The scene on the plush roof deck of the SLS Hotel at Beverly Hills on a recent afternoon speaks volumes about the business of Sam Nazarian, the nightclub owner-turned-hospitality magnate.
Only a handful of guests lounged in cabanas around the pool or sipped cocktails at the rooftop bar of the chic all-white hotel Nazarian opened amid the economic crisis late last year.
Times are slow and it’s not only the SLS exhibiting symptoms.
Nazarian’s SBE Entertainment Group has canceled plans to build a 1,000-room tower at its Sahara Hotel and Casino in Las Vegas. And for the time being his plans to turn SLS into a global hotel brand are on hold because financing is more difficult. Side ventures, such as his movie production house, are quiet.
Without doubt, the last 18 months have been a period of retrenching for the 34-year-old Nazarian, who, before branching out into bigger things, made a name for himself with such L.A. hotspots as Area and Hyde Lounge, where patrons didn’t think twice about dropping $400 for a bottle of Grey Goose vodka.
But in these recessionary times, the “new frugality” is real. Nazarian has laid off 50 people at his L.A. headquarters – nearly half his corporate staff – and he’s gone back to his bread-and-butter business of celebrity nightclubs.
“We are having our tough times just like everybody else. Right now, we are looking to fortify and live to fight another day,” said Nazarian, who sat down last week for a lengthy interview on a veranda of his 297-room La Cienega Boulevard hotel, which despite its name is just outside Beverly Hills. “What I started to realize 18 months ago is: focus on the things you are great at.”
Indeed, while Nazarian’s outsized ambitions have gotten a reality check because of the economy, his hospitality company has been busy the last few months.
The company has purchased two Hollywood nightclubs – Nacional on Wilcox Avenue and Halo on Cahuenga Boulevard – giving it six L.A. clubs and a firm grip on the local scene. Earlier this month it announced plans to open a second Hyde, this one inside Staples Center in downtown Los Angeles. The $1.3 million lounge will debut at the start of the National Basketball Association season, and operate during sporting events and concerts. It will cater to courtside seat holders and suite owners, serving menu items from SBE’s trendy and pricey Katsuya and XIV eateries.
SBE also entered into an agreement to operate and improve Gladstone’s of Malibu, the popular but dated beachside restaurant that attracts hordes of tourists.
Opening a nightclub and taking over management of a seafood restaurant may seem like small-scale stuff for a businessman who got national attention for his bold moves in Las Vegas. But he’s not afraid to accept what the market will give him.
“For his age, he has got a lot on his plate. A lot of people look up to him and look to see what his next move is,” said David Cooley, 50, who owned the Abbey, a popular West Hollywood restaurant and nightclub for 16 years before partnering with SBE in the property in May 2006.
“Deep down he is still good old Sam, but he is much more focused on business. There is more pressure on him. He is going to figure it out. He’s definitely open to making changes.”
The troubles at the Sahara are illustrative.
When SBE purchased the 1,720-room resort in March 2007, the idea was to upgrade and rebrand it as an SLS. That would be similar to what he did in Los Angeles where he shelled out $130 million to have designer Philippe Starck transform the aging Le Meridien he purchased in 2005 into the stylishly luxurious SLS.
But amid the Vegas boom, Nazarian dreamed even bigger. Besides expensively redoing the Sahara, he cooked up a plan to add a 1,000-room tower.
But the blueprint for the tower has been rolled up and put on the shelf. In fact, the SLS makeover hasn’t even started, thanks to the lack of financing.
The Sahara remains a value stay for tourists; rooms now rent for as little as $25 a night.
SBE would like to proceed with the Sahara’s upgrade by 2012, but Nazarian is not making any promises given the millions of dollars needed.
“I can’t give you a 12-month projection. If anyone says they can, they are lying,” he said.
Jeff Lugosi, a senior vice president at PKF Consulting Corp., a hospitality consultancy, said that Nazarian is not the only hotel owner who has had trouble in Las Vegas, where projects far larger have stalled.
“Any hotel development project that could be shut down has been. Las Vegas is certainly a mess from an economic standpoint,” Lugosi said.
Then there’s the SLS in Los Angeles, which opened in November amid the economic meltdown. It has had to compete with other new design-oriented and luxury hotels such as the London West Hollywood and the Montage in Beverly Hills. Business at the hotel has been buoyed by a glowing, four-star review of its Bazaar restaurant in the Los Angeles Times. Nazarian also spoke proudly of a recent design award from industry publication Virtuoso.
Riding it out
However, Nazarian conceded that the hotel, which is operated by Starwood Hotels & Resorts Worldwide Inc., is not meeting some projections SBE set before the recession struck. For example, standard rooms at the hotel can be found on travel Web sites such as Expedia.com for about $280 per night, even though Starwood markets the same rooms at $369 or more.
Nazarian said that the initial goal for the first year of business was to “ramp up” to average monthly occupancy rates in the low 70 percent range, but the hotel has had monthly occupancy levels in the range of 61 percent to 65 percent.
However, Bruce Baltin, a senior vice president at PKF, said that given the state of the economy, the occupancy levels described by Nazarian are “pretty healthy in this time.”
“They are going to have to ride out the cycle, and it is probably going to have to be several years,” he said.
Still, Nazarian is an irrepressible businessman and is itching to take advantage of the down market. He said he’d like to buy hotels now – in particular he has his sights set on Manhattan in New York – but, like bigger players, a lack of financing has stymied him.
So Nazarian is considering the next best thing – “partnering with companies that own hotels or working with banks and taking keys back from hotels.” He’s also taking advantage of his existing family assets; in the last month, the company has taken over management of the FourPoints Sheraton LAX, a property owned by his family. Nazarian’s father, Younes Nazarian, is one of the founders of chip maker Qualcomm Inc. and is said to be worth hundreds of millions of dollars, if not more.
Bread and butter
While an expansion of the SBE hotel business may have to wait for the economy to pick up, Nazarian is seizing on the downturn to expand his nightclub business.
Nightclubs are relatively small acquisitions that can be done without bank loans and in some cases, he said, can be picked up for “five times” less than what they were trading for even a year ago.
Nazarian also plans to remodel and rename some of his older properties, continuing a longtime strategy of freshening up his clubs before they get stale. Just last week, he opened Mi-6 on Santa Monica Boulevard in the West Hollywood space that formerly housed Foxtail. SBE also will spend $2.5 million on remodeling West Hollywood’s Area, the company’s most iconic property, which also will get a name change.
“On the business front there is great money and great margins in nightclubs and Sam has shown that time and time again. There is no question that he’s been an innovator in nightclub service for many years now,” said James Sinclair, co-founder of L.A. hospitality consultancy OnSite Consulting. “For a company that is well-capitalized, this is an expansion market.”
But, it isn’t just about an expansion, new names and a fresh coat of paint. Nazarian said that his company is searching for innovative ways to earn customer dollars during the recession. For the nightclub business, one idea is an in-house dance company. The group – which Nazarian dreamed up about a year ago – will bring “spontaneous, theatrical” performances to a variety of his clubs.
“People are still going to spend their $400 for the bottle of Grey Goose, but you have to give them a reason,” he said.
Learn a lot
Without a doubt, Nazarian acknowledged that the last 18 months have been a time of “highs and lows.” In addition to shepherding his businesses, he has taken the time to get more involved in local civic, professional and charity affairs.
He is on the boards of the Southern California Institute of Architecture and the athletic association of his alma mater, Beverly Hills High School. And he recently was appointed by Mayor Antonio Villaraigosa to the Board of Airport Commissioners.
“I feel it is vital and you have to give back. There are skills sets that (I can use) to give back,” he said, adding he didn’t lobby the mayor to be an airport commissioner but felt it was “where (the mayor) thought I could be helpful.”
But Nazarian also has had to deal with layoffs and the challenges of an ever-changing business world. SBE, which employs more than 3,000 people, has pared down.
“We had 12 people in design and architecture. Now, we outsource that. Legal – instead of having seven lawyers in house, now we have two,” he said.
And Nazarian knows that with a higher profile, comes more scrutiny and a perception that he’s only as good as his last project.
“If you want to set new trends, you have to constantly have your finger on the pulse. We are not established enough as a company to be able to sit back and say, ‘Let the thing stabilize,’” he said. “We have to constantly be reinventing ourselves and reacting to the market.
“It has been very challenging just to stay afloat as a corporate entity. I’ve learned a lot. I think I’ve matured.”
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