Sam Nazarian had no formal training in hospitality, but as the son of an Iranian businessman, he grew up learning the value of entrepreneurship.
More than 15 years after Nazarian founded SBE Entertainment Group—a lifestyle company that brings hotels, nightlife, restaurants and residential development under one umbrella—the chairman/CEO is striking deals that have taken his empire global. Today, SBE’s hospitality and residential brands include SLS, Delano, Mondrian, Hyde and The Originals (a collection of independent properties) with more than 7,200 guestrooms. The company's pipeline has 37 hotels and branded residences with more than 3,500 guestrooms slated to open by the end of 2023.
With many companies growing incrementally over decades, SBE's momentum is undeniably impressive. And none of it might have happened but for the Iranian Revolution in the 1970s, and the willingness of an immigrant family to work hard.
Entrepreneurship and Diversification
Nazarian's father Younes ran a construction contracting business in Tehran, but the family’s fortunes were hit hard during the Iranian Revolution. When Nazarian was three years old, the family came to the United States in 1979 and settled in Beverly Hills, Calif., borrowing against the funds owed their Iranian businesses to invest in American companies and establish a new tech-centric investment portfolio.
In America, the young Nazarian watched his family adapt to a new environment, and saw how his father faced not only losing everything he had built from scratch back in Iran, but the challenges of the immigrant experience in a different country. That, he said, helped drive his aspiration to be a successful businessman in his own right.
“There was a sense of urgency that enabled me to try to get into as many businesses as I could early on, and gave me that ambition that I have now, which ultimately led to hospitality through the real estate field,” he told Hotel Management.
After studying at Beverly Hills High School and the University of Southern California, Nazarian in 1998 founded Platinum Wireless, a telecommunications business that specialized in Nextel software. “I sold it about four years later for a lot of money,” he recalled. “I was very proud of myself for being able to do that on my own.”
Expanding his interests, he diversified his family's assets into real estate, founding 3Wall Development in 1999 to build multi-family housing in Southern California. “One of our developers [suggested I] invest in some boutique hotels here in L.A.—Santa Monica and Beverly Hills,” he said. “Ultimately, I started SBE after having invested in about 20 hotels. It really gave me a very good snapshot of what I thought could be a rather unique differentiator when I started SBE back in 2002.”
Photo credit: SBE
Creating the company, Nazarian said, helped bring several of his investments together. Through 2002, he and his team were investing in different parts of the overall hospitality business: food and beverage, construction and development. “There was a real lack of cohesiveness [among] all these different verticals and we were paying a lot of money to a lot of people to build and manage and acquire and ultimately, sell a lot of these assets,” he said. “I really created SBE at that time, believe it or not, with the mindset to be able to deliver all of those skill sets and all of those verticals and all those types of completely different businesses under one roof. And that required me to get into the operational aspect of what I do.”
At the time, he said, he was not a hospitality operator and had no operational training or background. “What I ended up doing was building businesses on my own with my own money, without raising any money from anybody—just to prove that we could deliver brands in [what was] at that time a very sleepy hospitality market in Los Angeles.”
The Los Angeles of 2002 was what Nazarian describes as “a collection of communities,” with an F&B scene limited to celebrity chefs like Wolfgang Puck and Nobu Matsuhisa and promoter-driven nightclubs. “It was not in any way being recognized as a design or hospitality epicenter of the country or the world,” he said. SBE, he figured, could change all of that by emphasizing “luxury lifestyle” across a range of hospitality verticals. “What we did is very quickly try to open as many locations [as we could], with all of them having a brand and a purpose.”
SBE’s first two hospitality businesses were L.A. nightclubs. The third was a restaurant and the fourth was the SLS Beverly Hills. “We became, very quickly, the largest operator in Los Angeles’ history and subsequently grew into other markets,” said Nazarian..
Having his own development company changed everything. Rather than investing in someone else’s vision, SBE was now in charge of creating a cohesive brand, finding assets to acquire and partnering with designers like Philippe Starck and chefs like Jose Andres. “We created a whole ecosystem [that] L.A. had never really seen—and the market hadn't seen—which was this idea of luxury lifestyle,” he said. “I hadn't really seen that type of integrated design and food and beverage and culinary expertise. That is what we delivered.” The company expanded into key markets like Las Vegas, Miami and New York—urban gateway markets where they could develop multiple nightclubs, restaurants and hotels to keep their target demographic loyal.
Developing an Ecosystem
Part of the expansion became acquiring other businesses. In 2016, SBE acquired Morgans Hotel Group for an estimated $805 million, more than doubling the number of hotels in its portfolio. “It was a company that had an unbelievable lineage and it houses some of the most iconic lifestyle boutique brands in the boutique and lifestyle category,” Nazarian said.
He and his team were able to convince the Morgans board the union of the two businesses would benefit them both. “Also, I think that a lot of people were afraid to acquire Morgans because they didn't know if they could really revitalize some of these iconic brands,” he said. “I felt very good about being able to revitalize them and bring them back to the kind of cutting edge and innovation that they were when they first opened.”
The CEO noted a company like SBE needs to get to a large scale to be successful. "We need to be able to operate in multiple territories, multiple cities, multiple parts of the world. And with Morgans, we not only were able to showcase that we could take over that company without any disruption to the existing managed hotels, but also add a lot more value to the owners of the properties they were managing, more than Morgans was giving them themselves.”
The deal added 13 boutique hotels to SBE's portfolio for a total of 24 properties. The group included the Mondrian and Delano brands, the Hudson in New York City and Morgans Originals. Following the acquisition, SBE opened the Mondrian Doha in Qatar, the SLS Baha Mar in the Bahamas and the Mondrian Park Avenue in New York City.
The decision to go this route came after some hard thought. As an upstart in the sector, Nazarian knew he could offer a large company an entrepreneur’s energy while benefiting from breadth of scale. As he considered his options, one question loomed large: “How can I support all these hotels that we are opening over the next five, 10 years with infrastructure, with distribution, with reservations, with all the not-sexy parts of the business that we were building on our own?” Seeking a strategic partner, Nazarian explored options with Hilton, Hyatt, Marriott International and (at the time) Starwood Hotels and Resorts Worldwide to see if he could find some sort of balance— “where I could benefit from their infrastructure and they could benefit from my brand.” But as SBE went from upstart to bigger player in the industry, he couldn’t find a connection that would give him the autonomy to continue to run his business and his brand his own way.
Then in early 2018, he met with Sebastien Bazin, the CEO of AccorHotels, a company with thousands of properties and hundreds of thousands of guestrooms. Bazin had similar views on where he was taking his company, Nazarian said, and had a “very innovative and entrepreneurial, yet very pragmatic, viewpoint” of what the future of hospitality could be beyond the hotel room. By the middle of the year, AccorHotels announced plans to take a 50-percent stake in SBE, bringing Nazarian’s company into new markets outside of the U.S. The deal, which was finalized in October at an estimated cost of $319 million, was relatively free of bumps in the road and the partnership has remained positive since then.
"From our perspective, we feel that we found the right partner who can [give us through a] 50/50 joint venture the ability of running an independent company, but also benefiting from all the amazing infrastructure that they've been able to build over the last 80 years in international markets all around the world, from Latin America to the Middle East to Europe to Asia.”
Next Steps
As of Q3 2018, SBE's team was forecastng the company would be operating 25 hotels with 7,498 guestrooms by the end of the year (most in North America), 170 restaurants and entertainment venues, as well as new properties in the Middle East, Asia and Latin America.
Even Nazarian calls the company's pipeline “overwhelming,” with seven to eight hotels slated to open per year for the next five years “at least,” he said. “Accor is giving us a global business-development platform and a pipeline that's...unbelievably encouraging. I mean, next week alone I'm going to six Asian countries to sign six hotel deals—all because of AccorHotels.”
Beyond hotels, Nazarian expects to continue opening 50 to 65 restaurants per year and 15 to 20 lounges and bars per year. “It's a very, very healthy pipeline and growth trajectory," he said.
Style. Luxury. Service.
Nazarian observed “lifestyle” has become ubiquitous in all hospitality verticals as more hotel companies roll out brands using that buzzword. In looking to define it, he considers “lifestyle” to mean “experience,” which can vary from owner to owner. “If they want to create a limited-service hotel or very minimal [service], that's something that can be done. But in our world, we want to maximize every square inch of the hotel through an experience, and a lot of it has to do with bars and restaurants.”
And if “lifestyle” means “experience,” “luxury” means “access,” he added. “It means getting what you want when you want it—a sense of higher-quality product, a sense of refinement, which doesn't necessarily have the same definition as lifestyle.” Service and style are important elements of the luxury experience as well, he said, but the traditional definitions of luxury are changing as travelers demand authenticity more than white-glove service. “They want a little more personality in the brand. They want a little more courageousness in the design, but to still feel that they're getting the best. Those lines are blurring, and I think we're on the forefront, said Nazarian. In fact, he added, the brand name SLS stands for just those core values: Style, luxury and service.