I happy to and those of you who listen to my part one you can skip like four minutes and then start over again You know Arash is a person today. I'm a CEO of Highgate hotels in this role for for two years Before that I was with mr. Barry sternly the one and only for four years running SH hotels and resorts Which is the operating arm of starwood capital and then before that I founded a company with salmon isarian called sbe And um, I was president of sb hotel group and I was put sam for 12 years and I really had a phenomenal time creating brands and and going into the food and beverage and how hotels are impacted by food and beverage we created sls and I would create a redberry brand together and you know open the casino in Las Vegas at seven or eight fnb brands that we put together with Jose and Dres and Chef Katuya Eriji and and Michael Mina and lots of fun Again, I'm dating myself, but before I was with sam. I was with very sternly again for seven years I start with hotels and resorts Yeah, a two-timer club and really enjoyed my time You know, it was 1997 when I joined start with hotels and that's was the beginning It was amazing to see him put the company together when I joined he had just merged with ict and we had western and You know, we we launched in regis hotels. That was one of the first g-ants of a sand regis hotel in the world I was maybe number four number five ever that's how old I am And then we I helped very launch the w brand and and I was the running the w hotels of New York And you know my hotel career really started with four season hotels. I joined four seasons in 1990 Spent seven years with four seasons between Beverly Hills, Newport and Seattle And it really gave me the right foundation and pedigree of a culture of service and delivery and not taking second-best and that has stayed with me Till this day But where I'm from I'm from iran. I was an immigrant. I came to this country in 1980 right after the big revolution My family and I arrived here. I was 15 years old and I had to start from we had to start from from from scratch I mean my dad was in the military in iran and you know, he had to his first business was opening a deli In wilton, Connecticut, and that wasn't very successful. We didn't know how to do delis And you know, he sold cars and made ends meet and put us through school and was a big supporter my mom and dad For myself and my brother and we started from the bottom. I washed dishes. I cooked in kitchens. I was awaiting tables. I was busing tables and Really learn the hospitality business from the start so And when his face when I told my parents I was going to join culinary instead of America to become a chef In 1986 you should have seen that face like in our culture being a cook for a chef It's not like Kylie sought after you know and when I told him that you should you know I'm like, what about being an engineer or doctor or But you know they supported me and so It has helped me through my career to have gone through those and I always say No, just respect to the bankers or the lawyers That are listening. You know, I'm not a banker. I'm not a lawyer. I'm an operator I started from the bottom and and I've seen and worked hard to to To be where I am today So that's your four minutes to welcome back those of you who skipped the first four minutes No, no, I listen. I love it. Your story's great tons of experience So you know what I that's probably where I'm gonna go Even though I love the Iran background. I love all of that But I'm probably gonna go to your mentors, right? I mean very start like one of the top Uh You're currently with Mammud and Medi Kimjee. Maybe I should ask how'd you meet the brothers and what what drug you over? You know Mammud and and Medi have been Pioneers in our industry and everybody knows hi gay then Throughout my career, I heard the name and I saw them grow and Saw them really develop a company that was besting class and you know I have so much respect from Mammud and and you know We only saw each other at events and we saw each other over NYU And we saw each other over Alice the usual suspects But what said Mammud apart was really Take him taking the time every time I saw him To spend five minutes with me and really listening to what I had to say and you don't see that too often in our business I'm guilty of it. I don't know about you But you're rushing around you have back-to-back meetings But you see an old friend and old face and you actually so how's it going Arash? Are you happy? What's going on? Tell me about their latest I mean that really always resonated with me. I remember he checked into one hotel south beach when I was working there in the beginning of my Career with Barry and again We spent 10 minutes talking about the hotel business talking about their brands He's just such a personable guy. I didn't know Medi till I joined right before I joined I had to interview with him and that was a tough one. He's a tough one A good but tough But I got I had always respected them and I always followed their career and their successes and You know the decision with with me joining it wasn't because I wasn't having fun at SH and you know Barry and I Had grown very very close and we enjoyed working with each other But it was an opportunity to influence a bigger part of the hospitality business You know one and SH was growing at an incredible pace and I think they're up to 14 15 hotels now and you know probably another 10 15 in the pipeline and You know, I could have been running a company with 25 hotels or a company with 500 hotels, right? So when I told Barry the news and then we were like I won't let you leave We're gonna make this one like Barry like you don't have to it's just the next progression in my career Is to be able to work with a company that I can add more value and touch more people and help mentor and grow more So that was really the reason why I left and I tell you before you asked me it's been absolutely incredible two years I mean what we have accomplished, you know, we've added another 160 hotels Since I joined which again, I don't think credit for I don't take all the credit for I think maybe a little bit But it's been it's been an incredible right with with with my mood and many the rest of our principles You know the Zach burger. I don't know if you know him He's become a force in our business from a real estate and investment and now operations and rich russo and Matt Dunloc and anchor ronda. I mean they're all reading best in class partners and I couldn't ask for anything better You're a good man. You learn from a mood. I do think that's what makes my mood special right He does take the time to get to know you. I mean again, we're a people industry and all of our Sort of leaders in our industry are those special people person We're all running around you just said it trying to do business and they take a time to pause and ask about you So you know, it's we sometimes forget that we are In the hospitality business, right? We are taking care of gas and we're Making memories for people that come to our hotels for restaurants for outlets But we're also doing the same for our team members, right? This is a chapter of their life that we're health writing Hopefully we can write six or seven chapters But it's important when we look at the people that work with us for us That we make sure that we have the same Enthusiasm and making those memories special making sure they every day they learn every day they grow And not get staggered and that's what my mood does the best you know he Very similar to Barry challenges himself on a regular basis. You know, he's never happy with what we have today Always shooting for more and that's why hi-get has been so successful because we continue To look at new ways to do the business more profitably more efficiently And then deliver best results for ourselves and our partners and our own if you take one thing away from this conversation is Take care of your people. Your people are going to be the secret to your success. Treat them with kindness, treat them with respect, treat them with how you want to be treated and the rest will fall into place. - And remind me, roughly, how many people do we have? - Company wide, about 24, 25,000? - Yes, that's. - Yeah, we have about 600 people in our corporate organization and the rest are property. - Yeah, that's a city, so. - A small city, you know. (laughing) - But yeah, you're the mayor of the city. I should ask by slippery slope question that we could add it if you don't want to answer. Is what, what compare and get trash, Barry and Mahmoud? - Oh, you, I got a lot of. - I got a lot of. I guess that earlier, Mahmoud and Barry have a lot in common. - Yes. - They're both drivers. They're both one of succeed. They both want the best. It's amazing. It's the only difference is, you know, we're only hotel business. I am, you know, Barry has, you know, gazillion, trillion investment in different business segments, right? So we are only in the hotels. If I had 100% of Barry's time at a sage, you know, we would have been, you know, third largest hotel company in the world, but that's just the small segment. I only have this much of his brain power, which is more than, you know, 10 people combined. But, you know, that was the big difference. I mean, you know, Barry is in so many different segments of business where we are concentrating on, you know, hotels and hotel real estate. That's the big difference. But they're both brilliant guys, and they're both, you know, top of their game. - You were lucky to have worked with both of them, because they're amazing, and they are lucky to have worked with you to have you sort of down. - Thank you, sir. - And the pleasure and honor. - So, no, one of the, getting into the weeds here, but I know one of the reasons you're brought on is to help with the nutrition rate at high gate. And I think you've been very successful with that. So, why do you think it's successful? - I think, nutrition won Recruitment II, but really the, the part that I think attracted me to high gate and high gate to me was my ability and my experience and exposure in really bringing luxury lifestyle operations to high gate. And, you know, it started before me. I mean, they had the Nicarbacca Parkland was well underway. You know, Newberry was well underway when I joined. So, it wasn't like I pioneered this. They're already well underway in developing this, but they wanted to bring someone in that understood the nuts and bolts, but also understood the ability to activate, energize and bring credibility to these hotels. You know, I don't know if you know this or not, but high gate now manages for luxury collection hotels, which, you know, three in Peru and one in Nashville. And the Joseph in Nashville was a number one luxury collection hotel in the world last year. From a service, from a brand delivery, from, you know, guest comments and the happiness of our customers. So, you know, we are now a true luxury player. Our Newberry hotel in Boston, God five diamond last year and this year it was nominated for a virtual hotel of the year in the world. So, we were the five top five finalists. We didn't win, you know, who won? - Who? - Big. - And it's just not fair. I like to play fair. The four season hotel in Sicily, the one that's in the show. - Yeah. - Yeah, white lotus. I mean, like, how do you compete with that? I mean, millions of people. So, and Netflix, if you're watching this, we need to do a reality show at the Newberry in Boston. So, we have a better chance of winning it next year. - Let's go, we'll set it up. We'll come to the teed walk and Netflix show up and do a series. It's gonna be great. - Beautiful. - Yeah. - All right, so I do think that's great. So, I think you've, I mean, one, let's go back to history sort of a high gate. Like, most of us all know them as New York centric, right? Luxury and really nice hotels in and around New York. We should talk about that and what's happening with New York. - So, high gate really started as owner operator. - Yeah. - They weren't managing for other people. They were managing their own assets. And as they were recapping these assets and bringing new capital partners and selling them, the new buyers like, no, we want you to stay and manage. So, it started growing that way. And there's strategies how we've been, let's go to a city and really build an infrastructure, build the capability so we can own this city. And we can have economies of scale and we can have complexing opportunities. So, in New York, so today we have 34, 35 hotels in New York, in the island of Manhattan and we're about to add two more. I wish I could tell you, but I can't, but we're adding two more within the next two weeks. And, you know, New York City is the city that's a barometer for hospitality in America, right? It's the first to go down and it's the first to come up usually because people do business here from passion, entertainment, from all seconds. But we're having a really solid year this year. We're above 2019, we're above 2022, significantly, 22 almost double digits up in New York. And fourth quarter looks really, really promising. Not found what? That we're gonna have a strong finish to the year. September, typically, for the hotel business, it's not a good month. We have the Jewish holidays and I, as a people are back from school. So, but September in New York is really strong this year, with the fashion week and US open and the UNGA coming in. So, we have lots of great demand drivers in the city. So, you bullish your a bearish on the city and I'm thinking all the return to office and the global grab. Super, super duper bullish. Great. I think you have to remember, we have a number of hotels that have not reopened since COVID. We have a number of hotels that are being housed by migrants. We have pretty much a moratorium and any new hotels coming into the city. I mean, I don't see any, I have no, you've heard any new developments of, you know, boutique hotels here and there. So, the supply has shrunk. There is no new supply coming. And the demand has been pent up, you know, over COVID, of course, and even post COVID, the BK travel is not even close to where it needs to be. So, the demand will be there. Groups are coming back. I mean, you know, the actor and writer strike is not helping. You know, it's really hurting LA, but it's hurting every city that caters to the entertainment market. So, I'm super, super bullish on you. Talk about some of your debt. I don't know if I can get in the weeks there, but any issue, everybody's got concerns, right? With debt, floating rate, stuff that's floated up. Any specific issues you can talk about there? Yeah, I mean, the good news is the money's there. It's just expensive. Right. It takes longer and it takes more diligence and more relationship building between your lender and sponsors. I mean, we have been very fortunate to recap a few loans that we're maturing this year. And, you know, good news is, nobody's taking a pound of flesh. It just cost you more. It just cost us doing business. And we hope that as quickly as the interest rates up, one up as quickly can start to de-escalate. But there is plenty of money out there. People need to place. They just have been more careful and being more diligent and really counting on the relationships that they have built on the sponsor to lend that money. I think you're right. I mean, I think we'll work through all those things, fingers, but it's getting, you know, you're getting more capital calls, you're getting more pay downs from lenders. I think they've learned to extend and pretend works. We will see. We will see. We're starting to see the pressure in sort of the big box urban areas, though, that's where we're starting to see the pressure. So, if you agree with that or not. Yeah, I think, you know, San Francisco, depends on market. New York, you don't see the pressure because, candidly, you know, who wants to take over a hotel in New York with the uni-migrids and all the other liabilities that come with it. So, market by market, you know, San Francisco is the only market in our entire portfolio that hasn't recovered to 2019 levels yet. And we hope to get there. We're actually bullish on San Francisco. We think that San Francisco is going to be a city that has so much pent up demand that, you know, eventually with the tech sector and what happened with you, you will come back. It's just taking a lot longer to come back. And the city is doing a whole marketing campaign about, you know, promoting San Francisco. So, we like San Francisco, it just hasn't gotten there yet. So, I think the lending market has not impacted operating assets as much as transactional assets. You know, you're not selling hotels like you used to, you know, a five or six-cap, you know, was penciling before. It's not anymore because you're paying so much more for your debt. So, you have to look at hotels with, you know, seven or eight cap to even start thinking about it. So, the transit. market has been impacted tremendously because of the debt situation. Yeah, I think you're right. Going way back was sort of the colony, Northstar transaction. Yeah, massive. When was that late? May 122, something like that. No, sir, that transaction happened in March of 2021. Yeah, March of 2021. Yeah, I mean, they signed the deal to, I think April or May of 2020, pre-vaccine COVID error. Can I say, we have not pre-vaccine vaccine COVID error. So that shows you the brilliance of Mahmoud and Medi and the rest of the team to know an opportunity and jump on it and believe me, many people thought they were lost their mind and we have definitely proved them wrong and high-gate before I joined them, picked up and added 187 hotels overnight to the portfolio. Like, who can say that? I mean, so I gave a lot of credit to Steve Barich and the team that really led the operation of that transaction, but that was a big one that has been super successful for us. And then they followed that up with the core point, Lakinta. Yeah, I was in March of last year and that was an incredible experience for all of us. It was 125 Lakinta's that we bought to a core point acquisition to a core point private and that has been super fun. And so, you know, we are definitely having these trunkier deals help grow the platform, you know, co-occur, but I have to tell you that the team here is so diligent and I've never seen anybody underwrite deals and the risk profiles as well as our team does here. And then they've been trained by the best and you know, that was a, I think I'm not going to name names, but many people wanted that deal. I don't think anybody wanted to call on the deal from rebought it in the middle of COVID, but we were going against the big powerhouses on core point that we won. Yeah, listen, we've worked, had the fortunate part of work with your team a lot and they're all really talented. We were, you know, heavily involved with sort of Lakinta stuff. We've known it for decades, feels like. So we've known that kind of marketplace. We've known our new team's done a really good job of executing on the business plan as well. They're underwriting a spot on and the execution is really good too, which helps. I said, give me what's, tell me what's next then. Are we doing luxury? Are we going to economy? We got mid scale? We got sort of all the above. What, what are you focusing on? You know, my biggest focus is operations and really taking advantage of artificial intelligence. I know that what is being overthought and really taking advantage of the technology to see how we can operate better. I mean, we are adding hotels organically, you know, 12 to 14 hotels a year. So that happens to third party management agreements and we've been very successful with, you know, acquiring new contracts, you know, not paying for them but winning them. You know, we were taking over the jewel and Dallas. I don't know if you know that yet or not, but breaking news, November 1st, then we were looking forward to working with the headings team and then really adding value to that portfolio. So that is happening, but what I'm doing is really working with best in class companies and the part team here to put as much robotics and machine learning into our reporting and a KPI analysis. So I want to provide tools for our leaders to be able to manage their business better. So those are the things that I'm spending most of my time on to making sure that high gate continues to be the best in class operator and stay with the times. I don't want to be behind the times when it comes to the technology initiatives that are going on in the world. Wait, so talk more to that. Tell me what, give me more specific about how you're using AI. I can't tell you that then my competitors are going to go use it. You know, actually, we tease out there. Everyone knows about that. But, but no, all kidding aside, we always do it ourselves. If you give me a PNL, I can go look at cost for occupied room. I can look at the productivity of a housekeeper. I can look at fixed costs. I can look at a variable cost. I can tell you if the hotel is being efficient or not. It could take me depending on how complicated the hotel is. And you know, if it's a union hotel or non union hotel, how many floors you drop or I can figure it out in a couple of hours and tell you exactly what's wrong with a hotel. But when you have 150, 160 full service hotels and 300 select service of current plus select service hotels, you don't have that luxury to dive in like that. So what AI does for you is if you teach it, you will go look at your schedules, you will look at your productivity, you will look at trends and it will predict what your results are going to look like. So they will tell you, hey, based on the first seven days of the month, and if these trends continue, your profitability is going to be Y. Your productivity is going to be X. So you have an opportunity to adjust and it will highlight it for you, which one you should look at. If I were you, I would look at these 10 hotels. These are the ones that are not producing to the matrix that I have put in there for them to produce. So that is what the future is going to be like. You're going to wake up in the morning, you're going to open your computer and it's going to say, hey, this is your to-do list. Look at these 11 hotels that are not at optimal, that need to be at optimal. And this is why. You have way too many dormant schedules, you have too many bus boys today, you have room attendance a bit higher. So that's what the end result will look like. I mean, that's fascinating. And I should have expected it from all the top operators and should be engineers of our industry. You think that makes differentiator today? I mean, I get you, eventually everyone's going to catch up. But how many operators do you think are doing that today? Using AI? I'm sure a lot. I can't predict. And I'm there. Many people, much more than me, there are probably three steps ahead. I just don't want to be three steps behind as long as I stay par and I stay and drive for results. And by the way, it's not me. I have five executive vice presidents on the team that helped me run the organization. And they're the ones that are going to dig in. But I want to have the tools and the checks and balances to keep the operation as effective and optimized as possible. And by the way, this will help me, you know, and get satisfaction. This will help me. And well, associates satisfaction because I have right people, not right number of people, not over staff, I'm not under staff, and I'm providing the service. And at the end of the day, you know, my focus last year, my first year at Highgate was building on the foundation that Mahmoud Medi and the principal started and building on that culture of people first. And that's what we did. We launched Highgate Academy. We launched, you know, our own in-house education and tracking system when there's 5,000 classes available for people to take. We signed up a deal with E. Cornell. We had 60 people graduate with certificates from Cornell. And a classes in leadership and business development and revenue management. So we really built that foundation and the culture even further and did the belonging. So that was my first year's work. All about the people, all about motivating, inspiring, coaching, and bringing the right talent in. And now that we have the right foundation, we're building our, on our operational accounting, finance, excellence to even take our company further. All right, good. So let's go to the future. Give me your crystal ball sort of everything that you're seeing. I mean, you got a ton of hotels and drop ratings. You see a bunch of different markets. You see a bunch of different luxury mid-scale economy. Like you see a lot. So tell me what you're seeing right now and more specifically what you see for the future. I see that we have survived the last two years. One, it was the leisure pent up demand, the sugar rush that happened. We have survived to a hustle, to a drive. And I see business travel coming back to be key business. Right. We're coming back to, I think, again, for our company, we're 60, 70% of 2019 on corporate accounts and business travel. And we're doing so well without it, right? Can you imagine if it was 100% I see group business coming back strong. It's already back to a certain extent, but I see it being stronger because if BT doesn't come back, group has to over compensate. If you're not coming to the office regularly, I'm going to have meetings once a month before she comes to the office to participate in collaborate. We've seen shorter-term business. We've seen longer-term groups because people want to collaborate and they want these key leaders, especially in the creative side, to be able to interact with each other. The strike will end eventually. God willing, please to use naked head. But I remember about 10, maybe 10, 12 years ago, there was another strike in 2008 or 2009. And once, that was the birth of the reality TV. 'Cause that last time there was striking, they had no confidence, so they had to have the reality TV start. But what happened when the strike came back, the production and the business doubled, because there were so much pent up demand. So I see our business continuing to grow. Leisure is gonna continue to grow. And once the dead market stabilizes, and we know that it's not gonna go higher, hopefully it starts going lower, the transition, transaction business will come back to. So barring anything on foreseen, I don't see any shortfalls, if anything, we should have a strong 2024 ahead and beyond. - I like your bullishness. And this is fantastic. This is my, this is my show successful, sir. This is my shirt a lot. - I mean, I see the indicators. So if you talked to me last year, I would tell you, hey, your guess is as good as mine. We got recession, we got the depression, we got interest rates going up, we got the war in Ukraine, we got gas prices, we got supply. You should have talked to me last year. I'm definitely bullish and an optimist. That's how my personality is, but I tell you the facts. But I'm looking at every indication right now. And compare yourself to this time last year. - Yeah. - So in into 2023, we had no idea what to expect. It was a complete unknown. 22 was decent, but going into 2024, our indicators showing positive trends in all areas. So thank God. Happy about that. - So you're operating budgets are all up for all your investors, for everyone you're born to go. - If our owners are watching, we're showing a flat to 2020. Every market is different. You should see what we do for our owners. And you should see the decks we put together on market trends. I mean, we can spend hours, but every city, every segment from group, trans, and BT, FITC. There is not a tool out there that we don't use. So every market is different. There are markets that are going to see double digit growth, maybe one market. But mostly we show where we think the business is going to come from, right? So, 30 seconds. What's going on for what's going down? What markets? - San Francisco is going to go up. - Okay. - Because he was so down this year. - No, I'm still worried about Hawaii. I mean, we need Japan business for Hawaii to be successful, completed out of our control. The yen is very poor against the dollar. And the people want to come. Once that gets adjusted, Hawaii will come back. So I'm worried about Hawaii. I'm optimistic about New York. I'm optimistic about San Francisco. And even the Florida keys and Miami had a rough second half of year this year. But I think now we have stabilized. Those markets have stabilized to more normalized results. - I love it. - Rush, you're fantastic. - I thought I was interviewing you this time. How did this happen? - You are good at this. You just get me into it and I can't stop popping. And that's the secret. - That's right. - You're a good friend. I appreciate you coming out. I appreciate the time. - I love it. - Thank you, my friend, for coming on. This is great. This is great. I can't wait to do it again. And look for-- - And then you should track how I did pretty good after the first one. - Yeah, you did great. - Look at it. - I was a good predictor. Hopefully I'm a good predictor on this one too. - We'll see you now or no. We'll see. - All right, thank you, my friend. - Thank you, sir. (upbeat music)