Investor Profile

Rich Weissmann, KSL International

Last year, KSL Capital Partners became majority stakeholders of US destination spa Miraval. As the firm prepares to announce two new Miraval resorts, KSL partner Rich Weissmann explains its vision for the brand to Rhianon Howells


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Miraval Resort & Spa, a nearly 20-year-old destination spa in Tucson, is arguably one of the best-known brands in the global spa industry – quite an achievement considering it is, in essence, a single site in the middle of the Arizona desert. But as KSL Capital Partners’ Rich Weissmann will testify, this has no bearing on its potential.

“Miraval is a business that clearly punches above its weight,” says Weissmann, a partner with the private equity firm, which bought a majority stake in the resort from Steve Case’s company, Revolution, last June. “I think that’s because of the quality and nature of the experience that people get there.”

It was the opportunity to translate this reputation into growth that piqued the interest of KSL’s managing director, Mike Shannon, when the firm started looking for spa investments seven years ago. As a specialist in travel and leisure investment, KSL was already involved in the spa business through its then ownership of destination resorts with significant spas, from La Costa in California to Grand Wailea in Hawaii. But the world of wellness was relatively new territory.

“We needed to focus on wellness, and we came up with two names: Canyon Ranch and Miraval,” says Weissmann, who joined KSL in 2008 after 10 years at Goldman Sachs, where he headed up its hospitality and gaming practice. “Miraval dovetails with the demographic we were trying to target.”

The KSL clientele, says Weissmann, want to consume leisure in a meaningful, non-prescriptive way and also have a relaxing vacation. Miraval, with its stunning location in the foothills of the Santa Catalina Mountains, its focus on life-affirming experiences and its lack of regimens, ticked all the right boxes.

So where exactly is Miraval heading under KSL’s steerage? Before the deal, Revolution had announced plans to open several new Miraval resorts in the US. Now there’s talk of rolling out the brand both at home and abroad, but where and how?

Hidden value
On its website, KSL claims its investment philosophy is not about financial engineering, but about unlocking the “hidden value” of businesses through targeted capital expenditures, operational efficiencies and enhanced marketing strategies. So where does KSL see the hidden value in Miraval?

“It’s a brand,” Weissmann says. “Since we’ve bought the business, we’ve had significant enquiries on opportunities either to brand new developments as Miraval or invest in other businesses that are related to what Miraval does.

“What we’re focused on now is how to connect with guests on a daily or weekly basis when they’re not in the resort. So we’re looking at all the different aspects [of Miraval’s offering] and asking, ‘how does that translate into a more ongoing consumer experience?’ That might be through creating programming that’s portable or by affiliating with or buying like-minded businesses that have distribution in multiple locations.”

In terms of the rollout, Miraval will push ahead with plans to open new resorts: “We’d like to see half a dozen or so. East coast, west coast, probably south-east… we could probably do two in California.”

Although details of two sites are due to be revealed imminently, Weissmann will only confirm that one is the rebranding of an existing operation in Natirar, New Jersey, already announced by Revolution in 2013. “That’s one of the two, but we’ve been doing some revisions to the programming and design,” he says.

The design and development of properties is something the company takes very seriously. “We’re very involved,” says Weissmann. “We’re one of the few funds that actually has a development officer and a team [who concentrate on that]… We don’t leave it to chance or somebody else, because you can lose a lot of money doing bad renovations.”

In terms of locations, its looking for “places that have a compelling physical presence… in settings that conform with the mindfulness of what Miraval stands for.”

When Revolution first unveiled plans to roll out the brand, vice-chair Philippe Bourguignon identified proximity markets – within a two-hour drive – as key to making the model a success and Weissmann confirms that this remains a consideration, albeit not a central one.

“We want locations that are geographically advantageous as well as having the ability to attract drive-to customers, because they’re more likely to generate repeat business,” he says. “It’s not critical, but it’s something we’re taking account of.”

Making money
Back at Tucson, the current priority is to develop and enhance the guest experience and to balance that against profitability. “The way we look at businesses, we look at all the major departments as businesses within the resort itself,” says Weissmann “So for instance, the spa has to have a P&L [statement] and show that it can be profitable relative to food and beverage and rooms. It’s not necessarily targeting [specific areas for improvement]; it’s keeping people accountable.

“On the cost side, we’re maximising the use of group purchasing and making the most efficient use of labour. In terms of room product, we’re managing the room distribution and yielding those rooms in the most effective way… a lot of it is just tweaks here and there.”

One area earmarked for extra attention is fitness. The difficulty, says Weissmann, is that while guests will pay for spa treatments, fitness at resorts is typically considered to be an amenity. “Today, fitness isn’t really a focus at Miraval,” he admits. “Our goal is to have the fitness offering match the quality of the wellness and spa offering [at the Tucson site] by adding programming that creates value for people.” In the new resorts, he adds, fitness may offer outside memberships, though this will not be the case in Tucson.

Generally speaking, Weissmann believes too many people in the global industry are guilty of buying into the self-perpetuating myth that spas are not natural profit centres. “I think there’s a misconception that spas don’t make money,” he says, citing two causes for this: one, the spa operators who make excuses, blaming the hotel for adding the spa as an afterthought and not giving it enough focus; and two, the hotel owners who refuse to believe spas can turn a profit.

“Part of [the challenge of] running a successful spa operation is scale,” he admits. “That’s what we focus on. We don’t make excuses: it hasn’t been profitable, therefore it can’t be. We ask, why hasn’t it been and what can we do to make it so? And we’ve been very successful at that.”

Fool’s errand
A key element of the resort at Tucson, alongside its 118 rooms and suites, are 16 privately owned villas, which are rented out whenever the owners are not in residence. But although it has proven successful in this context, further spa real estate is not something KSL will be rushing into, following lessons learned from Miraval Living in New York City, a residential building with which the brand parted ways in 2010 following a disagreement with the developer.

“We don’t predicate our investment on residential,” says Weissmann. “It was a fool’s errand during the last upswing, so we predicate our investment on being able to make the resort itself successful. We think there is an ongoing opportunity to create a Miraval Living concept – it [spa real estate] has been done successfully at Tucson and elsewhere and I think people are looking to incorporate wellness into their lifestyle, but it’s got to be done thoughtfully.”

But creating standalone residential communities is another matter, he feels. “If you lived in a Miraval community, you might take a fitness class but you’re not going to have a facial or massage every day. In a resort, your guest is only there for a short period, so is more likely to try those services. The model is very difficult at the pure residential level as opposed to residential and resort combined. First and foremost, it has to be a successful resort.”

Global plans
Further to its plans to roll out Miraval at home in the US, Miraval is also looking at global opportunities for the brand. “We think the name would translate well internationally,” says Weissmann..

“[We also believe] the international traveller is looking for the same type of spa and wellness experiences as our domestic traveller, so we think it will work. The question is how do we do it and where do we go? I think the very first one outside the US has to be very thoughtful.”

The first site, he adds, is likely to be in Europe – the Denver-based firm has an office in London, and at present its only non-US investments – including The Belfry Hotel & Resort, the Hotel du Vin and Malmaison hotel chains and Village Urban Resorts – are in the UK.

Looking ahead to the future,
Weissmann sees the biggest challenge for the spa industry as “discipline, and being able to deliver a relevant product on a cost-effective basis for both the operator and the consumer.”

Part of rising to that challenge, he adds, will be creating spa and wellness opportunities that are meaningful not only for the current generation of core spa consumers – those who are aged 45 and over – but also the millennial generation coming up behind them.

Weissmann is confident, however, that the spa sector – and indeed leisure and travel in general – will continue to be attractive to investors, even in these uncertain economic times.

“While [travel and leisure spending] is discretionary, given the extent of global travel today, recession in one place doesn’t necessarily mean your business is going to suffer a significant decline.

“We’ve invested through good cycles and bad cycles and been successful at it. I think that just reflects having an eye for what is relevant to the consumer and being able to offer value.”

KSL Investments

Some of KSL’s current investments include:

• The Belfry (UK)
• ClubCorp country clubs (across the USA)
• East West Partners (real estate developments across the USA)
• The James Royal Palm hotel (Miami, Florida, USA)
• Malmaison and Hotel du Vin hotel chains (across the UK)
• Miraval Resort & Spa (Tucson, Arizona, USA)
• Squaw Valley/Alpine Meadows ski resorts (California, USA)
• St Regis Monarch Beach (California, USA)
• Village Urban Resorts (across the UK)
• Whistler ski resort (Canada)

KSL has a 24 per cent share in Whistler Blackcomb Holdings, one of the main companies behind the Canadian ski resort

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