Longtime hospitality investor and executive Rani Gharbie has joined citizenM, where he plans to get creative to further the Dutch hotel company’s rapid global growth while making big investments in its own real estate.
Gharbie recently joined Netherlands-based citizenM as managing director of investment and development for the Americas. Unlike most hotel groups, which don’t own their buildings, that means identifying properties that are sound real estate investments as well as good hotel sites.
Trying to grow during a time of higher interest rates, soaring construction costs, a slowdown in property sales and a dearth of real estate financing will provide major challenges. It also could open opportunities for companies willing to think differently, said Gharbie, who plans to look at options including seeking new investment partnerships, buying distressed assets, taking over spaces from other hotel brands, or converting spaces from uses such as corporate offices.
“What we’re looking to do is probably a hybrid of leveraging some of the successes we’ve had in the past and creating new pathways,” Gharbie said in an interview. “We’re not just a hotel company. We’re also a real estate investment firm that looks at real estate fundamentals. I was brought on because I have experience with both.”
Besides being an asset-heavy hotel company at a time of higher costs for real estate construction and financing, citizenM also will be challenged by competitors, such as micro-hotel companies Pod Hotels, Yotel and Arlo Hotels, offering smaller, urban hotel rooms. Hotel behemoths including Marriott with its Moxy are getting into the act, too.
Most recently, Gharbie was an executive at Washington, D.C.-based hotel management company Life House. He previously had roles at Virgin Hotels, BD Hotels, InterContinental Hotels Group, JLL and Cedar Funds. He also teaches private equity hotel development at his alma mater, Columbia University.
His new firm’s expansion is backed by investments from Singapore sovereign wealth fund GIC and Dutch pension manager APG after opening its first hotel at Amsterdam’s Schiphol Airport in 2008.
Despite the pandemic that devastated the travel industry starting in early 2020, citizenM has grown rapidly in recent years. It now has 31 properties in a combined 18 cities throughout the world, with plans for aggressive expansion. In the United States and other parts of the Americas, those efforts will be led by Gharbie.
CitizenM already has multiple hotels in cities including Amsterdam, London, Paris, New York, Miami, Seattle and Washington, D.C.
United States expansion plans include breaking into cities such as Nashville, Tennessee; New Orleans; and Denver. Canadian cities such as Montreal and Vancouver also are part of expansion plans, as well as creating economies of scale by opening in new areas of cities where the company already has at least one hotel, Gharbie said.
“The next 12 months are going to be very difficult, but we’re long-term holders,” he said.
Gharbie said he will look to expand relationships formed on previous projects, such as with Chicago-based Sterling Bay in Chicago and with New York-based Turnbridge Equities on a project in Austin, Texas, in which citizenM is the majority stakeholder. Gharbie said citizenM is open to minority, majority or joint-venture partners on its real estate.
“With Sterling Bay, we’re looking to replicate that in Chicago and possibly elsewhere,” Gharbie said. “With them and any other partners of ours.
“We’re open to new partners who can unlock value by bringing us deals in specific locations. Real estate is a very local game.”
The deal with Sterling Bay and another Chicago investor, Magellan Development Group, is an example of the ways citizenM has entered new markets.
As the two Chicago developers sought difficult-to-obtain financing to kick off a 47-story apartment and hotel tower on North Michigan Avenue just months into the pandemic, citizenM gave the project a boost by signing an unusual deal to buy the 10-floor hotel portion of the property after it was constructed. The nearly $75 million sale was completed in September 2022.
Upcoming hotels could be in ground-up developments, mixed-use projects, conversions from other uses or property acquisitions, Gharbie said. The company already has repurposed office space in Rome and is converting a former industrial building in Washington, D.C., into 230 hotel rooms.
“The asset class that is the most hurt is the office class, even more so with the WeWork bankruptcy filing,” Gharbie said. “The question is whether these locations would be convertible to hotels.”
Many existing buildings won't be suitable for a conversion to citizenM's tech-driven, "affordable luxury" model. That includes office buildings with wide floor plates, Gharbie said.
Hotel owners and operators continue to face a familiar obstacle to growth — high construction costs and financing challenges, as recently noted by Marriott President and CEO Tony Capuano. During a call with analysts in early November, Capuano mentioned a "constriction in the debt markets," according to a transcript of the call. That has been "precluding us from getting back to where we were pre-pandemic in terms of the pace of new construction starts, particularly here in the U.S."
CitizenM's Gharbie said he’ll also be among those real estate investors closely watching loan maturities.
“There will be some activity happening in the next year or two where loans are maturing and owners will either need to refinance at higher interest rates or hand over the keys,” he said. “We’re scratching our heads at how we can take advantage of that.”
It’s yet to be seen how long some major real estate investors will sit on billions of dollars that eventually need to be invested. That could determine whether major bargains can be found, Gharbie said.
“You’re going to have some distressed assets, but I’m not sure the discount will be too deep because of that dry powder,” Gharbie said. “It might not be a gold rush.”