Executives at Generator, which kick-started the hostel-hotel hybrid, are extremely bullish about the future as the hospitality firm embarks on its next phase of growth.
On Sept. 14, Generator took over operations at the 605-room Paramount Hotel Times Square in New York City, a property that can lay claim to having started the boutique hotel phenomenon when it was renovated and reopened in 1990 by Ian Schrager, with design by Philippe Starck.
The deal marks the London-based company’s debut into third-party management.
Alastair Thomann, CEO of Generator x Freeland Hotels, said hybrid lodging options have had another wave of resonance following the pandemic. He started as CEO when Queensgate Investments bought the firm in 2017 and has had C-suite roles at Penta Hotels, among other companies.
Patron Capital was the first company to invest in Generator, making hostel-hotels a niche investment segment and even spawning an industry conference, the Hostel & Budget Traveler Conference in 2014.
Times have changed, Thomann said.
“The difference today is that the brand and sector receive a lot more institutional capital. It is a business model, and brands have been launched in the space. Everything has become more professional. We’ve learned how to monetize,” he said.
One example is that both brands achieved second-quarter comparable earnings before interest, depreciation and amortization that was 60% higher than in 2019, Thomann said.
“That speaks of how we are working at the moment. Even if we go 10%, 20% down in the next quarters, we’ll still be ahead, although we do not even see that. Bookings are up; we see no downturn. We might even have a stronger [fourth quarter], and inquiries for the [first quarter 2023] are strong enough that we can say no to groups,” he said.
The company's properties have food-and-beverage spaces that are thriving, Thomann said.
“In our Miami Beach hotel, bars revenue is twice that of rooms revenue, which is $3 million," he said. “Lobbies usually are low yielding. The [Generator x Freehand] brand has real value as it drives exceptional profits, along with having low operating costs."
Thomann said those operating costs have risen and are a challenge to Generator x Freehand, but the brand's sophisticated kitchens and lower-staffing model help.
The company has prioritized investments into technology.
“Before, there wasn’t really the technology to be able to manage dorms and rooms. The sector was a long way behind the mainstream industry, but that has changed. We’ve upped the game, adapted. We can open hotels with four weeks’ notice,” he said.
Thomann added investors and guests no longer look down at hostel-hotels, although Generator itself has long ditched the “hostel” part of its name.
“The word ‘hostels’ defines us too much. We are suites, apartments and social experiences. From an ingenious idea, a magical one, we were way ahead of our time,” he added.
Generator, founded in 1995, has 16 properties — in Amsterdam, Barcelona, Berlin, Copenhagen, Dublin, Hamburg, London, Madrid, Paris, Rome and Venice; and in the U.S. in Miami Beach, Washington, D.C., and now New York City.
Freehand, which Queensgate bought in 2019 for $400 million, has four hotels, in Chicago, Los Angeles, Miami and New York City.
The Freehand acquisition also came with bar brand Broken Shaker, part of Bar Lab, which Thomann said will be introduced into his hotels in Europe.
Thomann said Generator and Freehand are competing with the big brands, providing 4-star revenue streams but with 2-star operating costs due to the number of people coming through the front door.
“It is the perfect model for many pieces of real estate. We can work with any room size. It is a clever model, for the right market, compression markets,” he said.
He added performance is driven in part by the chain's restaurants and clubs.
The desire to once again be social also is helping income streams, he said.
“In the pandemic, we were not supposed to be social, but now we are more than ever. When they could legally, our guests were traveling [during COVID-19], and often I overheard conversations of how [guests] got from one place to the next,” he added.
“If they are allowed to travel, they will travel. This is our core segment, they are more resilient,” he said.
Generator x Freehand plans to announce a dedicated development team soon. On Aug. 4, the company promoted Siim Karu to chief commercial officer. From 2017 to 2019, Karu was the firm’s global head of revenue management; in the interim, he had an executive role at A&O Hostels and, like Thomann, he has worked at Penta.
Morphing Into Management
Generator's interest in the hotel management business is broad and demand-driven, Thomann said.
“Our interest in this could be anywhere. We had our management platform devised to be in play for third parties just before the pandemic, such is the demand we see for this," he said.
He said the firm is interested in adding another hotel in London as well as in “great compression” markets such as Edinburgh.
“Dubai, too. They have almost run out of brands, and it wants to attract a younger visitor. We bring in true destination [food and beverage]. Even in New York City, where we are unionized, we see 30% beverage profits,” he said.
“In London, we could easily have five or six. Also in Paris, and Hong Kong, Singapore, places with high occupancies, where it makes sense to add more rooms. Australia is a massive market for our type of property,” he said.
Thomann said he expects to add four or five hotels in the next 12 months.