Rani describes a disruptive approach in the hospitality industry, which includes efficient use of space, a community-driven environment, and integration of technology with a human touch.
Rani says the hospitality industry needs disruption. He describes CitizenM’s efficient use of space, a community-driven environment, and integration of technology with a human touch.
Welcome to Elevating Brick and Mortar. A podcast about how operations and facilities drive brand performance.
On today’s episode, we talk with Rani Gharbie, Managing Director of Investment & Development at CitizenM Hotels. CitizenM is a fully integrated owner-operator hotel brand, with over 30 hotels in 18 cities.
Guest Bio:
Rani currently oversees investment and development in the Americas at citizenM, an asset heavy owner-operator hotel group backed by GIC, APG and KRC. Before joining citizenM, he founded New York-based real estate investment firm Cedar Funds and held senior roles with major hotel groups globally such as Virgin Hotels, IHG, Hyatt and BD / Pod Hotels. Rani also teaches “Private Equity Hotel Development” at his Alma Mater, Columbia University’s real estate development Master program. He has lived on three continents and speaks three languages. He’s an avid traveler, runner, cyclist and swimmer.
Guest Quote:
We're able to build a really, really efficient product. An efficient product that delivers exceptional return per square foot. And that's why we stand behind the real estate of our brand.
Timestamps:
00:20 - About CitizenM
01:27 - Rani’s Role
06:39 - Developing a brand promise
10:44 - Building the ideal consumer relationship
23:01 - Keeping the loop closed
27:46 - What did COVID change?
37:08 - Future thinking
44:28 - Where to find Rani
Sponsor:
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ServiceChannel partners with more than 500 leading brands globally to provide visibility across operations, the flexibility to grow and adapt to consumer expectations, and accelerated performance from their asset fleet and service providers.
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[00:00:00] Welcome to elevating brick and mortar. A podcast about how operations and facilities drive brand performance. On today's episode, we talk with Rani Gharbie, managing director of investment and development at citizen M hotels. Rani describes how citizen M is disrupting the hotel industry by using space efficiently in a community focused environment. Now here's your host industry and FM technology thought leader and chief business development officer at service channel, Sid Shetty along with our guest, Rani Gharbie
[00:00:31] Sid: Hello everyone. Welcome to Elevating Brick and Mortar. Thank you for joining us. I am here today with Rani Gharbie, Managing Director Investment and Development at Citizen M Hotels. Rani, welcome.
[00:00:44] Rani: Hi, Sid. Thanks for, for having me.
[00:00:46] Sid: For folks in our audience, Rani, can you share with us a little bit more about Citizen M Hotels?
[00:00:51] Rani: So Citizen M is, atypical in, in, in the hotel landscape or hospitality landscape in that it's an owner operator, about 40 hotels, across the globe. Mostly operating and owning real estate in Europe and in the US we are backed by three partners, KRC, our founding member who created this, uh, this, this concept about 15 years ago. And we're also backed by a couple of institutional partners, uh, APG, which is a sovereign wealth fund or pension fund out of the Netherlands, the second largest in Europe, uh, Or maybe first, uh, in GIC, Singaporean Sovereign Wealth, uh, fund. The genesis of, of citizenM was around disrupting an aging, and lumbering industry. we brought into the industry some, some energy through a brand that positions itself as an affordable luxury brand. So brings an excellent product in primary locations in the top 10. Top MSAs around the world.
[00:01:37] Sid: Yeah, I want to talk more about Citizen M, but before we do that, I would love to talk about you, right? Let's start with what are you responsible for in your role today?
[00:01:46] Rani: I work with a fantastic team of, of designers, architects, investors, to deliver on the growth strategy of CitizenM and the Americas, uh, my, Direct team is in charge of growing that portfolio. And, and that usually happens in two folds. Either we we acquire land, we take it through pre-development, and we develop it we do that solo, or we sometimes bring local JV partners that are able to add value to that setting. Or we acquire real estate, be it office or hotel. Or anything that could work without a lot of abortive costs to convert into a Citizen M product. Have you always been, in the hotel industry? What attracted you to it?
[00:02:35] yes, I have always been in the hotel industry and looking back, I think it makes a lot of sense, uh, to get where I am now after 23 years in the industry. But looking forward, it was always chaotic, not chaotic, but it wasn't a linear process. As to how I got into the hotel industry.
[00:02:53] It wasn't a very rational decision initially. It was me being somebody that lived all over the world, speak several languages. Wanted to sort of bring into my professional world, an industry that can make me feel at home everywhere and hospitality seemed to be the right answer. A little that I know that working in hotels, there's a lot of sweat and tears, maybe not blood, but, uh, that goes through the process of working in an operating asset, be it standing at the front desk for 10 hours in a row, waiting, waiting tables, uh, and all of that.
[00:03:25] So I started my, my career. We're working, doing an elevator program, with Hyatt after graduating from a hotel school in Switzerland and, and that elevator program with Hyatt is basically gets you exposed to all aspects of, of a hotel asset, front desk, housekeeping, food and beverage, uh, accounting, sales, et cetera, revenue management.
[00:03:46] And graduating from that program, I, I realized I like numbers a lot more. And I pivoted my career towards that direction a few years into my career and worked with, with some of the large C corps like Hyatt, IHG, I led, uh, development for region, uh, across all brands. And then slowly my career morphed into, you know, going towards the real estate heavy investment side of things and, and branding. So the owner operator sort of model, I, I started a business called Cedar Funds here in New York. I got an opportunity to join, uh, Richard Branson who, owns Virgin Hotels and he had, uh, he had a mandate of growing Virgin Hotels, uh, in the U. S., and then I joined another good friend and mentor of mine, Richard Born and Ira Drukier, who are the largest owners of lifestyle hotels in New York, who also were keen to grow their portfolio of an owned and operated portfolio across the US to help them with that. And I continued that path and joined Citizen M too, to, to help them almost, you know, the plan, uh, was to double the portfolio within the next five to seven years.
[00:04:59] And in that journey, it also looks like at one point you were an adjunct professor at Columbia.Yeah, I've been teaching at Columbia for say eight years, maybe nine. it's been just fantastic. your day to day job requires you to always be up to date with everything and very reading a lot and making sure you're on top of real estate operation, investment trends and so forth and tech trends, but teaching a bunch of 25, 30 year old, super sharp individuals age of 25 to 45 years old puts you to scrutiny like nothing else. And I think, that teaching mandate has two folds for me. One, keeps me sharp. And B, keeps me up to date with what the new generation is looking to do in our world. You're always learning in these sessions, not just teaching.
[00:05:51] Sid: I love it. I love it. So let's talk about Citizen M. How do you decide which country or, or city, you can have go and pursue. And I'd also love to understand what is Citizen M's unique value proposition and brand promise to customers wherever you go.
[00:06:10] Rani: I think they're very interlinked, There's a couple of aspects to CitizenM that are key in, in terms of answering your question. I think one aspect is, uh, what was the genesis of, of, of that brand? Why was it created? What we realize is that in high density locations where you have scarcity of land, there was no affordable luxury product over the years.
[00:06:32] Which means that if somebody is traveling on business or leisure to central Paris, be it Champs Elysees or, or to Times Square, New York, uh, there, there is difficulty finding, uh, hotels that are reasonably priced yet have high standards of design. And curated design and responsive to the local community.
[00:06:53] and really sometimes, uh, disruption happened from lateral industry. So our founder, Rattan, worked in the fashion industry. so he brought that Fashion aspect, and design aspect, and art aspect, and attention to detail aspect into the conceptualization of our brand.
[00:07:11] Yet, surrounded himself by a lot of very intelligent people on the real estate investment side. And that's how the two things came to be. then comes your question as to how do we decide where to be in what cities? Then of course, so the genesis was to be in, in a place where you can offer very high end product at an affordable price.
[00:07:27] And the only way you can do that is scarce and high density, scarcity of land destinations, which is urban core for the top 20, 30 MSAs in the world, is by building smaller rooms, not small, but smaller than your traditional hotel company, and you'll be able then to, and then it's a win win situation for everybody.
[00:07:45] The consumer, the customer stays in a room that feels great, that, you know, you have enough of what you need, and on the other side, we're able to offer a reasonable pricing because we're able to put more rooms within the same envelope of a traditional hotel. And therefore, we're able to generate returns that are acceptable from a real estate investment perspective.
[00:08:05] Sid: Got
[00:08:06] Rani: so that's sort of the big picture. And then where to be in what city, we have a very elaborate strategy that we put together and refine every year. And there's probably hundreds of components that go into deciding what cities are the target cities for us in terms of status.
[00:08:22] Current status and future trends, population, business centers, travelers. Purchasing power, average rate, positioning, rate compression effectively. And that basically narrowed down our strategy. We called it the rollout strategy. So about, say, maybe 30 cities where we want to be.
[00:08:40] we're almost there. And we like the whole concept of hub and spoke. You build a hotel or acquire a hotel in a destination and you do a second and a third and a fourth and that sort of experience curve is critical because you have an operating experience curve that you could actually ride. You know, you operate in a hotel, it's much easier to operate a second, a third, a fourth. And also from a real estate investment and development perspective, it gets easier because real estate is a local game. Once you've broken the code once, it's an easier path moving forward. And in London, we have four hotels. In Paris, we have five. And in DC, we have three. Miami, we have three. New York, we have two. So that model works for us.
[00:09:20] Sid: Now, when you look at the type of consumer that you're trying to, have walk through your doors, is there a particular type of traveler that you are aiming to build a relationship with?
[00:09:32] Where does Citizen M fit in and how do you build that long term relationship where someone comes looking for a Citizen M when you're in that particular city,
[00:09:44] Rani: there's a lot of emphasis that has been put, uh, into how we operate hotels and our culture in general. And done so in a genuine way. That has very nicely translated in, in, in a high level of service that, that created a retention, created value of customers, repeat business, created some sort of a following. And a GRI that is pretty high. It's a customer satisfaction of about 90%. And to elaborate on that particular point, because it's kind of critical and different from the other players having been in the industry for a while, I think that stands out at CitizenM, is the fact that we really inverted the pyramid, and not in a gimmicky way. And what does that mean? It means that folks that are at a hotel level, delivering service, are actually on the front line, and deserve all the respect, all the attention, and all the glory. And not the corporate office folks. And so our corporate office is not called corporate office. It's called support office. So we're basically in support of where the actual work happens. And you feel that folks working at our hotels, they, they come through the corporate office and they feel at home.
[00:10:52] And the second thing. That is important is, uh, is the fact that we have an ambassador model of operation, at the hotel level. And that means that our employees, our colleagues, they're, they have versatile functions. They're able to be one day at the front desk, checking in folks or helping them check in because we have, automated, uh, Check in kiosks if guests choose to do so, but if not, you have that human touch that's there.
[00:11:19] But the following day, if they feel to be a little bit more introverted, as part of their shift discussion in the morning and the afternoon, they can decide to be in the kitchen or in other functions within the hotel. That created really a huge, um, retention, employee retention and, uh, employee satisfaction. All of these pieces and the people business like ours translates into happy customers because you're bringing the best of you to, to work and, means that we're really, uh, optimizing the operation and profitability of our assets, for our shareholders. So all of those things go hand in hand. And I think that's what Citizen M was able to break into that industry that is controlled by the larger players. And the other thing that to keep in mind is that the larger players, as you probably noticed over the decades, have big systems, big loyalty programs, but what they've been struggling with for years and having worked within those firms is creating disruptive products.
[00:12:18] What they end up doing is acquiring them. And so you need to be small and nimble. Smaller and nimbler to create disruptive products like this. So, Kimpton was created as an independent brand, then IHG bought it. Moxie was created by Ikea, and then was acquired by Marriott. So, you see that dynamic of disruption coming from the smaller players.
[00:12:43] Sid: Now that's very interesting for sure. You talked about how location is really important for you, the design, the construction is really important for you and a big part of your growth strategy is making sure that you find or build enough rooms where you can offer a great product and, optimizing more space in the given area, which makes you more profitable.
[00:13:05] I travel a lot and you could, you could sometimes have to be part of that, that kind of motion of going to the larger chains because of some of the fringe benefits, it can be underwhelming. Like you, you could have a big space, but, like, who cares? I don't really need space. What I need is convenience, a great place where I can, can work and, you know, find a good night's rest, access to food and, and ambiance, right? That, that matters, even for the little time you're in the hotel, it matters. And I was looking at Citizen M, your designs are bold and very interesting. how was that conceptualized? Is it towards the kind of brand promise that you have towards your customers?
[00:13:46] Rani: There's a big part of it that relates to programming. So we're able to build really, really efficient product and an efficient product that delivers exceptional return per square foot. And that's why we stand behind the real estate of our brand. Unlike most of the players in the industry, they are either franchise management and own, the real estate is owned by somebody else. Here we are sort of fully vertically integrated and and and then that means that We we were able to create a concept as disruptive but at the same time we're able to stand behind the real estate and make make decent amount of money with it and What that allowed us to do is to control that create that closed loop of feedback
[00:14:29] Sid: Hmm.
[00:14:30] Rani: That is critical.
[00:14:31] You're vertically integrated, if there's a problem with a piece of furniture, you're able to bring it back up and fix it at a portfolio level. And not only that, but bring it back up and amend the brand standards for future development. So you don't make that mistake again. Well, the hotel, traditional hotel world and the C Corps and the large chains over there, they're really smart and they can do that as well.
[00:14:50] It's just that their process is a little bit more lengthy and lumbering because they're dealing with hundreds, if not thousands of owners. Of a specific brand around the world. So the process is a little bit more complicated. So that allowed us to really hone on a beautiful design and, and create it and improve it.
[00:15:05] And that's sort of really clear distinction in our industry, right? The other aspect is really more of a numbers game and it's very important, equally important, and it's about programming the hotel to have as much as possible amount of rooms. So you can actually play in that arbitrage of renting it a little bit cheaper, but still making money, right?
[00:15:25] So, think about your traditional hotel out there. the Room is about, I'm just gonna round it up, around 300 square foot, right? And that room sells for about 400 a night. Come Citizen M. Let's say the room is at 150 square feet. So in one traditional hotel room, you're able to put two Citizen M rooms. Well, Citizen M sells a little bit cheaper than your traditional hotel out there. Let's say 300 a night.
[00:15:51] Sid: hmm.
[00:15:52] Rani: So you're able to generate within that same real estate of 300 square foot, about, 600 when a traditional hotel can generate 400, so you're generating almost 50 percent more on your top line. Now, you have to make sure that in your smaller room, our room is not 150 square foot, it's 165. But just for math, I was rounding it up. But you need to make sure when you're doing 160 square foot room, that you're really, really smart with the design.
[00:16:19] So that when guests come in, they're comfortable enough from a tech perspective, from a layout perspective, from a hygiene perspective, you know, your bathroom separate from the shower and all of that. And we really worked really hard on getting that sort of refined over the years.
[00:16:37] And at the same time, we created a lot of convivial spaces in the hotel where people can actually feel at home. And the whole thing about CitizenM is if you're sitting in the lobby We call it the heart of house of the, of the hotel. If you're sitting in CitizenM or or any of our other spaces, you would want to feel comfortable enough to put your legs up on the couch. And that's sort of what everything is all about. Our, we have a lot of art pieces that are, sourced from local artists. We put a lot of emphasis on that. With the Bowery Hotel in New York, we got the local artist to paint the entire staircase of the hotel from top to bottom of the building.
[00:17:16] And guests are invited to actually go through that journey if they want to work out a little bit. I was going downstairs, it's not that much of a workout, but yeah, 18 floors. But still, you know, there's a story there about the Bowery area and neighborhood and the history of New York. And that's basically an exceptional thing.
[00:17:33] So striking the balance between being community friendly. Employee friendly as well as real estate, astute hotel owner, investor is what gets us to stand out.
[00:17:43] Sid: I love it. Now your website specifically calls out ESG and ethics as being very important to your company, one of your core tenets. I mean, I quote, it says, we're not just a pretty facade, we have a Good heart too. Citizen M always wants to do right by our guests, employees, business partners, and the communities who host us.
[00:18:03] Tell us more about this. Like why is this important to you and your company and how does it help guide how you operate?
[00:18:11] Rani: There's also several aspects about that. There's about everything that revolves around sustainability from a construction perspective that is super critical for us as well as our shareholders. But there's also being a community player, whatever we establish ourselves is also very critical for us.
[00:18:27] there's a significant trend in the hotel industry or some of, some in the larger cities where some of the travels are actually seeking or perceive hotels as catalysts to, to a neighborhood, to a culture. And we love that and we embrace that. So a lot of our folks that, that actually come to stay with us.
Interact a lot with our ambassadors to learn about, you know, some, some of the cool things to visit and see in the neighborhoods. And that for us is invaluable, right? So that's, that, that content is, is critical. When we establish a hotel in a particular location.
[00:18:43] we're not dropping a pin on a map, we're actually getting the neighborhood to be part of the fabric of that property. Because I think that's, that makes a lot of sense for, for being a genuine, uh, hospitality product. Um, and the Bowery example I just gave you is just an aspect, uh, one aspect of, of, uh, of how we did it for, And New York City, Lower East Side.
[00:19:08] But you know, there's multitude of examples like this, uh, within our organization that the entire branding team is extremely proud about. it comes at a cost, a significant cost. So, um, it's not, uh, it's not just a marketing gimmick. From a general ESG perspective, we're, uh, we've been, uh, I think rated as five star on the global real estate sustainability benchmark for four years in a row.
[00:19:38] And that five star rating is, is awarded to about only 20 percent of, of the entire real estate, uh, uh, assets that entered that. so that tells you a little bit about, uh, our drive to be, uh, to be there and sustainably.
[00:19:53] So, uh, since we have four repeat years, and that also, uh, stems, stems from our, uh, shareholders, uh, who are very, very keen on investing in sustainable real estate, uh, and sustainable brands.
[00:20:09] Sid: That's great. Now, Rani, a lot of the folks that listen to our show are from design, construction, architecture, facilities. ESG basically. Right. And, you know, I'm curious, you are pretty mu much like the, the growth arm of the business. How do you interact with the teams that are supporting, you know, what you do and how well you do it? And how do you ensure that they're part of the conversation? 'Cause I'm sure a lot of the folks in our audience are, are thinking, how do they make sure that engaging with the right teams to ensure that when we talk about the brand promise and how you deliver it to your customer, a big part of it is the physical space.
[00:20:53] Um, but sometimes you can build and then you move on and you forget, right? And that tends to happen in many industries. How do you stay in touch with those teams to ensure that you're not just looking at, you know, future properties, but what you're delivering to your customers every single day is up to par.
[00:21:11] Rani: Yeah, that's a really, really good question. I think that makes me think of that closed loop that we have that is pretty critical. So, just being vertically integrated is key and being very close to the operating teams.
[00:21:24] So we can do future deals much better. I mentioned a little bit earlier on when you asked me about what my job is within the firm, I said, work with a, with a terrific, uh, broader team. And I really meant it because I don't see the investment and development function being in any way dissociated from all these other disciplines.
[00:21:44] It's not, it's not a solo job and investors are known to be, investors within, uh, firms are known to be, uh, loners. They, they go and hunt for deals and come back with an idea and sort of impose it and, and try to convince everybody. I, I don't really look at it that way. I think, I think it's a collab, it's a deeply collaborative exercise to, uh, to, uh, to, uh, get everybody's perspective.
[00:22:08] We have a lot of intelligent people within the firm and within our consulting environment, and we, uh, we tried to leverage that as much as possible, which, if you give you an example, um, we were looking at converting a hotel. And we needed to understand if it makes economic sense to convert it, right? And, and that exercise, you know, I know how much I would need to spend on converting the hotel, uh, in order to be competitive, right?
[00:22:34] Because it's an open market deal and it's, there's bits coming. But I don't have the answer as to can we deliver on that, that conversion cost. And there's a lot of people within our firm as well as our consulting world that has a much broader perspective on what's happening elsewhere. Not just Citizen M, what's happening elsewhere? How can we be more value engineered? How can we actually get to that reasonable value engineered conversion, value engineered conversion cost, so we can, uh, so we can make that deal work? And, man, the number of people that were involved in that process is huge. And it's iterative, and, you know, and the first time and second time, it takes more time, and then it becomes more and more efficient, and hopefully tech can take place.
[00:23:16] Take part of, uh, the future and add to the future efficiency to processes like this. Uh, But I think, yeah, everybody's input is critical. Construction folks on our team here are top class, and design folks on our team are top class, and brand folks on our team are top class, and each and every one of them contributes to the investment thesis that we bring to the table.
[00:23:43] And guess what? Sometimes we don't like what we hear from them. And sometimes we have to walk away from the deals and that's, and that's fine. I'd rather do that if it makes sense, so long as it's an educated decision rather than, uh, making an, an uneducated, uh, abrupt decision. And then, you know, how complex the real estate is.
[00:24:05] Hotel development and investment world is and figure out that you're not on time and on budget and you have a lot of curveballs down the line that you didn't anticipate or blind spots. I'd rather we do a little bit more homework initially, leverage everybody's expertise, then, uh, then go in a hasty way towards, uh, uh, just getting deals across the line and putting flags on maps.
[00:24:26] Sid: Is your growth driven primarily by acquisition or you do a combination, some, some ground up builds as well?
[00:24:32] Rani: So over the years we've done both.
[00:24:33] Sid: Okay,
[00:24:35] Rani: But given that we have a very, very particular efficient program, you have tendency to, to do ground up development more so than conversion. It's, it's quite often cost prohibitive to convert, uh, another hotel to, to our, our program or an office building to our program simply because quite often you need to play within specific, Floor plates or floor plans, uh, the floor plans can be too deep or too square.
[00:25:05] And you need to make sure that the buildings are not too big because you don't want to sit on them. On, on much larger than 300 room, which is our sweet spot for citizen m.
[00:25:14] So, so there's a lot of things that got held us back from converting, uh, a lot of assets. Uh, but we've done, we've done both.
[00:25:21] we have, uh, citizen M in Rome, we have, uh, citizen M in Copenhagen. There were conversions, uh, here in the us. I don't think we've done a conversion just yet, but we're actively looking right now.
[00:25:32] Sid: Gotcha. Love So, Rani, let's talk about just the last five years, right? It's been an interesting five years, to say the least, and especially post COVID. Being on the inside, you've seen how hotels operated was, was very different five years ago and then how things are today post COVID.
[00:25:50] Tell us a little bit more about that. You know, where are we at this point? Revenge travel, corporate travel is back. Is it really back?
[00:25:57] Rani: Yeah, we've, we went through the, the revenge travel, uh, patch. We're out of that now. So if you look at all the broad economic, uh, data about the industry, uh, it's, it's, it's clear that, you know, the rooms sold, particularly in the US, which is sort of my, my home turf, uh, is still below 2019.
[00:26:20] So the demand has not gotten there yet. And there's several factors. I mean, if you, if you think about splitting the demand, uh, for hotels into, into a few categories, leisure, transient business, as well as groups, uh, you think, and, and you then, and then you split that between luxury and, and econ, uh, economy class or economical hotels.
[00:26:44] You'd realize that the luxury have, have, uh, have been able to bounce back much, much faster than, than the rest, simply because, uh, there, there's folks that stay at luxury hotels have more disposable income and, and less affected, are less affected by, by inflation. Uh, what we're seeing is that the economy class is struggling a little bit more, uh, and that's because, uh, folks, uh, that have a more constrained budget for travel are, um, less affected.
[00:27:11] Prioritizing, uh, paying rent and, uh, and prioritizing paying, uh, car insurance than, uh, than, than, than, than travel or spending on, on, on hotels. And then goes, and then you go into those three categories that I mentioned earlier. You have leisure, which somewhat recovered over the years, but corporate has not.
[00:27:32] Work from home, uh, is, seems to be a paradigm shift. Uh, there's a lot of. Uh, demand for it to come back, uh, from, from companies, uh, uh, and we're not here debating whether it makes sense or not, but just the fact that, that, that corporate demand is not back to the extent that it was, uh, creates a little bit of a lower travel dynamic from that segment.
[00:27:57] The one that's popping up though on the positive side is groups. We're seeing groups travel more. Or take, take group meetings, take place more in hotels simply because companies are trying to compensate for the work from home. So they're getting people together, right. Uh, to create culture and, and, you know, and just, you know, we're humans at the end of the day.
[00:28:16] So trying to get those touch points as much as possible between folks. So, so the demand has not recovered yet to the extent but. On the brighter side, supply hasn't grown either, so interest rates were extremely high for a few years, and therefore your pipeline is one of the lowest in the US.
[00:28:40] So that tells you that there will be an equilibrium somehow, at some point in time over the next year or two between supply and demand dynamics. And, um, And yeah, so, uh, there'll be a recovery. It's just a patchy a little bit now.
[00:28:59] Sid: Got it. What is the standard, you know, target occupancy rate for, in the hotel business? What do hotels kind of aim for?
[00:29:07] Rani: at a global level, I think at the US level, I don't know, I think occupancy around 65, 70%, right? But, but New York City runs in the high 90s. So that gives you a little bit of a, a, a, a sense of, of, of magnitude. Um, the way we look at things is that it's not dissimilar from the rest of the industry, is that we select a competitive set for each location. And we get that competitive set of four or five hotels to be as close to our product as possible.
[00:29:36] And based on the number of keys, based on the amenities and the ancillary facilities like restaurants, meeting space and so forth, we decide to index those competitive properties and give them an index of competitivity. And then we establish a target penetration index. For occupancy and average rate. So we say, hey, listen, these five hotels in our neighborhood we compete against because they have either similar room product or, or maybe similar key count or similar lifestyle aspect to, to, uh, our brand positioning.
[00:30:12] And therefore, uh, we think we could compete, uh, against these hotels at, uh, 100%. Uh, REVPAR, Occupancy and Average Rate, BLEN, right? And if we can, that would be sort of our guiding principle over, over the next year, two, three. And as the industry evolves, if there's new hotels that are built in that, in that neighborhood that we think are more appropriate to compete against, uh, then we, we trade some hotels out and bring some others into our, our competitive set.
[00:30:42] So that's how we, we operate. And, and if you look at our portfolio, we have been really good at taking our fair share in the market. Sometimes, because our similar product to ours is not there, like I said earlier, there's maybe in our comp set in markets where there's no hotels, like affordable luxury hotels, sometimes our comp set composition is of hotels that are slightly higher positioning.
[00:31:09] Such as, you know, what I mentioned earlier, if you're competing against a 300 square foot room, And your room is 150, then that hotel is going to drive a higher rate. So, so in that situation, we might penetrate that comp set a little bit less than a hundred percent. We're fine with that. We're fine to be at 90, 95, so long as we continue having the highest return per square foot on the real estate and deliver without jeopardizing the concept and the brand and the culture that we talked about.
[00:31:43] Sid: Is there, has there been a change in consumer expectations? and maybe there's nuance here, right? Like the business traveler versus the leisure traveler, but what's your general sense overall?
[00:31:54] Rani: Well, I mean, COVID has been an absolute accelerator of the inevitable, which is, you know, tech, right? And, uh, and, uh, now, now if you ask me, uh, at a personal level, I think the pendulum swung, swung too far. Uh, and, uh, in some hotels or chains, uh, there was, uh, in order to create, you know, Contactless check in and so forth, the entire sense of arrival was deprived of humanity. And I think that's, that's when we, that's when the pendulum goes too far. And I think, uh, now there is, uh, or overcorrection, whatever you want to call it. Now I think it's, it's coming back to a more normalized state. So from our perspective, we have just, just to one example, we have contactless check in. So, uh, which became, you know, a big thing during COVID, but for us, you know, we have We are almost at the arrival of our hotel area, and folks can check themselves in, and it shouldn't take more than 10 seconds, that's the whole thing.
[00:32:57] But we also have ambassadors standing there and giving you eye contact and asking if you need help, and if you really don't need help, you basically sort yourself out and you're directed to the elevator and you get to your room, and you do it. Take care of your business. And if you need help, well, guess what?
[00:33:13] You have very well informed individuals that are there ready, ready to help you. So I think COVID has created an acceleration, but we shouldn't just start falling into the, the environment where, you know, this is not a hotel, right? It's not, it's, it's not just a physical space. It's, there's, there's a human piece to it.
[00:33:35] There's a big dimension of delivering on your promise to travelers.
[00:33:40] Sid: Yeah, because ultimately it's a hospitality business, right? I mean, I use, you know, digital checking a lot. But even when I get to the hotel, though, I still want to talk to someone just to make sure if the room I've been assigned is the right room and that, you know, I have some idiosyncrasies about, you know, where it should be, and high floor, and all those things.
[00:33:59] You still want to talk to someone just to kind of get a thumbs up You know, kind of get a warm smile and then you feel, okay, good, right? It probably accelerates your check in, but I don't know if, if you, you know, folks want to be completely devoid of any human interaction, especially in, in this business, right?
[00:34:19] Rani: I completely agree with you. I've been in this industry for a long time, and I think it's, uh, one thing is consistent through the years is that it's a people business, and also traveling is somewhat, uh, I don't know if it's the right word, but somewhat a traumatic exercise.
[00:34:37] You're not traumatic, but you know, it's like there, there, there is an unknown associated with it. And when you land into somebody's house or somebody's building or somebody's hotel, you're expecting to be hosted by a host. Um, Now, tech is a huge dimension that I'm a fervent believer on and it can be applied in various facets of the hotel operation, investment, and all of that. But let's not forget about the basics, which is human interaction.
[00:35:09] Sid: That's right. Now, Rani, there's a lot of, Interesting technologies finding their way into the built environment, right? From, you know, robots to drones to, um, you know, new digital experiences, you know, kiosks being one of them, right? But, you know, it kind of goes way beyond that. Um, What are your thoughts on that, being someone who's been in this space for so long?
[00:35:33] Um, and, you know, I'd love to hear, is that something that you're testing within your hotels? Like how, how far do you think this is gonna go?
[00:35:43] Rani: I'm not on the tech side of things, but I, uh, I, uh, I share my life with somebody that is deep in tech. And, I see what's happening elsewhere and I think our industry is lagging. And, and it's always been. It's natural. And not just our industry in the hospitality industry, real estate in general.
[00:36:00] It's always sort of lagging behind, uh, other, uh, other industries. Sectors when it comes to incorporating technology. But, but it's just a matter of time, right? And, uh, you know, the human aspect aside and the no compromise on quality aside, uh, there are a lot of inefficiencies in our line of business. Some of it is on the operation side and that would need to be, you know, improved, uh, and tech can, can add a lot to that.
[00:36:32] Some of it is on the asset management side. Being able to monitor our, uh, better and predict better, uh, our CapEx expenditure, our benchmarking to, to competitors. Uh, and there's, there's the investment side. And, and, you know, the process of vetting a deal can take day two, three, and involve so many people when a lot of it can actually be, uh, uh, automated.
[00:36:58] Tradecoms are tradecoms, and competitive sets that we talked about are competitive sets, and all of this information is there, and there could be a lot of, you know, probably errors in the process, and human supervision is needed, but you should be getting to a point to speed up that few day exercise, or shorten that few day exercise to a few minutes, and with monitoring, maybe a few hours of human intervention, but we're behind so far.
[00:37:28] We're getting there. There's a lot of tech startups that I'm meeting with that are trying to disrupt that space. One piece of technology that we use, and it's not really, uh, it's not yet on the far front of AI, but I could see how it could develop is monitoring our construction sites. So, because we have deals all over the world and our team can't be on a plane all the time, we have the ability of monitoring our sites and seeing if it's lagging.
[00:37:55] If they are lagging in construction time. Based on what, uh, what we have, uh, agreed to in the development process with our GCs and, and, and subs and, uh, and, uh, and red flags come up. And it's like, well, you know, we're not, we're not where we're supposed to be in, uh, in DC or in, uh, in, uh, in Boston or in, uh, in London.
[00:38:16] And, uh, and that sort of helps you be on top of, of, uh, so tech, classic example of tech helping you be, uh, on top of your projects, uh, at, at a reasonable cost and most efficient way. And making sure that you stay on, on, on, on budget and on time, which is critical for the investment, uh, thesis of, of each project.
[00:38:36] Sid: Love it. So Rani, as you look into the future, if you can ever to put a bet on what does the consumer of tomorrow look like and what are the expectations going to be and how will that change the hotel and hospitality business? What would your thoughts be?
[00:38:53] Rani: I feel we're going towards a world where consumers would be more accepting of, of technology taking over mundane tasks. But consumers would want to always have the choice to double click and get to a human in a very efficient way. And I think that's, that's sort of, we're scratching the surface now.
[00:39:20] There's a lot of debates, but I could see this becoming a norm where, hey, if I need to, To get to my room immediately, I should be able to get to my room immediately, but if I have a question then it's my choice to double click and get to somebody to support me. Same goes with your, uh, food delivery.
[00:39:37] There's a lot of hotels in the U. S. that don't have room service, for instance, and if you, you want to be able to, uh, order a specific meal that you've been craving by email, Going to, to LA or to San Francisco, then, then you have to have that extremely facilitated. Uh, and, but if you have a need to, uh, use the, the local community you're in or the local hotel you're in to, to, to get access to a great menu and great advice on restaurants, you should be able to, to, to do that.
[00:40:10] Love it. Is there a North Star in terms of where you want to be with Citizen M Hotels? The growth trajectories is really, uh, ramping up right now. So we just scratched the surface. So if you think about the past 15 years was really incubating that concept and standing behind the real estate. And the next 15, 20 years is to leverage all of that to continue growing. The portfolio could double, could triple in the next 10 years.
[00:40:37] we have all the right ingredients to, uh, to deliver on that. And, uh, and so, uh, our target markets, as I said before, they're these 30 cities around, uh, the world, but we have also wave two. So we probably, as soon as we feel that we we've saturated wave one, uh, we, we opened the door to wave two and, you know, secondary destinations or secondary cities where we would, uh, we would bring that product, uh, to market.
[00:41:06] Sid: There you go. And for folks in our audience, you know, who are in the built environment functions,
[00:41:11] Rani: Yeah.
[00:41:12] Sid: What advice would you give them in terms of, you know, if they're starting out in their career or if they want to make a bigger impact in the organizations that they're in, how should they talk about what they do?
[00:41:24] How should they, um, elevate the conversations that they're having with execs within their business?
[00:41:30] Rani: One super, uh, basic perhaps, but, uh, super important not to lose focus off is making sure that whoever comes into that partnership, be it your consultants, contractors, clients, that there's alignment of interest. I think there's, it's, it's so understated that alignment of interest can actually get everybody working together. In the same direction was the least amount of friction and
[00:41:54] Sid: Hmm.
[00:41:55] Rani: So build, build contracts, build partnerships where, uh, where it's not, it's not just transactional where, where you're, you're able to make sure that everybody gets, gets compensated for success. Creates longevity and repeat business with the same people that you're partnering with.
[00:42:11] You could have a second and a third and a fourth mandate. I think that's critical. Um, the other thing that comes to mind is, let's not forget how important it is to have a closed loop of feedback, in any aspect.it can be at any possible level. You have the ability to From, uh, learn from failures, learn from, uh, issues that you faced, uh, in, in a certain delivery, but make sure you don't just put it, put it in a drawer and, and, and close that drawer, but make sure that you leverage that to, to fix your foundations again so you can continue growing and have better partnerships, better product, better deals moving forward.
[00:42:49] Yeah.
[00:42:50] Sid: I love it. Well, with that, Rani, I just want to say a huge thank you. I thoroughly enjoyed our conversation.
[00:42:56] For folks in our audience who might want to reach out to you, um, how can they find you and how can they contact you?
[00:43:02] Rani: Oh, so anybody that listens to your podcast, they are more than welcome to reach out. Uh, they can ping me on LinkedIn and I'm, uh, quite often very, very quick at responding. So, uh, please don't hesitate and, uh, yeah, wishing you all the best. Thanks, Sid. I really, uh, enjoyed our, our interaction. You made it much easier than I thought.
[00:43:22] Sid: No, I appreciate that. Well, thank you again, Rani. Uh, it was fantastic to have you on as a guest. And to all those in our audience, thank you so much for joining us and we'll see you on the next episode of Elevating Brick and Mortar.
[00:43:35] Sid: Well, that was Rani Gharbie, Managing Director, Investment Development at Citizen M Hotels. I really enjoyed our conversation, and I hope you did too. It was really interesting to learn more about the inner workings of a hotel chain that is growing really fast, but is nimble enough to have a closed feedback loop with their hotel, their staff, or ambassadors as they call them, as well as their customers.
[00:44:03] It's very clear that a big part of their growth is driven by the built environment. They offer great spaces and luxury at affordable prices, while being responsible to the communities that welcome them. Rani talks about how it takes a whole team working together to make this vision a reality. It was also great to hear how Rani thinks about the future, that technology will most definitely play a bigger role, but finding the right balance will be key.
[00:44:34] After all, this is ultimately a people business. With that, I'm your host Sidd Shetty, and I'll see you on the next episode of Elevating Brick and Mortar.