Leading Joint Ventures To Acquire Hotels
By Staff -- Hotels, 10/31/2003 11:00:00 PM
- Bridging The Gap
- Leading Joint Ventures To Acquire Hotels
- Security Checklist: Reacting to Power Failures
- Global Update: Before & After
- Designer Profile
- Gostelow Report
Asset management evolves to create greater synergy between owners and operators.
By opening up the lines of communication and adopting a “we’re all in this together” attitude, asset managers are helping bridge that sometimes vast gap between the interests of hotel owners and management companies. As these relationships evolve, the industry is moving toward a more synergistic approach to asset management, moving beyond the antagonistic, “watch dog” mentality and into the realm of sharing best practices for the greater good of both owners and brands.
This mentality is in line with the increasing transparency by management companies today as hotel owners have demanded to gain a clearer understanding of how the operators’ businesses work — particularly in these challenging times. With everyone looking to cut costs and gain a greater return on their investments, the role of the asset manager is more valuable than ever.
A Growing Field
“It’s spawned a whole new industry, and it’s going to keep growing,” says Laurence Geller, chairman and CEO, Strategic Hotel Capital, Chicago, regarding the rise of hospitality asset management firms as well as the growing Hospitality Asset Managers Association (HAMA). “There is a much better understanding today with regard to the value of asset management. A good asset manager benefits everyone (including management companies) — whether it be by getting insurance costs down or maximizing retail space and so on.”
According to David Gibson, CEO, Asia Pacific, for Jones Lang LaSalle Hotels, the growth of asset management has to do with savvier owners — and operators. “In the ’90s and into today owners learned they need to supervise to extract the best return,” Gibson says. “A good example of this is a hotel in Sydney which in 1998 had an ADR of US$163 with 80% occupancy and was seeing a US$1.4 million return. Today that hotel has the same ADR, occupancy in the 70s and makes about US$9.5 million. The reason is that operators have gotten a lot better at what they do, and that was brought about by owners and their asset managers who ask what is possible out of a hotel investment.”
The difficult operating environment worldwide also has led to an increased vigilance on cost controls, creating an atmosphere where general managers are possibly seeking more support — and turning to outside services like asset managers. “With all the cost cutting going on in the management companies, perhaps GMs are taking support wherever they can find it,” Gibson says. Such challenging conditions also have owners and operators engaged in more “fine tuning” with the help of asset managers, according to Thomas Corcoran, president and CEO of FelCor Lodging Trust, Irving, Texas, which has its own asset management division made up of individuals who all have a hotel operations background.
“When we were going through double-digit RevPAR growth we all looked very smart. Now we’re all working harder,” Corcoran says. “In good times [traditionally] the asset manager role is less important because revenue hides a lot of things. But we’re learning that we must constantly be vigilant and more aggressive in terms of asset management.”
While asset management is not yet as prevalent in Europe, according to Simon Hudspeth, director, HVS International, London, as the structure of hotel ownership in Europe is changing from hotels being owned and operated by the same parties (either families or hotel chains) to more outside investment fund ownership, the demand for professional asset managers will increase. At this point in time, Hudspeth says, asset management has been mostly applied to upscale, full-service hotels operated by regional and international hotel companies. “We are seeing asset management evolving to meet the needs of large, multiple hotel owners as well as high net worth individual owners,” he says.
Expanding Roles
Although the ultimate responsibility of the asset manager is to maximize profit and value of a specific hotel, the job has evolved beyond a solely “checking the books” function. Asset managers today offer expertise in areas as diverse as real estate, operations, sales, capital expenditures, strategic positioning, marketing and liability.
“The role of the asset manager has evolved dramatically. Originally we were portfolio managers for insurance funds, now we really represent the owner, manage the relationship between owner and operator and act as liaisons,” says John Boettger, vice president in the asset management group for Bethesda, Maryland-based Host Marriott Corp., and a past president of HAMA. “We have a broad range of responsibilities with two objectives: to optimize the performance of the hotel and protect the life of the physical asset. To accomplish this we have to dig in at the property level — how it’s run and review capital expenditures. We focus on booking pace, what types of groups are coming into the hotel and anything that is going to impact the profitability of the hotel.”
With a broad range of specialties from which to garner a large knowledge base, these groups focus much of their time on sharing best practices. “Today we’re very research oriented and focused on developing best practices. We want to maximize the value of our hotels as best we can,” says Geller of his company’s asset management division. “Today these assets are so big and so complex that no one person has all answers. It’s a collaborative process. Hotel assets are living, breathing, expensive things to deal with.” “Sharing best practices enables me to do the best for my clients and [since I’m with an outside firm] I can communicate best practice trends without breaching any confidentiality,” Gibson adds.
Gaining Acceptance
This knowledge sharing is to the benefit of owners and operators as asset managers can offer a “fresh eye” perspective to problem solving. And, with a focus on open communication between all parties, the relationships continue to improve.
“It use to be that asset managers were seen as policemen, bashing heads against operators to change how they run their businesses,” Gibson says. “Today [the relationship] tends to work more harmoniously. Operators have more financial risk in projects today and are being held more accountable.”
Corcoran agrees that the relationship between owners and operators is improving as their goals are better aligned. “It’s been a surprisingly more balanced approach. In the last three years there haven’t been any shouting matches. We have the same goal: Take care of the customer.”
As a testament to its commitment to its owners, Boettger says Marriott International has taken a proactive approach to owner relations by forming an internal owner relations group. “They understand owners objectives,” Boettger says. “We now have single point of contact. Marriott is pretty progressive to have that type of function. The amount of communication between owners and managers has greatly improved. We’re building a stronger working relationship.”
The Cadogan hotel in London has become the first acquisition for The Leading Trust, the new real estate investment vehicle formed by The Leading Hotels of the World and New York-based Trinity Hotel Investors LLC. The acquisition marks the culmination of a five-year business plan for Leading to evolve from a hotel representation organization to a full-service provider of products and services in the luxury sector. The Leading Trust will provide Leading members with access to capital for improvements or major renovations as well as providing non-member hotels an opportunity to preserve independent status while benefiting from the affiliation with the group. The Leading Trust initially will target hotels in Europe for acquisition.
“The Leading Trust provides a solution for hotel owners to sell or upgrade their properties while preserving the market position of their hotels. It is a very proactive venture for us. Our plan is very aggressive because we see Europe as a target of opportunity in this environment,” explains Paul McManus, president and CEO of The Leading Hotels of the World. “Our platform is interesting. Owners may not be amenable to bringing on an unknown equity partner or selling to a faceless brand. We provide the optimal solution.” McManus says there are many family-owned assets in Europe that banks are valuing on cash flow instead of just building and land. So many hotels have not been able to make capital investment to maintain standards, which is where The Leading Trust can come in and make money available to them.
McManus says the company will do “sliver and mezzanine financing” for such hotels, with each deal being unique to the individual property’s needs. Other services provided by the Trust could include outright purchase, partnership options, share swaps, asset management and capital advisory services. “Our goal is to preserve assets for the Leading portfolio. This venture/fund will allow us to do this. And we can be competitive against acquiring companies (such as Colony Capital) for the assets,” McManus says.
The company will not manage the hotels, rather put out management contract bids for the properties, meaning that it is possible that a chain could take over management responsibilities. It is also possible for an owner to maintain management while the fund takes the position of owner. For the first acquisition, the 65-room Cadogan in London’s Knightsbridge area, Paris-based GLA International, headed by Grace Leo-Andrieu, will take over management after a significant refurbishment of the property. The Leading Trust bought the ground lease from Richard Boyd, who operates Historic House Hotels, a group of mostly country houses. “The property won’t be renamed, but will be refurbished, starting immediately. Technology needs to be included in that, and Grace has her plan set and £1.5 million this year. Half the inventory and the public spaces will be done first to get it going,” McManus says. While Cadogan is not part of the Leading portfolio, after the refurbishment could “make the grade” as a Leading hotel, McManus adds.
Leading’s business plan already identifies 16 other potential acquisitions over the next three years, with the goal of having four by the end of the first year. The company is targeting hotels that need extensive upgrading or are having difficulty maintaining Leading status. Additionally, the company already is feeding new inquiries coming in. “We have been approached by three European banks who own hotels and are interested in what we are doing,” McManus says. “We need to be judicious in our selection rather than beating bushes for deals.”
In light of the recent blackouts in Italy and the eastern United States and Canada, which affected approximately 100 million people, hoteliers should reflect on the importance of a crisis management team (CMT) and an effective emergency action plan (EAP).
In the past five months I have written articles on how hotels can benefit from having a well-written EAP and exercising drills with a CMT. Well, on August 14 in the eastern United States and southeastern Canada and in late September throughout Italy, your EAP should have been put to the test. My particular experience comes from the New York City blackout.
The Critical Five. As with most emergencies, the first five minutes are critical. It is during this time that the incident command leader or CMT leader takes over the emergency and starts the duty of collecting valuable data. The most crucial actions include evaluating the emergency and its possible cause, the range or spread of the affected area, what is working and what is not in the facility, gathering the CMT members and delegating assignments. If you have an emergency backup system, is it working? If so, how effectively?
Communications. In efforts to determine some of the aforementioned situations, viable communications is a key. In New York City, even after lessons following 9/11, we still encountered detrimental problems with communications. Cellular communication services failed and power backup systems for city agencies failed and halted radio transmissions between police headquarters, local precincts, radio cars and patrol officers. The fire department had limited communications as battalion trucks carried portable radio repeaters. Cellular service was overloaded and point-to-point walkie-talkie communications were sporadic. Service for two-way beepers and pagers was limited, as well.
In addition to ascertaining information about external communications, the CMT leader must ensure that the facility’s communication system is working. A public address announcement should be made to advise the occupants what the emergency is and give specific instructions on what to do. You may want to advise them to remain in their guestrooms and wait for further instructions.
Entrapments. A critical exercise is to quickly establish if you have any elevator entrapments. If so, immediate notifications must be made to your elevator service-company and local fire departments. People in New York City were trapped in high-rise buildings for hours. In a dark confined space without air conditioning, this can be torture. If you have hydraulic elevators a mechanic or engineer may be able to bleed the elevator piston to lower the cars and open the doors to release occupants. Firefighters, in other cases, must breach a wall or structure to release occupants. However, this is extremely dangerous and can cost lives in the event power is restored or the elevator moves.
Accountability. You must keep a head count of all guests, employees and visitors in the building. Copies of this information must be given to the PBX or telephone operators. In most cases, family and friends will contact the hotel to inquire about them and operators with first-hand information can calm or ease concerns. During the New York City blackout, off-duty staff found their way back to the hotel because they could not make the journey home, and the hotel was still the best place to seek shelter.
ADA situations. Ensuring disabled guests, employees and visitors are comfortable and safe is a priority. If there is no immediate danger, they may elect to remain in their guestroom or find assistance to get them into the lobby or other public area close to an exit. Keeping a list of disabled persons in the building is a must.
Shelter In Place. Where can you find a better place for shelter than a hotel? There is plenty of food, beverages, showers, sleeping areas, lighting and, in some cases, air conditioning. The hardest decision is whether or not to close your hotel to the public. Thousands of citizens slept on the streets and sidewalks during the New York City blackout. In most cases, city hotels were sold out and, in other cases, it was too hot to remain in guestrooms.
Blackouts can be upsetting to your guest and staff. Being well prepared with trained CMTs and a thoughtful EAP is crucial to the safety of all involved and the rapid recovery of hotel services.
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In the 12 years since the Hotel Montalembert landed on the Paris scene and carved a niche as one of the premier hotels in the city, this chic, boutique hotel has been celebrated for its impeccable décor that incorporates classical themes in a contemporary setting. So when renowned hotelier Grace Leo-Andrieu set out to refurbish her beloved property, careful attention had to be given to refreshing the natural “wear and tear” while preserving its original style. The result was a two-year refurbishment, capped off with a revamped restaurant and bar, which adds a subtle, yet captivating new ambience to be appreciated by loyal guests and new patrons alike.
“This is the hotel that put us in the limelight,” Leo-Andrieu says. “So our point was not to change in a revolutionary way that would make our existing clientele uneasy. We needed to find the right balance. It was quite a challenge. The refurbishment was thorough, but doesn’t give the impression of a new hotel.”
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Since the restaurant is situated just off the lobby and has an open plan design, creating an intimate environment for dining was a challenge. One way Leo-Andrieu approached creating such an atmosphere was through the use of wood paneling to warm up the space. Building on that cozy ambience during the restaurant’s revamp, a satin oak finish with a hint of light olive green was added to the sycamore panels, giving them an updated look. Earth tones, such as khaki and cinnamon, dominate the new color palette. Tables were given light oak tops, and the oversized banquettes were upholstered in hazel-colored, hand-woven fabrics by Aissa Dionne Textiles.
Leather is also a main theme. New chairs designed by François Champsaur are done in wood and clay-colored leather and a sage leather and chenille banquette occupies the back wall in the small, private dining room at the back of the restaurant. “I did lots of leather. It lasts longer, is very comfortable and gives a rich, noble feeling,” Leo-Andrieu says. In keeping with the coziness, lighting had to remain soft. Leo-Andrieu combined soft overhead lights with deep orange silk lampshades to create warmth. In the bar area, a 3-ft. (.91 m) wide, black silk drum lampshade with gold lining casts a soft glow. “It’s a flattering lighting that everyone looks good in,” she says.
Of particular note is the new china and glassware created by Leo-Andrieu. Its minimalist geometric design features an asymmetrical stripe creating a number of different looks depending on how the plates are placed on the table. To complement the chinaware are goblets done in lilac, to match the stripe, Leo-Andrieu says.
As Starwood Hotels & Resorts Worldwide sets out to revitalize its classic Sheraton and Westin brands with new prototypes, much attention is given to interior design. To that end, at the company’s headquarters here, a dedicated team of interior designers makes it their mission to reflect each brand’s distinct identity and character through decor.
For example, along with Sheraton’s new service promise program and a state-of-the-art “sweet sleeper bed,” Starwood also wanted to make sure that the look and feel of its hotels would evoke a new chapter in Sheraton’s history. With a new prototype set to break ground before year’s end in Tarrytown, New York, the evolution of Sheraton brand will be realized, thanks, in large part, to the work of its design team led by Vice President of Sheraton Design Ellen O’Neil. “I came here a year ago and was given the task of coming up with a look for 400 properties,” says O’Neil, who prior to Starwood worked as senior vice president of home design for Polo by Ralph Lauren. “The first thing we did was choose a signature design vocabulary. Barry [Sternlicht, Starwood chairman and CEO] wants Sheraton to be fun, with a nod to the American family in travel. We wanted it to be slightly nostalgic, with a lobby more like a great room in a lodge rather than a thoroughfare.”
In order to accomplish their design goals, O’Neil’s team devised five “lifestyle looks” based on each hotel’s demographics and psychographics. Each “look”—Metropolitan, Riverside, Country Rustic, Coastal and Tropical—has its own set of buzzwords to help create a unique identity (all the while maintaining Sheraton’s brand standards). These buzzwords include both the feeling of the “lifestyle look” as well as color palette and materials used to invoke that emotional response.
For instance, Metropolitan design is described as “classic and clubby with a twist. The luxury of a mahogany-paneled library packed with leather-bound books... Persian rugs underfoot, a Chesterfield couch...the punctuation of bold color, a tweak of the traditional tartan plaid.” Whereas, by contrast, the Riverside look includes such features as “a color palette for a warmer climate; an atmosphere that harkens the relaxing pace of the South; gracious fabrics, warm, rich, creamy tones and textures; subdued Damask patterns mixed with faded florals; and honey-colored woods.”
To bring these concepts to life, five prototype rooms have been created at Starwood headquarters so that they can be tested and tweaked. Part of the reason behind these demo-rooms is that beyond choosing colors, textiles and case goods, an important consideration in hospitality design is functionality. This means the rooms cannot be cramped, lighting in the bathroom has to be bright, the desk space ample and so on. The goal is to create a space in which people can feel comfortable and at home. “The overall design is honest and consistent. We are just gently pushing the envelope. It’s not trendy, just good classic, American style to reinvigorate the brand,” O’Neil says. “We’re trying to step away from the hotel/motel and more toward the residential.”
If, as O’Neil says, Sternlicht describes the new look of Sheraton as similar to the Polo brand in the retail world, according to Sternlicht, Westin is Starwood’s equivalent to Armani. To help maintain Westin’s brand promise of “modern luxury” in a smaller footprint prototype, the eight-person design team for Westin, lead by Vice President D.B. Kim, found new meaning to the term “less is more.”
“Westin is about modern luxury that is designed aesthetically to be very subtle, passive and quiet; not fussy,” Kim says. “Our focus is all around the sensuality of the Heavenly [bed and bath] program. It’s more about a clean, comfortable bed and efficient use of space rather than a high visual impact.”
As Westin guestrooms are designed to look uncluttered and minimalist, creating the same environment in a smaller prototype design was a particular challenge. The prototype took more than year to design so that its visual appeal is the same, despite the average size of these hotels to be 200 rooms rather than Westin’s typical 400 rooms. Kim says the creative team focused on reducing space needed in the back-of-the house areas so guests would not feel any brand standards were being sacrificed. The designers also developed a smarter guestroom layout, which utilizes flat-screen televisions mounted to the wall rather than large armoires that eat up space. The first new Westin prototype is set to break ground in spring 2004 in Richmond Heights, Missouri, outside St. Louis.
Croatian-born Goran Strök, now based in the UK, has two symbiotic hotel groups, Wren’s Hotel Group, Windsor, UK, and Adriatic Luxury Hotels, Dubrovnik, Croatia, which is firmly establishing itself in post-war Croatia. Strök already has purchased three key water-set Dubrovnik hotels from the government. During the war the Bellevue continued operating, as a home for a myriad of refugees at the government’s expense. The Excelsior already is fully rebuilt and busy, but Adrian Zecha has temporarily delayed working with Strök in converting his 70-room Villa Odak annex into an Amanresort. The 307-room Dubronik Palace, a massive conference hotel with a separate beach for naturists (nudists), opens by next March. Strök is also in charge of the Grand Hotel Bonavia in the center of Rijeka, also on the Adriatic, and he is turning his attention now to renovation of properties in Konvale.
Warren Chan, London-based director institutional finance for Marriott International, hopes to do several Bulgari hotels—the first set to open in Milan next year. He also is hopeful of far more Courtyards, Marriotts, Renaissances and Ritz-Carltons in Europe. He also is looking seriously at timeshares in European destinations served by low-cost airlines.
The big question in London, at this time, is who will get management of the 512-room Grosvenor House hotel, run by Le Méridien until July 30, when owners the Royal Bank of Scotland put in RBS, Kroll’s Corporate Advisory & Restructuring Group as administrators. Bids for management were due in October 8, with results expected early in November. Some supposedly knowledgeable parties were saying Fairmont was the favorite, followed by Marriott, for a JW Marriott. But is it true Horst Schulze, still working out of Atlanta, is interested in the Grosvenor House name?
David Wilkinson, general manager of the Dorchester, London, has resigned to work on his own hotel project in the city. Expect something along the lines of the stylish One Aldwych, still masterminded by Gordon Campbell Gray—whose second property, the 88-suite Carlisle Bay, Antigua, opens afresh this month after a fire two years ago. Owned by Irish entrepreneur Pat Dougherty, Carlisle Bay is the first property officially to be managed by Campbell Gray Hotels. Will a follow-up be in Jordan, perhaps? Campbell Gray was in the Kingdom in October, assisting his brother, who is designing gardens for the Royal Family. The trip will be written up in a leading UK lifestyle publication next February.
London acquired two eye-catching architectural structures over the last four years. One, the London Eye ferris wheel, is universally recognized as a success. The other, the much-despised Millennium Dome in Greenwich, was a failure from day one. Now it is said that Kerzner International is planning a casino-hotel there. Kerzner is thought to have struck a deal with AEG Europe, which bought the Dome site. AEG Europe is owned by Denver-based rail and telecommunications billionaire Phillip Amschutz.
Nottingham, two hours north of London, is the scene of the first Dakota, the newest brand from Monte Carlo-based Ken McCulloch, still best known for starting Malmaison. Just as DC-3 Dakota aircraft encouraged more people to fly, he hopes Dakota hotels will encourage hotel usage. All Dakotas will have 100 to 200 guestrooms, all averaging 265 sq. ft. (25 sq. m) and sold at about US$100 a night, with slightly lower prices during weekends. There will be fabulous beds and shower-only bathrooms with designer toiletries, but costs will be kept down by eliminating roomservice. A communal room of vending machines, with microwave ovens, will suffice, but there will be bar-restaurants. This is a brand that will roll out fast, says McCulloch, who also is hoping to expand the concept of his Columbus hotel in Monaco to Cannes, Lisbon, Lyon and Paris.
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