Hospitality: Colony Gets Boutique-Hotel Partner

By KRIS HUDSON for Wall St Journal

Colony Capital LLC has purchased a minority stake in Sam Nazarian’s company, betting that the 35-year-old Los Angeles night-club and hotel impresario will be the boutique-hotel industry’s next big name.

Colony, with $30 billion in assets under management, paid $35 million for the stake in closely held SBE LLC, which manages nine restaurants and five hotels. Colony also gets two of the five seats on SBE’s board. The companies declined to disclose the percentage other than saying it is a minority stake.

The Iranian-born Mr. Nazarian, who immigrated with his family to the U.S. in 1979, is known for his celebrity-packed night clubs such as Hyde Lounge and the Colony. His still-nascent hotel venture, whose title SLS stands for style, luxury and service, includes three hotels in Los Angeles, one in Miami’s South Beach and the Sahara casino in Las Vegas.

By teaming up with Mr. Nazarian, Colony intends to expand in the burgeoning boutique-hotel market, according to Thomas J. Barrack Jr., Colony’s founder, chairman and chief executive. Colony already is a major investor in the Fairmont Raffles Hotels International luxury-hotel brand; Accor SA, owner of the Motel 6 and Sofitel brands; and Kerzner International, owner of the Atlantis resort in the Bahamas and the One & Only Luxury Resorts brand. Colony believes Mr. Nazarian’s SLS hotels will stand out in an industry that is becoming increasingly standardized. The brand’s initial hotels are known for busy nightclubs and restaurants.

Even so, Mr. Nazarian and Colony are expanding into a field crowded with heavyweights. Virgin Group Ltd.’s Richard Branson announced in September that Virgin will open boutique hotels in major U.S. cities. In December, Ian Schrager, a pioneer of trendy, boutique hotels, said he will start two hotel chains in the U.S.

Colony’s bet is that Mr. Nazarian can do a better job drawing the young, upscale crowds. “It’s a bet on the jockey,” Mr. Barrack said. “People want to stay at somebody’s property and share in their expertise, hospitality and vision.”

For Mr. Nazarian, the Colony investment is a validation. Fifteen months ago, he was lobbying lenders to extend and restructure mortgages on his Beverly Hills, Calif., and Las Vegas hotels and enduring delays in renovating the Miami hotel. Since then, he has restructured the Beverly Hills mortgage and recapitalized the Miami project. He is close to restructuring the Sahara’s mortgage, he said.

Meanwhile, SBE is expanding. It is buying a site in Manhattan for a 120-room boutique hotel. It has reached a deal to open five Katsuya restaurants in Texas and has separate plans to open one in Laguna Beach, Calif.

Mr. Nazarian said Colony is “going to be our go-to [partner] going forward for individual equity needs by asset.”

[online.wsj.com]

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