Henry Silverman Makes Bet On SBE Entertainment

SLS Hotel in Las Vegas
Ryan Forbes

Veteran financier Henry Silverman is making his first big bet on a luxury boutique hotel company.

The former executive at Apollo Global Management and Guggenheim Partners is forming a partnership with SBE Entertainment Group, a Los Angeles-based firm that owns and operates hotels, restaurants and nightclubs.

The partnership will be with Mr. Silverman’s new firm, Cain Hoy Enterprises, which launched in September. Cain Hoy is recapitalizing SBE with a $167.5 million loan that gives Cain Hoy warrants for up to 20% of the company. The financing values SBE at $350 million, SBE said, and will retire four-year old debt held by Colony Capital.

Cain Hoy is also forming an investment vehicle with SBE that will acquire and develop properties for SBE’s new hotels and other businesses. Mr. Silverman’s firm has earmarked $500 million for the venture, though that figure could be higher if the venture finds more opportunities over time, Cain Hoy says.

With debt and a contribution from SBE, the venture expects to be able to invest about $1.5 billion of equity.

Sam Nazarian, SBE’s founder, says that the investment partnership will allow his firm — which currently owns or operates six lifestyle or luxury hotels under the SLS and Redbury brands, and runs the Raleigh in Miami Beach — to build scale quickly. He is exploring deals in Austin, and broad in London, Rome, Hong Kong and Dubai.

“We spent a lot of energy trying to find new partners for each deal,” he says. “This will be permanent capital that could stay for multiple decades” as opposed to private equity firms that need to sell every few years.

Mr. Silverman built a hotel portfolio at Cendant Corp., though those were mostly lower-priced brands like Howard Johnson and Days Inn.

“This is the first time we have been exposed to higher end hospitality brands,” says Thomas Christopoul, a Cain Hoy senior partner who also worked with Mr. Silverman at Cendant. “But elements of hospitality are the same no matter what part of the value chain.”

SBE’s largest property, a 1,620-room Las Vegas hotel and casino opened in August, and Mr. Nazarian says New York and Bahamas hotels are slated to open in 2015.

Separately, SBE said that president Sam Bakhshandehpour is taking over as chief executive, while current CEO Mr. Nazarian becomes executive chairman.