Hotels Are Splitting Into Two Completely Different Businesses - Walter Isenberg, Sage Hospitality

Josiah: Walter, thanks for making time to record. I've been looking forward to this conversation. I really enjoyed speaking with you last year. People really loved that conversation. We got into so much from your story building your career in hospitality to building Sage to how you think about embedding yourself into the community on an organizational level, but also on a personal level, investments that you're making. I want to catch our listeners up. Over the past year, it has been a wild year in many respects in the hospitality industry. What's been going on for you and Sage over the past year?

Walter: I think it's two different stories for us. Our business, the 65 hotels, 50 restaurants, bars, coffee shops and entertainment venues, mixed results in 2025, but most of them really struggled. RevPAR relatively flat. The consumer, other than the really high-end luxury consumer, kind of pulling back. Geopolitical uncertainty, all those things. Made the operating environment very, very difficult for our teams. And it's coming out of COVID, right? I think we had a lot of optimism in 2023. Our businesses were back. We had a very, very strong year. 24 was flat-ish, 25 was hopefully flat-ish, in some markets down. And so it's difficult. Costs are going up. There are big pushes around the country and we're in an urban and resort environment. So those markets, I think the cost environment even more difficult and pressure on pushing up minimum wages and insurance costs and energy costs. And so I think for our teams, 25 was a difficult, difficult year.

Josiah: It was difficult for so many of the reasons that you outlined, and as I look at the market now, so many industry analysts are forecasting many of these challenges are likely to persist into the year ahead. Are there things that you learned over the past year that you're hoping to bring forward into this year and beyond, things that were effective for you and your teams, the way that you operated?

Walter: I think that the reality is it doesn't really matter what's happening if you don't get the revenue growth. It's very, very difficult. We're in a high fixed cost business. That's the nature of our business, and we need revenue growth. And if you look historically, one of the attractive things about the hospitality business is that our RevPAR has outpaced inflation for decades. And obviously we have these dips in business, but over the long term, the compound annual growth rate of RevPAR has exceeded inflation, and that is why the business has been a good investment. So I think we're in an unusual time. One of the things that I would tell you is in my career, I've never seen GDP growth, which we've had, including 2025, with RevPAR declines. It's the first time ever. So that is a phenomenon that is difficult I think for people to wrap their heads around, why is this going on? I think there's a lot of reasons, but we're a little more optimistic about 2026. Our group business that we have on the books is strong. We're a little more optimistic about corporate transient, the BT consumer coming back. And so we're a little more optimistic, though we were optimistic coming into 2025.

Josiah: I feel like you're doing things across the business to whatever the environment is, you're able to navigate forward in a way that is best for all of your stakeholders. I remember in our last conversation, you kept coming back to the importance of people on the front lines of hospitality. There's a phrase you had on housekeepers, I think, what do they have to look forward to? Something like 16 dirty toilets.

Walter: My early mentor, Phil Pistilli. That's where I got that.

Josiah: And so I also really enjoyed your article in Hotel Management last October, and one of the paragraphs that stood out to me was that you said hospitality operations had become more complex, more dynamic and more integrated into how we think about placemaking. Technology touches each part of the guest journey. We forecast labor down to the minute. Operation still defines the guest experience, but there's a whole list of new touch points, new toolbox to operate from. I would love to hear your thoughts on how you think about creating a culture and an operating environment that keeps your people, especially the frontline associates engaged in this kind of environment.

Walter: It's interesting. Everybody's talking about AI and what it's gonna do. Reductions of number of employees you need. And I think that I look at our business in kind of two buckets. The commodity bucket, right? And this isn't to disparage any of these businesses, but if you think about a suburban select serve hotel, it's not really a place, right? It's a place to lay your head down and hopefully have hot water and heat and air conditioning and good wifi. A great cup of coffee in the morning, but it's really a place to sleep. And if you're in a suburban market, you're gonna pick a location perhaps that's close to the business you're doing, whatever that may be. And then you're gonna go there, you're gonna check in, you're gonna sleep and you're gonna get out, you're gonna go out to dinner maybe, but you're gonna go off site to do whatever it is those activities are. And I think that those businesses are going to really dynamically change with AI. And I think they'll get more commoditized, they're gonna work hard to kind of lower their staffing needs. I think the front desk in its traditional form is probably gone because technology is gonna let you in the building. Technology is gonna get you to your room. Technology's gonna allow you to communicate if you need something. So the idea that you're gonna pick up the phone and ask for pillows, or whatever it might be that you need, I think that is where AI is going to allow those assets to really reduce their labor.

Josiah: So this is sort of a specific offering type where it's essentially lodging your, it's almost like a job to be done for the reasons that you've described. I need a place to sleep that's safe and clean.

Walter: Exactly. I want safe and clean, right? And then having the things that you want. You want good wifi and you want obviously hot water. Right, so the basics. But that product in our view is, and we're not really in that space, but that product is going to continue to get more and more commoditized. And then I think on the other side is what we call experienced hospitality. And that's going to come with, you could have a lot of group meeting space, right? Those, you're not gonna have robots delivering the food and beverage experience. You're gonna have to have people really making sure that the meeting planner, gotta hold their hand. And so we see that. And then even going into the experience business more. So I think you look at projects that we have like Dairy Block, which is a mixed use project. Lots of activities, food hall, restaurants, shops, retail, things like that. The notion of hospitality, the experience, that is going to require not only people, but the best people. And that's really the business that we're in. So as we look at our business, we think that being able to attract and retain the very best associates is going to be a huge competitive advantage.

Josiah: Can I hear you talk a little bit more about that? Because I, if I think about your life and work and the Dairy Block's a good example. Every time I'm in Denver, I was there a few weeks ago and that was the first place I went. It's a great environment. I feel like there's huge investments into development, restoring beautiful historic buildings, partnering for art and things like that. So these environments are really beautiful and dynamic. At the same time, you're saying that people are pivotal. Why is that?

Walter: So I think that there are developers that think, okay, build it and they will come. That I'm gonna go hire a branding firm. They're gonna pick a name for me. I'll hire an interior design firm. They'll do... and we believe that the consumer can tell the difference between something that is just built. Something that is made. I'll use those words. That when you make something, it should be authentic. And in order for something to be authentic, you really have to study, A, what this place can become, and then B, how you really curate that experience. And the curation of that experience comes with the right branding. First you gotta have that vision and then the branding. But then what makes the place, and we look at the ground floor. And if you take a place like McGregor Square, which is also in Denver adjacent Coors Field. We have a hotel, we have an office building, we have condominiums, and those assets which are above the ground floor, are really fueled by what happens on the ground floor. So our office tenants, our residents, our hotel guests, they're all coming there because that experience has been crafted to be on brand for that business. You're not just building something. They're actually making a place that's authentic and consumers are very, very smart. And they may not be able to tell you, oh, this is authentic because of X, Y, and Z. But they can tell you, wow, this place feels great.

Josiah: And they're gonna come back. They're gonna tell their friends, they're willing to spend more. And for me, this is really interesting because what you've created at Sage is very generative in the sense that we talked earlier around maybe top line demand is flat to plateauing or down slightly. There's outliers, and I think Sage is an outlier in the sense you're creating these environments where people are willing to pay more.