July 8, 2021
Gary Bisbee 0:06
Healthcare leadership is hard work, but what if you could learn from the most brilliant and influential minds in healthcare and beyond? What would you ask them? Would you ask about politics, policy, or maybe leadership? On The Gary Bisbee Show, I’ll do just that. You’ll hear from healthcare’s most successful leaders and those experts who they listen to, as together we’ll explore how the healthcare economy is transforming.
Why does a Harvard-educated lawyer with a master’s degree from the Kennedy School of Government lead an ultra-luxury hotel chain? What can we learn from him? Our conversation today is with Jason Herthel, President and Chief Operating Officer of Montage International. What can we learn from Jason and the Montage team about brand, culture, personalization, and guest loyalty? Surveys show that guests view their time at the Montage as an experience rather than a stay. An important similarity between hotels and hospitals is that the hotelier’s mission is to serve guests as the provider’s mission is to serve patients. However, as Jason observed, guests frequently wish to return to a Montage property while hospital patients may not. Similarities abound, such as importance of brand to attract first-time customers, loyalty to keep individuals and families returning, personalization being at the heart of quality service, and culture to ensure all staff and properties maintain brand promise. We will learn about each from Jason as an experienced executive practicing at the top of his license. Interestingly, as a developer, the Montage must balance the needs of guests and investors while providers must balance the needs of patients and payers. We explore Jason’s experience as the leader of an ultra-luxury brand and what makes it one of the most valuable in the world. As healthcare professionals, our conversation with Jason Herthel is engaging and unique.
Jason, we’re pleased to have you at this microphone.
Jason Herthel 2:24
I’m really pleased to be here. Thank you. It’s great to see you again.
Gary Bisbee 2:26
Let’s dig into your background. What was life like for you growing up?
Jason Herthel 2:31
I grew up in Reno, Nevada. My parents were public school teachers and so we had a classic suburban lifestyle. I have one sibling, a younger sister, and had what I felt was a normal slice of an American upbringing. My parents were big influences on my sister and me in terms of our academics and making sure we were always good students. It was important to them as teachers that their kids represented the brand if you will, and the things my parents did as really good teachers. I come from a long line of teachers. On my mom’s side—multiple grandparents, aunts, uncles, cousins—all teachers. My sister has become a teacher, so my parents have always held out hope that I would someday become a teacher. They call me the bad apple because I went to law school and I said, “Listen, my work isn’t done yet.”
Gary Bisbee 3:33
Where did your interest in political science come from? You were a poly-sci major at Stanford, went to the Kennedy School of Government at Harvard.
Jason Herthel 3:42
It’s interesting. I don’t really pinpoint it to anything in particular. I do remember watching the presidential conventions, the party conventions, and that being a big deal and sort of the drama and fanfare of all of that. Maybe that was an early version of reality television that has now become such an invoke thing for us as a society, but for me, it captured my attention. What is this whole apparatus that’s happening here? The process we go through to elect a president, the electoral college, election night, and figuring out who was going to win and all of that struck a chord with me. No one particular moment. Through my growing up, that was always of interest to me and it never really dawned on me to do anything else in college. I always gravitated through high school to government, American history, world history. hen when I was in college, it didn’t occur to me to do anything other than political sciences. It seemed like a natural extension of what I really cared about.
Gary Bisbee 4:51
Did you ever think when you’re receiving your JD at Harvard that you might want to go into politics?
Jason Herthel 4:58
Sure, there’s probably an element that anybody that went to the Kennedy School was going to law school. It profiles to that, like there, we probably all had a fleeting view of that. I think for me, I never really thought of it as a real thing. I think I think that I thought about going into politics as a professional, maybe that I would become, I’ve worked to become someone’s Chief of Staff, or I run a campaign. I always like the strategy of it all. That was particularly interesting to me, I think more so than maybe then actually running for political office.
Gary Bisbee 5:32
After you receive your law degree, did you immediately go into real estate development, or did that come later?
Jason Herthel 5:40
I did. Well, I started working with Paul Hastings while I was in law school. I did two summer internships at Paul Hastings. One of the things that was really important was real estate law versus something else. It felt very tangible. If I was going home for Thanksgiving dinner, I could explain to my family what I was working on and not have it be so out of reach or out of touch with a grandparent. I’d want to be able to say that it was meaningful to me, to be able to say, “I worked on that shopping center” or “I worked on that building” and be able to tie back to something tangible in the community of bricks and mortar. That’s what got me into real estate initially. Then I found my way within the real estate department at Paul Hastings (which had about 50 or 60 lawyers at the time) and was broken into teams. There was a residential team and an office leasing team and a shopping center team and there was a hotels and resorts team. I found my way onto that because I said, “Oh, I like to travel. Tell me more about that.” That became the spark that lit the rest of the fire and has never turned back.
Gary Bisbee 6:47
You landed at the Montage in 2011. Let’s discuss the Montage if we could. Thinking about our years at the academy and frequent stays at the Montage, I think about it more like an experience and a property. Could you describe the Montage for us?
Jason Herthel 7:06
I appreciate you describing it that way. That’s flattering. The headline would be that we, Montage International, are a hospitality company, hotel and residential company. We have multiple brands (Montage Hotels and Resorts is our ultra-luxury brand) and we have a second brand called Pendry Hotels and Resorts that we recently launched in the last few years. We also run with a four-and-a-half billion-dollar portfolio of residential real estate that we operate, sell, and market within our portfolio, so it’s a full-service hospitality company which I know we’ve been so fortunate to have. We started with our flagship property, Montage Laguna Beach, in 2002. We have five operating Montage hotels today. We’re opening a six this year as well in places like Deer Valley up in Park City, Utah, on Kapalua Bay on Maui, Palmetto Bluff in South Carolina, Cabo San Lucas down in Mexico, and we’ll be opening up Big Sky Montana later this year. At the end of last year, we opened up Montage Healdsburg in Sonoma wine country. We strive to create an experience versus just a hotel. We strive to create an emotional connection at each of our properties through site selection, the location, the building that is then built, and especially through the service component. We strive to create an affinity and attachment between ourselves and the guests so they want to come back, they feel really great about the experience, that they’re having their ability to connect, their ability to relax, their ability to get away from the stresses they have in the rest of their life, and that we can provide service to them and make them feel really terrific, such that they would want to come back.
Gary Bisbee 8:59
You do a good job at that. Let’s get into the secret sauce in a minute, but I’m noticing behind you: is that the New York hotel?
Jason Herthel 9:07
Yes. We’re really excited to be opening five new hotels this year. Four of them are under our Pendry brand and one additional Montage.
Gary Bisbee 9:32
Let’s get back to the Montage secret sauce. You use the term ultra-luxury. I think we can all imagine that, but how would you define ultra-luxury?
Jason Herthel 9:47
It’s a term of art, not science. For us, it means world-class destinations. Five stars is commonly used by us, or five diamonds. Physical components, so size of rooms, mix of suites, amenities that are available to you whether it’s spa and fitness, or it’s an array of restaurants and dining options, all of that provided to you with world-class service. We call our Pendry hotels our new luxury. We have Montage hotels and resorts which is ultra-luxury. Pendry hotels and resorts, new luxury. Our Pendry is a bit of a more modern interpretation. There’s a little bit more of a willingness to accept a “do it yourself” mentality for the customer that’s sort of tech-savvy, a little more comfortable with moving quickly. Service to them is the fact that we thought of something in advance, not that we did it for them. The fact that they’re then able to take care of their own needs while staying with us is a sort of a modern and new interpretation. Luxury is for them. Maybe the rooms aren’t quite as large, maybe they’re not quite as many suites or a real emphasis on art. Food and beverage are still a big, big component in both instances. They’re sort of the lifestyle of the locale, a real sense of place, whether you’re staying with us at a Montage or Pendry.
Gary Bisbee 11:12
As you expand, Montage and Pendry continue to add properties. How do you ensure consistency? How do you ensure this high-quality service across all these newer properties?
Jason Herthel 11:27
We made a commitment about 10 years ago when I was joining the company articulating how we wanted to grow and what would be the rules of how we would grow. We committed to ourselves that we would have as little of a gap as possible, between our best and our worst. We would never want someone to say, “Which version of this Montage brand am I getting?” Or “Which version of Pendry am I getting?” You might have a preference for the mountains over the beach, or the city versus a resort. That’s all fine. That’s a matter of your preference, but you wouldn’t choose which property you’d stay in based on one being superior and the other being inferior. If we’re going to make a brand promise to our customers at something as spectacular as Montage Laguna Beach, then we have to maintain that brand promise at each of the next ones as well. It’s selection, market selection. The partners that will work with the developers that we’ll work with, do they have the capital to execute a project of this magnitude? Do they have the vision to execute a project of this magnitude? Are we going to be set up to provide the service that the customer is expecting? At the same time in doing all of that, can we deliver to the owner-developer the financial returns they’re expecting? That early commitment was the crux of it and everything spilled out from there to say, “Are we keeping within that bandwidth of where we started in Laguna? If so, let’s do it.” If you know in your heart of hearts that, if you were to open this next hotel and you either compromise with your guest who’s wondering, “I just stayed in Laguna or Deer Valley or Cabo and you’re opening up this new one. Why isn’t it the same? The service seems dropped off. The access to staff seems less.” If you break that brand promise with them or if you keep the brand promise with them but on the other hand compromise with the financial objectives of the owner-developer, if you know you’re going to collide with the compromise on either your owner or your core guest, then you probably shouldn’t do the project. We stayed true to that. We continue to say we want to be associated with successful projects that resonate with our guests and then resonate with the investment community. As long as we can do that, then we should be able to be in a good position.
Gary Bisbee 13:57
What’s your philosophy of leadership development? What kind of program do you have to develop leaders within your properties?
Jason Herthel 14:06
This is super important. It really starts with recruitment. How do we approach the market? What type of talent are we looking for? We often say we’re looking for the instincts of hospitality, which may not necessarily come from the hospitality industry. We’ve had folks who have had a very successful 10 years with us who’ve been preschool teachers, they’ve been dental hygienists, they’re coming from a place where they have to have an instinct to take care of someone and we’re providing the vehicle, the hotel business through which they can take care of someone. Recruiting, being thoughtful about what talent you’re looking for, and what skill you’re looking for is a big part of it. Before you start with us, in your first two weeks, you’re doing at least 96 hours of training orientation, training for a couple of days. Everybody goes through the exact same orientation training. It’s called Mores on the Montage side and Know Thyself on the Pendry side. I went through it myself. Every single person in the company goes through the same training program for the first couple of days and then you peel off to your respective disciplines. For further training, we have four series of leadership trainings that go beyond that as you grow with us. It ultimately culminates with specialized training in a small group setting of three to six rising stars who we think could become our next general managers or maybe a position in the corporate office. So it’s a long-range, multi-pronged approach, but starts with a very heavy emphasis in those first couple of weeks. Really starts at the same spot.
Gary Bisbee 15:46
How do you monitor the satisfaction of your guests? I’m assuming there’s a variety of ways you could do that. How have you chosen to do that?
Jason Herthel 15:55
We pay close attention to online reviews, so TripAdvisor and the like is a huge part of what we do, and not just monitoring it. If you want to be successful in this area, you have to be actively engaged with it, so responding to comments, following up separately, being proactive in response to what’s being said about you is kind of honing our reputational management. In addition to that, we use software tools that generate guest satisfaction surveys, so guests upon checkout are invited to complete a survey about their entire experience. They can get into as granular detail as they want to talk about. Overall comments all the way to a very specific spa treatment, room number three, and massage therapist so and so and what they thought of their experience there. The same thing with food and beverage and so on. Then that all gets scored and we’re tracking it as we go. Responding if someone’s going to take the time to fill out a survey is incredibly valuable because feedback is a gift. If someone’s giving us feedback, we want to take it and make the most of it, especially if they’ve had a poor experience. The opportunity to recover with them is really important. In fact, it’s a little counterintuitive, but some of our very best and most loyal customers are those with whom we’ve actually had a very difficult service fault because the way we’ve recovered from that service fault has created a level of trust with them where they won’t forget that they’ll remember. We didn’t have to recover with them. We could have just let their survey go by, but we reached out and said, “We want to fix this.” How can we make it better and recovered with them? They become loyal ambassadors going forward, and that’s a really big part of how we engage with our guests.
Gary Bisbee 17:55
Why don’t we move to COVID? Because it does relate so much to the service that Montage provides. When did you first become aware of COVID? What was your first thought?
Jason Herthel 18:09
We started talking about it at one of our quarterly board meetings in the middle of February. It was a little unclear whether it was going to make its way fully to the US. It was more an international phenomenon at that point in time when we first were hearing about it. Then that month or so between mid-February to mid-March, it became abundantly clear through news reports and then through cancellations. We started to see mass cancellations, both leisure travelers and corporate groups during that month so that by mid-March, we were then facing lockdown conversations in various jurisdictions where we have resorts. That’s when you really knew.
Gary Bisbee 18:56
What were the main steps in your action plan? I’m assuming you knew you wanted to stay open if you could, but you had to react. What were the main steps there?
Jason Herthel 19:07
Most important was the safety and health of the associates and our guests, so everything we were doing was with a backdrop of “if we were to take that action or to not take that action, what would be the implication for guest safety and associate safety?” We were very much taking our cues from the CDC and local public health officials on the appropriate thing to be doing at the time. I remember the first two weeks being incredibly difficult two to three ways because we didn’t know and we had 1,000s of associates who were waiting for decisions and some direction on what to do. One of the first things we did is we said, regardless of whether we’re fully open or scaled back in our operation, we’re going to make sure that everyone’s going to get paid in full as normal for the next two to three weeks depending on which property they’re at, so that bought us a little bit of time to assuage any concerns they immediately had and allow us the breathing room to exercise good judgment in the decisions that were coming out as fast and furiously.
Gary Bisbee 20:26
How dramatic was the occupancy hit across the Montage properties?
Jason Herthel 20:34
Generally, we were doing well. It was about a 50% drop-off for the entire year of 2020 compared to 2019, all of it by property but sort of on average. We were doing relatively speaking pretty well through the end of the summer and into September. Montage Kapalua Bay was an exception because of the quarantine orders from the governor. We were not able to stay open during that period, but the other resorts actually did quite well. I think it’s because we were very fortunate in our setup. Between city center hotels and resorts, our Montage hotels skew towards resort. As between luxury resorts where your customer is more affluent, has more disposable income, is less susceptible to distress based on what’s happening in the economy, we skew towards luxury. Luxury resorts were well-positioned. Drive to locations was a big differentiator if someone had to get on a plane. In the early goings, Cabo was less interesting to the American consumer when they didn’t know whether travel on an airplane was safe, so drive-to markets like Laguna, like Montage Deer Valley, like Montage Palmetto Bluff were actually doing very well and that continued through the end of August and September. Then the weather started to change, you started to hear about surges, the numbers were changing, and it came to a dramatic halt by mid-October, in particular, because of that leisure customer who would be with you during the summer months. Normally our ordinary cadence would have been backfields going into the fall with corporate groups and those corporate groups were nowhere to be found. No one was traveling for business travel. You really felt this in October, so the last quarter of last year was particularly difficult. In total, we were down about 50%.
Gary Bisbee 22:33
Where are you at in terms of projections for the rest of this year?
Jason Herthel 22:37
It’s felt like a real shift during the month of February. This feels a lot more positive for us now, coming out of, in particular, our several properties in California. Governor Newsom was relaxing some of the orders in California in the second or third week of January, so going into February is when that started to feel a lot better. With the stories in the media around vaccinations being more readily available, ICU bed capacity being a lot better, we’re starting to see a real shift in consumer booking patterns. It starts from July 1 give or take and through the back half of the year. Very robust bookings, group bookings, weddings, corporate travel all seem to be back on. It’s not only the bookings we had already for the back half of 2021 but the business that was displaced from 2020 into 2021, the business that was displaced from the early half of 2021 into the back half of 2021 feels very strong. We’re up 35% in Q3 and Q4 over where we were at the same time, which is pre-COVID. Last year, our bookings for the Christmas to New Year’s period is up literally up 90%, so nearly two acts, what we normally would be doing at this time of year in terms of bookings that we had a hard to have on the books, so that feels really good. It seems that the customer has pent-up demand. They have some disposable income, the same principles around drive to market are still prevailing. That’s certainly set you in a better position and if you have to fly, but even Cabo is doing very well and now Chapala (which has since reopened) is seeing a really nice uptick in business.
Gary Bisbee 24:22
Looking back on all of this, what would you say the main lessons learned were for you?
Jason Herthel 24:30
The importance of our associates and the emotional connection we hope to create with our guests. We feel an emotional connection with our associates as well, so going through a crisis like that—and we continue to work our way through it—but last year being really, really difficult underscored that emotional connection we have with our associates is real. They have a real affinity for us as leaders in the organization and we for them, and so really seeing that come through was very meaningful and gratifying. One of the things I said to our team in those early periods when the last couple of weeks of March were starting to unfold was we don’t know what’s in front of us, but we will be remembered for how we behave during this time, both to the good and especially to the bad. We need to make sure we exercise good judgment, we communicate as openly as possible, and always be respectful (especially when we’re sharing difficult news), and we have to live by the company’s values. If it was important for us to talk about the company’s mission and values before COVID as being part of the secret sauce, we need to live by this as a creed within the organization. If we abandon all of that when we’re in a moment of crisis, we will never be able to reemerge as strong as we were before because that will all look flimsy. It will look like it was fake, it will look not meaningful, sso we have to always be mindful of our values as a company and that we behave in accordance with those values. If we can demonstrate that during this time, then we’ll be set up for success when we reemerge.
Gary Bisbee 26:30
What are the criteria for choosing a Montage? What are you actually looking for in terms of location and so on?
Jason Herthel 26:42
One of the things is does this site lend itself to that emotional content? Is there a story here that needs to be told? Is this the location, the view, the real estate something that can be created here? Is it going to make sense to someone who’s been with us at the prior resorts when they get here as an extension of what we’ve done previously. When you’re on that cliff overlooking the crashing pacific ocean waves and you feel the Southern California sun and the breeze and you see surfers off in the distance and you’re transported, can you capture those quintessential Southern California moments in whatever this next place is? In a nutshell, that is the crux of it. All the rest of it falls into place as detail. Do the real estate fundamentals work? Can you underwrite this? Can you get the rate that you’re looking for? Can you get labor here? All of the details of how a hotel comes together? Can you deliver profit at a level that would be a reasonable return to an investor? Will all that fall into place? It starts with a piece of land or a building that has emotional content to its experience that we can accentuate and curate. But, if it’s there, can we make something of it? If yes, then let’s focus on it.
Gary Bisbee 28:18
As you were building syndicates, how did the receptivity hold up during the COVID crisis? Was the financial support still there or did that dry up a bit?
Jason Herthel 28:30
For projects that were signed and in various stages of construction pre-COVID moved forward without any sort of meaningful delay. There have been some delays here and there, construction teams having some COVID scares and things like that early on, so you might have lost a couple of weeks, but those have continued to pace without much interruption. New projects we would have been signing up in 2024, 2023, and 2024, we signed three of those in 2020 where we might have signed four or five, so it probably slowed us down a little bit because the capital wasn’t there. No one was wanting to invest in hotels, certainly not new hotels, when basically the global hotel market was in various stages of shutdown and distress, so that certainly for new projects was the dynamic during 2020. It’s just starting to improve. I think there’s been a lot of capital that’s been made available that is sitting on the sidelines waiting for distress, the assumption being like, “Oh, these hotels are in distress, they’re going to hand the keys back to the lender. We can swoop in and get them at a discount.” The reality is that level of distress didn’t really exist and the reality is that the lenders who had the paper on those hotels said, “Listen, we don’t want to own a closed hotel during a pandemic either, so let’s just work on jumping out and extend your loan and redo the loan covenants and things like that,” so the capital that had been lined up with bated breath excited to jump in and take advantage of it has sort of fizzled out. That capital is still there for sure. It will, I’m sure, become very active over these next three to six months as the industry starts to reemerge.
Gary Bisbee 30:20
We always get into discussions when we chat with you about the similarity between hospitality and your business and the hospital business. One of the observations you always make is that people who want to return to Montage don’t necessarily return to a hospital. Any other thoughts about similarities between basic service model of the Montage and the hospital business?
Jason Herthel 30:53
First of all, I don’t want to skip over acknowledging the enormous gratitude that I personally and that we as an industry feel for those who work as first responders, frontline healthcare workers in hospitals during this period of time. Hotels have been categorized as essential since we provide respite for people who are traveling, we provide respite for people who might be in domestic abuse situations and need to get out and need to stay in a hotel and all kinds of different versions of that, but that is a completely different category from what the healthcare industry has dealt with and the risks that have been taken. I want to start with that enormous gratitude. The core similarity is there’s a desire for us to take care of people. It’s born out of this need. We as hoteliers and those who work in hospitals share a desire to take care of people. There’s also to varying degrees how when you’re in a hotel, you are almost by definition, out of your comfort zone. You’re not at home, you’re staying somewhere else. Whether it’s for leisure, or it’s for business, you’re in a foreign place and you need to be taken care of because you’re away from your comfort zone. The trust we have, the benefit of receiving from our guests, in taking care of them at this moment where they’re sort of vulnerable, and outside of their comfort zone. We provide amazing service and incredible amenities and we make it pretty comfortable for you but fundamentally, you are away from home, and you’re looking for people to help you. During that time when you’re outside your comfort zone, there’s enough of that and that must be true for hospitals. It’s scary. It’s intimidating. It’s a stressful time, and that desire to take care of you when you’re outside your comfort zone is a core commonality between those who work in our industry and those who are working in hospitals.
Gary Bisbee 33:04
Well said, Jason. It’s been a very engaging, interesting interview. I have one last question, if I could. What do you see as the main characteristics of a leader in a crisis?
Jason Herthel 33:19
I think the empathy that is required is probably fundamental to anything else that comes after that. I think you have to be able to feel what others are feeling. You have to put yourself in their shoes, contemplate how the decisions you’re making would feel if you’re on the receiving end of those decisions. That’s the most important from there, how you communicate, how you exercise judgment, how you multitask, how you time manage, all of those things are less powerful. Being an empathic leader is core to the whole thing.
Gary Bisbee 34:03
Has this crisis changed you as a leader or family member?
Jason Herthel 34:06
For sure. The level of responsibility I have and the number of our associates’ lives who are impacted by the decisions I make, I didn’t fully appreciate until I experienced the last year. I knew it intellectually. I knew it, but everything was going really well, so you didn’t really spend time either wallowing in that or reveling in that. It was sort of something intellectually you knew of but this last year the realization of the number of people in my care and custody and whose lives I’m impacting makes me more mindful than I probably would have been in all the decisions I make from here on out.
Gary Bisbee 35:01
Jason, this has been terrific. Thank you, sir, for your time. It’s always a pleasure.
Jason Herthel 35:06
Absolutely. Come back and see us soon.
Gary Bisbee 35:08
Looking forward to it.
New episodes will debut every Thursday. Join me in conversations to gain advice and wisdom from CEOs, presidents, and healthcare experts. Health care leadership is hard work, but it becomes more manageable as we learn from the remarkable lives and careers of our guests. I’ll see you there.