How We Balance Rapid Growth With Innovation - Eli Sokol, citizenM Hotels

Josiah intro: citizenM Hotels has grown rapidly from its origins in Europe to its global presence today, and they're just getting started. How do you maintain momentum while staying innovative? To get the answer to that question, I sat down with Eli Sokol, citizenM's Vice President of Development and Investment. We talked about everything from their unusual asset-heavy approach to working with companies like Meta, formerly known as Facebook, to build a hotel on their campus, to technology, to urbanism, and the role of hospitality in all of it. Stick around because I think you'll enjoy this conversation as much as I did.

Josiah: Let's talk a little bit about citizenM Hotels. It's a really unique model. It's a really unique business. I am sure many of our listeners have either stayed at and enjoyed one of your properties or they know about it. I feel like you have a good level of brand awareness because it's so different. Everybody talks about being different in the industry. citizenM really is different. I think there have been many stories talked about that from a guest experience perspective, but I was really excited to talk with you about it from a development perspective. And one of the unique things, before we started recording, is we were talking about the unique business model of citizenM, where it feels like many companies are going asset-light. You were telling me that citizenM is a whole different business model.

Eli: That's right. And it's always been that way. So just to take a step back for a moment, the company was founded in 2007. So in the hotel world, we're still quite young. We have 32 operating properties today around the world. Actually originally started in the Netherlands. So that's still where our company is based. Although at this point, our portfolio has grown quite a bit in the US and represents about 50% of the business. So from the get-go, as this brand was conceived, it was always thought to be asset-heavy, meaning that we have some level of ownership in every asset that we operate. There there's pros and cons to that business strategy. The pros are that you really have total or maximum control over the product and the brand the strategy of growth, and quality control. And of course, when you're an owner, the upside from a cashflow standpoint is of course, much more significant than if you're strictly a manager, there are potential challenges to being an owner. Of course, performance weighs more heavily when you're, you know, paying the debt and all that. It is a more capital-intensive business. And so therefore a speed to grow and an ability to secure new deals is dependent on opportunities that are investment opportunities, not just management opportunities.

Josiah: So it could be harder, but it also creates these opportunities, as you mentioned. This is not a brand-new thesis, though. citizenM has been at this for a while. I wonder if I first became acquainted with the brand maybe 10, or 12 years ago, and the growth has been pretty incredible. Let's walk us through over the last decade, how has citizenM grown?

Eli: Yeah. So for an American audience, the brand first came to the States in 2013 with our hotel in Times Square. A random twist of fate. I was an architect at the time and our firm worked on that project So I first heard of the brands back then touring that building when I was under construction So was really taken with the model which I? I think at the time it was quite novel for the States to have these 180 square foot rooms that are, you know, much smaller than conventional standards of what American travelers used to, but, you know, really, really amazing design, really high-end fit and finish, really spacious and unique common areas. So started in New York and have scaled now to, I believe, 14 or 15 operating properties in the US, with quite a handful under development. Our growth strategy in the US has been similar to Europe, where we're really focused on major U.S. markets. So gateway global markets have international travel, domestic travel, and the most diverse mix of demand drivers. But I think as far as a guest is concerned, these are the places that are typically really expensive when you travel, both airfare, hotels, and food. And so our whole value proposition is being an affordable luxury alternative where you can stay in these amazing places. Maybe you're not going to spend the whole time in New York or San Francisco in a hotel room, but it's an amazing place to drop your bags for a reasonable price. It's comfortable. You know exactly what you're going to get, and it's unique. And so by now, you know, we've started to really, I'd say make a dent in the U S market and are building our brand awareness. And that's been exciting to see.

Josiah: It's great. It's funny, I was smiling as you were talking about creating the New York Hotel and that property, I watched that construction, watched the property open up and I can't tell you how many meetings I had there because what's interesting is if you're a guest there, you talked about the rooms aren't large but there's a really big living room and it's so comfortable, so comfortable that I had so many meetings where I'd go and buy coffee. And we'd sit there, we would enjoy the environment. It's filled with art, and it's a really central, but fun place to hang out in New York. I wonder if we could talk a little bit about the business model you talked about being more asset-heavy, and how that's different. My understanding is you also focus a lot on joint ventures, where many of your assets, and many of the projects are joint ventures with outside partners. For people who are unfamiliar with kind of this joint venture notion, how would you explain, how would you define it?

Eli: Sure. I'll start off by saying that across our growth, we've pursued a variety of deal structures. We've developed quite a bit ourselves, but we've found, I think, the most success when we work with either local or national partners. These are folks who are experienced on the development side, who have capital to invest in these projects alongside us, and who are, frankly, more local in the markets that we care about than we may ever be as a small global team. Anyone who works in real estate knows it's a locals game at the end of the day. We have a corporate office in the Netherlands. We have a US office in New York and Seattle. And my job covering seven or eight markets, I can do a reasonably good job keeping my ear to the ground, but it's basically impossible for anyone to be a true expert in every single market and every neighborhood and knowing, you know, what are the entitlement challenges? What, what is the competitive landscape really look like? What's in development? What growth is there to look forward to? So bring in joint venture partners. These are folks who have a really unique understanding of the markets where we want to succeed in often. have access to the best deals because typically, the best deals are not marketed, but are brought to you by people who have the best relationships in these markets. So there's a lot of value in having a partner. In our view, they help de-risk the execution of a development, helping us reduce our capital requirement for every deal, allows us to do more deals and help us find the very best opportunities.

Josiah: I want to talk about a number of your projects, but I wonder if we could talk about one here in the area. We're recording in San Francisco, not far from here in Menlo Park. There is a project that you and your team have been working on for some time. My understanding, it's a ground lease deal with Meta, formerly known as Facebook. And it was a bit of a novel concept. I wonder if you could share a little bit about how that project came to be and explain the thesis that's a little bit kind of new and different on this one.

Eli: Sure, yeah, it's a really exciting project. We're nearly done with our construction there, so we'll be doing our soft opening in a short while and very excited about that. It's a first in a few ways for our brand being an on-campus hotel. So the hotel is literally on the Meta headquarters campus in Menlo Park. It's the first time we've done that as a business. And in addition to that, it's, it's, you know, a more suburban location by definition than where we typically have gone before. We see a lot of potential there. Number one, Meta is a great partner. They, they're a global company. They're also, of course, in the technology industry, and we think of ourselves as very tech-forward. So partnering with a group like that helps us really be at the forefront of serving the tech community. These are folks that travel a lot, and have offices around the world. Having a hotel on their campus really builds our brand awareness with a very important audience. We also, you know, believe that we can be successful in any market where there's a need for a differentiated affordable product. I think Menlo Park really checks that box. People who travel there for meetings with these companies, don't have a lot of great choices to stay. And so we think we can make a meaningful difference there just like we are, you know, in downtowns around the world.

Josiah: I'm really excited about that opening up. I have family in Menlo Park. My uncles have lived there for 30, 40 years. And my uncle actually works for the city of Menlo Park, and he does building inspection. So he's, for years, always taken me around and gotten tours around Meta's campus and what they're building. He's so proud of it. It's interesting to kind of hear from people from the community. so excited to see development there. So I'm excited to see this open up. My understanding is there was a competitive process that your team went through, where Meta wanted certain requirements. I'm just curious if, is this property or this project going to differ from a more standard citizenM hotel? Or is it, I'm curious if there's any kind of customization?

Eli: Yeah, it's a good question. How much we alter the offering from one location to another is, is a conversation we frequently have internally. I think part of our success has been that we keep the core brand extremely consistent. So we only have one room type. It's a small 180 square foot room. Sometimes if we're working within the confines of an existing building, the dimensions might be different, but part of why I think we're so successful is we don't try to be all things to all people. We have found an audience that we serve really well, and we want to continue doing that doesn't mean there's not room for growth and improvement, but we try not to reinvent the wheel every single time. So, you know, every hotel is going to have. Breakfast, going to have a bar, going to have a really amazing lobby with Vitra furniture from Europe. In this hotel, we're also going to have a restaurant. It won't be operated by a citizenM, but it will be on property. And, you know, we think that's going to be a big advantage given that this is not the most walkable part of town. It's important. Uh, you know, we feel in a location like this to be able to offer dining throughout the day to guests, even if citizenM is not operating it directly.

Josiah: It's interesting and I'm trying to learn more about this world of development and investment because it's sort of an aspect of hospitality. I haven't spent a lot of time and it really fascinates me about how do you get these projects created. I'm curious in the case of Meta or you work with a bunch of different joint venture partners. I'm curious for, let's maybe use Meta or just like a technology company in general. For them, is it about the financial returns of the project or is it more about, we want to have this on our property almost as like an amenity for our clients and our employees I'm curious if you kind of hear anything around that.

Eli: Yeah, you know, I of course obviously things always have to make financial sense But I think there's so many employees that come to this location and folks that meta works with outside as well and There's just no great place to stay in close proximity at a reasonable price. So they're of a scale where it really does make sense to have an on-campus property that can serve all their needs and where we can have this direct relationship with them to help plan for demands. We have meeting spaces as well in the hotel. So being able to service their needs, you know, more effectively than any off-campus property is worthwhile.

Josiah: I'm curious, you touched on something there that fascinates me in the sense that are there elements, you've seen hospitality operate successful locations around the globe, but to this point of meeting rooms, I'm curious from a group sales effort, are there expertise or capabilities that you're bringing to the table that there's synergies with a company like Meta on these projects?

Eli: I think this touches on, in part, our subscription program that we launched last year. We're trying to think about how do we make use of these spaces throughout the day and give value to our guests, even if they're not staying at citizenM at that time. So if you're a Meta employee and you're in New York and maybe you want to take a meeting, but you don't need to be in the office. You know, being able to use one of our meeting spaces for an hour or two, or even taking a personal meeting from the lobby. If it's just, you know, a virtual meeting, we're offering ways through a program like that, where for about 10 or $12 a month, you can make use of these spaces on your own time. You can, you can rent a room without having to stay at the hotel. So. It almost becomes more of a Soho house or lifestyle space, if you will, where sometimes it makes sense to be in the office. Sometimes you only have one in-person meeting and I don't need to go to the office, but I want to have a, have a good place, comfortable, reliable place where I can host people.

Josiah: I love it. Let's maybe talk about some other projects you have in development. Could be anyone. I'm curious if there's some that come to mind that speak to, you know, where you're taking the company in terms of how the brand's evolving and growing.

Eli: Sure. So I'm mostly focused on West Coast growth for the company. In general, our view is any market we go to, we believe we can support at least two or three hotels. If they're in distinct locations, distinct demand drivers. There have been a few markets we've been trying to find our way into for several years. And last year we were able to secure our first site in San Diego and our first site in Denver. We're really excited about those markets because when you look at the kind of the network effects of. Where is citizenM now and who is our customer and where else does that customer go? And where else, if they travel to that city, would they like there to be a citizenM or would they be likely to stay at a citizenM if it were there? A place like San Diego is really perfect for us. It has a really terrific mix of demand drivers. You have a strong leisure base, strong business, government base, probably the largest convention market that we will be in by the time we open, and a lot of drive-to leisure as well. So we have a site in San Diego down in the gasoline quarter, which is a historic district. And we've been really encouraged by the recovery of that market. It's recovered a lot quicker than other parts of California. And we think, you know, places like that where there's diverse demand drivers, you know, better positioned in a post-COVID world are exciting, as well as where we feel like the inventory needs differentiation. Again, that's an expensive place to stay. It's a beautiful city, but it's not cheap. And there's not a lot of new supply that comes online year over year. So we're going to be a really unique offering there. I think it's gonna be an amazing hotel. It's a fantastic location and there won't be anything else like us. And similar in Denver, we found a site in Lodo, which is typically, uh, if you know, Denver, that's kind of the highest price place to stay. It's it's walkable. It's got great restaurants, historic architecture, but it's basically only luxury offerings. So we're going to be the first true select service offering in that area. So again, it's finding these locations that are irreplaceable real estate, but also are lacking the kind of value proposition that we can give guests.

Josiah: I'm glad you touched on that. I'm always curious by how people evaluate and identify where it makes sense to open up projects. And I think one thing that's always stood out to me since I first encountered citizenM is it felt like it was always ahead of the curve in terms of where consumers are going, and what trends are happening. I think there was this sense of power to the people and there's a whole different type of traveler. I remember someone on your team was giving this example of it's the guest that might take the bus from the airport to the hotel and then it's going to a Michelin star dinner. And so it's somebody who thinks differently about allocating their spend I'm very curious because you're in conversations with so many of these property owners, developers, others in ecosystem cities. What are you seeing or hearing in terms of trends, in terms of how people are moving around and working and getting together that's sort of fascinating you recently?

Eli: Yeah, I mean, I think we've all seen pretty seismic shifts in how urban travelers conduct their lives post-COVID, right? I was a five-day-in-the-office person three years ago. Now I work from home almost every day. Things have changed dramatically. And so I still love to travel. I still love to see the world. When I go on urban trips, I want a place that you were talking about this person takes the bus and then goes to a Michelin-starred restaurant. Kind of think of that as someone who's like an optimizer, you know, how can I get the most bang for my buck and then do the things I really care about? so, you know There are some people who who still travel and want to stay at the ritziest place there is and that will probably never change for some people But there are others who want to see as much of the world as possible. I want to have really authentic experiences I'm gonna feel like every part of their travel, every part of their life, that there's personality to the environments they're in. Even though we're a corporation, I don't think our brand feels very corporate. I think we, uh, you know, convey a sense of like irreverence and that we don't take ourselves too seriously. And so, and that resonates with a lot of people who are craving authenticity in a world where it can be very hard to find.

Josiah: I wonder, you know, citizenM is also known for its, I would say, ahead-of-the-curve use of technology as a brand. I'm curious, as you kind of think about this in your role, what's the role of technology in the sense of kind of what you think about providing and not providing?

Eli: Yeah, great question. So I think we're definitely thought of as a tech-savvy brand, but I think you got to be careful there because there are a lot of people who, across all ages, who are not as Focused on using the latest technology throughout their lives. Um, some people like the analog way or just like a lot more human connection and there's nothing wrong with that. I think we all value human connection to a certain extent. That's why we're in hospitality. So if you think about, for example, our, our check and experience at our hotel, um, you come into a kiosk where there's, you know, anywhere from five to eight screens on a table. I've done it a hundred times so I can do it in two minutes, not talk to anybody and go to my room if I've had a long day, check-in completely without talking to another individual. But there will also be one of our ambassadors there to welcome you with a smile, and help you check in if you need any help. Uh, give you guidance on where's a good place to go get a quick coffee or a bite if it's late. And, you know, some people want that, or even for me, I am tech savvy, but sometimes I still want to talk to someone anyway, just cause I was on a plane for five hours and I'd like a little bit of human connection. Same goes for our guest room. We have, if you've ever stayed with us, you know, we have an iPad that controls everything in the room. So blinds, lights, different mood lighting, temperature, TV, you name it. It's really cool. And I think for some people, it's a difference maker for us. And for many others, they don't touch it the entire time they stay there. They're going to use the light switches. And that's perfectly fine, too. I think what we do well is we offer, you know, technology that's ahead of the curve, or at least, you know, meeting today's moment, but we don't force it upon people. We realize that everyone's at a different place with technology, and we have to meet them where they're at.

Josiah: We had someone from our community, Stephanie Ledger, was really curious about how you think about sustainability in the development process and how you might do things differently from others in that area.

Eli: We have these kinds of base standards, for example, in the U S we're always going to try to hit, we, we, we must hit lead goals. But, you know, in a place like California, you're going to get there anyway. So what, what do we do beyond that? I think is what's important when we're even thinking about site criteria. We're analyzing how well insulated is this location from climate risk, flood risk, and fire risk. Other events that could happen. So beyond just the development of each property, making sure it meets certain kind of building standards, our whole expansion criteria is based on a sustainable portfolio. One that's going to stand the test of time, both from a building standpoint, the way, the way we operate as well, you know, materials that are going to last long, building systems that are energy efficient and are going to cost less in the long run, real triple bottom line approach.

Josiah: That's great. You've been involved in everything from architecture to development for years. And I'm curious now, you know, recording this in 2023, what trends or changes are you seeing recently that you're tracking and kind of excited by or inspired by recently?

Eli: Yeah, I think, you know, that across all asset classes, there's been, especially in high-cost markets, this move towards density and really thinking about what is the space that people really need? citizenM has a very clear vision on that, right? Small private space, large public space in the past to work for a co-living company. And even though that's more on the residential end of things, the thesis is very similar. So I think there's been a real shift from a, you know, programming spaces in a way where we really focus on how can we actually impact people the best way today. If you're really only spending so much time in your hotel room, let's put money into that common area. Let's make that something truly unique. So I think you're seeing that across, you know, all asset classes really. Part of it is the realities of increasing construction costs that are forcing us to be more efficient with less space, but it's also just the way that we're interacting in an urban environment.

Josiah: You and I live not far from each other in San Francisco, and one thing that is a little bit off topic of hospitality, but I think could affect hospitality, is the self-driving cars we see. This has come up from everything from Tom Wolfe, the concierge at the Fairmont Hotel, to the many others I talked to. I feel like everybody's fascinated by it, either as residents of San Francisco or people that are visiting. I'm curious, do you see changes in transit affecting hospitality development over the next, let's say, five to 10 years?

Eli: Yeah, um, I do. And I think, you know, like having, as long as I've lived here, you've always seen yourself driving cars, come around, drive around the city. However, now the difference is many of them actually are serving passengers. And, you know, so now I have friends who are taking Ubers without a driver. And so it's starting to become real. And I think there's a lot more discourse around in San Francisco, some favorable, some not, I guess, as an urbanist, I think. I'm frankly a little bit less interested in the self-driving aspect. and more interested in micro-mobility, which I think has maybe not gotten as much attention but has made waves in a lot of cities around the world. I'm talking about, you know, these scooters that have kind of seemingly cropped up overnight in a lot of cities. Biking, making our cities friendlier, more walkable, and more enjoyable. And as great as it is to have driverless cars that ostensibly make the streets safer and free us up to do other things. I think the best thing for the places where we build hotels is having the streets be pleasant and safe and walkable. And that means getting people out of cars, frankly. When I go to visit our headquarters in the Netherlands, I spend some time in Amsterdam, which has been a leader in this world for a very long time. And you forget that cities are actually pretty quiet if you take out the cars. And it's beautiful. It's completely within our power to do it if there's will to focus on public transit and micromobility. You know, I've lived in San Francisco for seven years, and I would say I'm an urbanist because I love everything about what makes cities tick. Why do people come to a place like San Francisco? It's because there's a possibility. It's exciting. There's, you know, great architecture. There are great people. There's great food. There's great culture. And it's all happening in a small space. And I think that's really where humanity is, you know, achieves the most. So that's always exciting to me. And hospitality, you know, is really, for me, it's intersecting everything I love about cities with also the ability to delight and entertain people. I think about, you know, like what first got me into hospitality in the first place. If I have to go back far enough, it was probably taking a trip with my parents to Disneyland when I was a kid and being like, wow, here's a space that is so thought out in every way. There's a lot of urban, you know, good urban planning principles in a place like that. And everywhere you look, the place kind of smiles back at you. And like, I want to, I want to experience spaces that have that much care into the human experience. And I think hospitality is like the ultimate synthesis of urbanism and design and the human experience.