With the hotel industry at the tail end of a painful crisis and the nearing release of more pent-up demand for travel and personal wellness, Soul Community Planet co-founder and CEO Ken Cruse said his team is excited about 2022.
The Laguna Beach, California-based holistic hospitality company is gearing up for more travelers looking to merge wellness experiences into their travels, Cruse said. More people will realize they are not tethered to a specific zip code as they earn a living, opening up the opportunities for additional travel, he said.
All of these factors will result in interesting changes within the hotel industry, but not every element of the hotel space will grow in a meaningful wave over the next wave, he said. Many things will be subject to “creative destruction,” he said, and some concepts have become obsolete at this point or won’t come back to the levels they were at before the pandemic.
“I think we're oriented in a nice way to capitalize on some of the macro trends that will be more profound post-COVID that perhaps were just nascent at the beginning of or pre-COVID,” he said.
Acquisition Strategy
SCP has seven hotels in its portfolio after acquiring three over the course of 2021, Cruse said. It will need to ramp up its efforts over the next two years to achieve its goal of 25 hotels by 2023. It’s a realistic goal, he said, but it will require a lot of proactivity and creativity of SCP’s team and willingness of sellers to transact.
The company acquired the 138-room Hilo Seaside Hotel in Hilo, Hawaii, in March before reopening it as the SCP Hilo Hotel in June. In October, it bought the 41-room Laguna Riviera Beach Resort and the 12-room Hotel Seven4one, now the SCP Seven4one, in Laguna Beach, California.
One of the biggest frustrations in adding to the portfolio is trying to find attractively priced hotels that fit within SCP’s acquisition criteria where the company can add value through renovations and operations, Cruse said. Normally after a shock to the system, there are more deals at this point in the cycle because owners are compelled to sell.
“There's just a lot of capital chasing hotel deals right now,” he said.
However, because SCP’s goal is to be healthy, kind and green, that kindness extends to its deal-making as well, he said.
“We can’t go forward with this mindset that we’re going to kick that guy while he’s down, that we’ve got this distress out there and we’re going to capitalize on the distress,” he said.
As a buyer, SCP’s confidence in the recovery has strengthened over the last 12 months, and the company expects it’s at the front end of a prolonged growth phase with relatively low cost of capital, Cruse said. That has allowed the company to underwrite more appealing prices than it would have been willing to do about 12 months ago.
The company has focused its efforts on five areas of the U.S.: the mountain West, the Pacific Northwest, Northern California, Southern California and Hawaii, he said. Now the company is branching out to other markets that may not have been affected by government subsidies, the Paycheck Protection Program and lender flexibility, such as Central America.
Along with considering the fundamental real estate and earnings perspectives, the company has to factor in how a potential acquisition will benefit the brand, he said. There are eco-based destinations outside of the U.S. that could add a fair amount of appeal to the SCP brand, he added.
New Development
As SCP looks to grow its hotel portfolio, the team has shifted its focus from purely acquisitions to explore new development projects, which is not without its own challenges, Cruse said.
“Now you’re buying raw land that is subject to the same factors that are leading to these higher acquisition prices for existing hotels,” he said. “And typically, if it’s raw land, it’s raw land for a reason.”
Another challenge will be the development’s turnaround time, he said. A larger, more complex hotel could take 36 months from permitting to the actual owning when buying a hotel and moving forward on a renovation would be much faster, he said.
Over time, new development could account for 20% to 25% of SCP’s growth, he said.
Sustainability and Wellness Efforts
One of the areas SCP has stood out is the wellness aspect of the stays it offers guests, Cruse said. The company has a goal of offering 100% vegetarian food and beverage offerings by June 2022 and is working toward achieving net-zero waste.
Putting real measurements around the company's core values of being healthy, kind and green is important, he said.
“Sustainability is an area where it’s easy to talk about,” he said. “It’s much more difficult to hold yourself accountable to a higher level of performance when it comes to sustainability.”
SCP has been working with a sustainability expert to guide the company’s practices and keep things as green as possible, he said. The company is also working with an sustainability benchmarking organization that certifies green practices and offers best practices.
Along with its food and beverage offerings, the company’s Peaceful Rooms brand standard is aimed at creating rooms that are more conducive to a better sleep experience, Cruse said. The SCP team spends a lot of time looking over all the details, such as the blackout shades, the air conditioning and the plant-based bedding. SCP has also reduced the amount of electronics in the room to reduce distractions, including the TV.
“At least from my personal experience, the TV has always been counterproductive to a really healthy sleep experience,” he said.