It has been a busy past few months for Auberge Resorts. Last November the Mill Valley, California-based developer and operator acquired Calistoga Ranch in California’s Napa Valley with AJ Capital Partners, Chicago, for a price reported to be in excess of US$1 million per room. Less than a month later, Auberge announced an undisclosed investment from private equity firm Friedkin Capital Partners, owned and operated by Houston businessman Dan Friedkin, who now serves as Auberge’s chairman of the board. About a week after that, long-time Four Seasons executive Craig Reid joined Auberge as president and CEO.
HOTELS recently spoke with both Reid and Mark Harmon, who founded Auberge and who now serves as the company’s managing partner, about Auberge’s aggressive expansion plans and how those might be affected by market conditions.
HOTELS: Craig, why did you choose to join Auberge, and what do you hope to bring to the company?
Craig Reid: I’ve been telling people this is my second job after college; my first one lasted 30 years. When I met the Four Seasons people, I felt a strong personal connection, and I rode the journey of the company’s growth. My last job was overseeing almost half the portfolio, close to 20,000 employees and US$2 billion in annual revenues. As much as I enjoyed the journey, there has always been a side of me that wanted a greater sense of authorship and involvement in something entrepreneurial.
I thought the essence of joining [Auberge] would have to be centered around chemistry. I flew to San Francisco, met Mark, and I felt I could bring a very complementary skill set. I have great admiration for what he had built — the cachet, the vibrancy, the styling of the product. I, in turn, have great industry contacts. I have seen a company grow. I know the type of infrastructure required for growth. I’m from Latin America originally, so I’m familiar with that part of the world. I’m a Spanish speaker. I spent my formative years in Europe. I’ve worked in France, Switzerland and England. Those are the areas we want to expand to geographically. And it felt right.
HOTELS: What directive were you given for Auberge initially?
Reid: One of the imperatives is to develop an urban model. Here on the West Coast we have a great collection of resorts. If you have a great collection of resorts, that means you have people from cities coming to visit the resorts and you’re developing loyalty. It’s just a great opportunity to develop an urban product that’s different from the existing offering that’s out there right now.
The idea is in the short term to more than double the company (taking it from nine to 20 properties) within five years, then continue the growth.
In terms of positioning, we want to take it from what is primarily a regional brand with a national reputation to first a national brand and then secondly a global brand.
Our priority is to expand to the East Coast and to Hawaii as soon as we can, and then from there venture south into Latin America, and South America. We’ve got one property coming up in the Caribbean (Malliouhana Hotel & Spa in Anguilla), and we see more than one opportunity there. Our primary investor Dan Friedkin has a portfolio of camps in Africa; we’re looking at the feasibility of folding at least a couple into the portfolio. And if you’re in Africa, you also want a northern European presence.
HOTELS: Mark, talk about your new role as managing partner.
Mark Harmon: My role has been transformed, which is fantastic. Craig running the company allows me to do the things I love doing and that match my skill set, which is finding and conceiving and developing properties that will be the portfolio for Auberge Resorts. That, to me, is a process that is very intensive. It’s handcrafting an exceptional guest experience. Our approach is a little different than most companies in that we don’t take a standard formula. We really take exceptional places and handcraft an experience there for guests that engages and delights them. With Craig running the company now, it frees me up to focus on that as well as stay involved setting the vision and tone for the company.
HOTELS: What did the investment from Friedkin Capital Partners mean to Auberge?
Harmon: Had I been able to sit down and imagine what the best possible partnership would be, I don’t think I could have hit all the characteristics I have in this partnership with Dan [Friedkin]. He is a fantastic guy who has the resources to achieve our vision. He has the level of taste and commitment to quality that is essential to do what we do, and he’s just a lovely guy. Dan’s reach is quite extensive in the world. He’s got some wonderful connections and beautiful properties in Africa, and it was such a quantum leap forward for us in a partnership.
Reid: It gets us liquidity at the local level so we can supplement the resources we have locally, but he also has a bit of a war chest to assist us with acquisition and/or joint deals. It gives us more agility locally and more punch externally from a growth standpoint.
If you study other small brands that have done very well, at a juncture in their growth they developed the product, they started developing a collection and then they had a key strategic partner that gave them the backbone financially to allow them to focus on the art and not have to worry about the short-term financial preoccupations.
HOTELS: The past few months have been an active time for Auberge, with the Reid and Friedkin announcements and the purchase of Calistoga Ranch. What about the current investment environment or other factors made this a good time for the company to make moves like these?
Reid: Luxury right after the downturn had a tougher time, but if you look at the metrics of luxury performance over the last two years, it has outperformed the rest of the industry. There has been a lack of supply entering the market, so as financing becomes available again there is a lot of activity. That activity is still concentrated in certain key markets, but I sense that Mark and Dan’s timing is centered on trying to capture some of that opportunity. This is a cyclical business, so it will slow down again, and our plans are to organize ourselves to harvest this cycle, be prepared for the next downturn and really be super-ready for the next uptick beyond that.
HOTELS: As you look to expand your portfolio, is your focus on ownership or just management?
Harmon: Within our existing portfolio, there are three properties that we own or are owners in: Calistoga Ranch, Auberge du Soleil (in Napa Valley, California) and Esperanza (in Cabo San Lucas, Mexico). The other properties are managed. We intend to go forward with a balance between properties we own and properties we manage.
There will probably be more management opportunities than opportunities to own. We will be patient and find the right opportunities. These things tend to go in cycles, so there may be an opportunity to buy several properties in any one year and then the next several years you’re harvesting management opportunities. We wear an owner’s hat in any property we look at so there is true alignment with the owners. Alignment of interests is critical to the success of those properties.
Reid: If we could get a property, for example, in Hawaii today, we’d be thrilled. Separately, it would be great to be in Boston or New York, Miami and Washington, D.C., in the short term.
As much as we have a healthy, timed goal, we don’t ever want to feel rushed in our decision-making, and we don’t want to compromise the brand. The last thing we want to do is sign something that won’t be complementary.
HOTELS: How might your expansion goals affect your brand identity? As you get larger and enter new markets, how do you expect the Auberge brand to change?
Reid: It has to adapt more than evolve. Your offering in each location has to be distinctly different. So when we’re in Anguilla we need to embrace the Caribbean spirit.
When you think about a brand, you have to have a distilled sense of the ingredients that build up the brand — which of those are transportable and which are not. Beyond that you have to have a talented team that can execute, often with a certain amount of independence, at the various locations. We feel confident about our ability to hire best-in-class talent. Mark has developed a sensational culture. We feel we can offer a very attractive workplace. We feel based on our growth we’ll be able to offer better than most career opportunities. In terms of culture, you’re hiring people with the right profile; you’re not necessarily teaching those things. You’re trying to get them to understand your approach stylistically.
HOTELS: What are your thoughts about the current hotel investment environment in a broad sense, and how does that impact your expectations for Auberge?
Reid: If you look at the aggregated numbers for the industry, especially at the top end, you’re going to see a lot of activity this year — I would expect 50% or more than the prior year.
We want to differentiate ourselves from the mass activity. Mark developed the soul of the company, so his continued involvement to protect and nurture the soul is fundamental. Dan Friedkin has a lot of business interests, but he was attracted to Auberge and the portfolio based on its character. His directive to us was to not only protect the soul but also nurture the soul. I believe that will be our point of difference, and that’s why we’ll be able to grow in our niche better and faster than most.