In Demand - Investment Outlook - December 2000

Stephen Rushmore learned from the best to create HVS International, a full-service consulting firm. Now his goal is to pay it forward.

By Staff -- HOTELS Magazine, 12/1/2000

"I give someone a large portion of a small pie, as opposed to a small portion of a large pie. If the partner is successful, they will benefit directly." - Stephen Rushmore

During the late 1970s and early '80s, financial institutions were very busy financing, then refinancing, hotels across the United States. At the same time, a young Stephen Rushmore was busy trying to build a reputation for providing hotel valuation services and market studies, better, he thought, than those offered by the few consulting companies serving the hotel industry. On his own for the first time and in search of his first big client in 1980, Rushmore had the great fortune of meeting Matthew Hart, then with Marriott and now with Hilton Hotels Corp. He had enough moxie to convince Hart that burgeoning Marriott hotels needed appraisals done along with feasibility studies. Hart acquiesced and Rushmore's Hospitality Valuation Services (HVS) had its first big break. Give Rushmore credit for entrepreneurial spirit and something almost every successful business person will tell you is so important to success-great timing.

Today, some 20 years later, Rushmore, following in the footsteps of his mentor, the late Stephen Brener, is still an innovator. Through the development of new divisions within his organization and through strategic alliances, Rushmore has added multiple services and built a strong global brand now known as HVS International. Today, HVS International offers services ranging from valuation and consulting, to executive search and interior design, and has 11 offices around the world with plans to expand into several more world gateways by opening new offices or creating alliances with local consultants.

"He's the octopus that ate the hotel industry," says Randy Smith, chief executive of Smith Travel Research, Hendersonville, Tennessee. "Steve has all types of tentacles out there. HVS is an amazing operation and Steve has a certain aggressiveness that enables him to expand and exceed expectations."

Rushmore, 55, a Cornell University graduate and father of two Cornell legacies, is best known for his valuation studies, data presentations at industry conferences and his forthright assessment of industry conditions. Package this with his philanthropic ways, his affable personality and approachable demeanor and you have the makings of an individual whose industry voice is important and advice sought after.

"Steve is a throwback to a less frenetic time in the hotel industry when you could have a one-on-one with a single practitioner," says Jonathan Tisch, president and CEO of Loews Hotels and the chairman of the NYU hotel industry investment conference founded by Brener. "In an era of consolidation and alliances, to still be able to talk with a boss on a variety of topics is unusual and worthwhile."

Honing His Craft

 A business which last year grossed US$16 million and supported about 200 employees took roots when Rushmore was a junior in high school. To find a summer job in a hotel, he leafed through a pamphlet of Cornell hotel school grads and found a resort in Whitefield, New Hampshire, operated by Mary Dodge Silk, the wife of Professor Thomas Silk, who ran the admissions department at Cornell. He not only snagged a job as assistant salad chef at the resort, but he finessed an interview with Professor Silk, which led to his admission to Cornell.

Upon graduation in 1967, Rushmore married and went to work in Rochester, New York, for the Robin Hood Rooms restaurant chain. Six months later, he was drafted into the Vietnam War and eventually came home to attend the University of Buffalo, where he earned his MBA.

Rushmore's fate was sealed in 1971 when he went to work for Stephen Brener in the hospitality division of Helmsley Spear, a large real estate company owned by Harry Helmsley. "Stephen Brener was an absolute genius when it came to understanding deal structures, valuations and marketing professional services," says Rushmore with great reverence.

Brener taught Rushmore about hard work, how to market and sell professional services, and how to sell credibility. It was the template for what was to become HVS International. "Typically, hotel owners need valuations every three to four years, and we need to be in front of them continuously," says Rushmore. "We do this by direct mail. If you are an owner, lender, operator or potential client, you will hear from us every two or three weeks with meaningful information about the hotel business. This is what I learned from Steve Brener."

Rushmore left Helmsley Spears in the middle '70s to work for a real estate investment trust (REIT) as a hotel foreclosure specialist. As a result, he had the opportunity to witness a cycle that saw the economy go through an energy crisis, REITs lend indiscriminately on hotels and overbuilding that led to the bottom dropping out of the industry in the late '70s.

Rushmore then went back to work with Brener for a few years before deciding to venture out on his own in 1980. His rationale for taking the leap: the major consulting firms were operational specialists without a strong grasp of the real estate side of the business. Rushmore thought he was golden because he could market himself as the first member of the Appraisal Institute with a degree in hotel administration. He had the ability to combine feasibility studies with financial projections and valuations at the same price other consultants offered just the market study. But to generate business he realized he first needed additional credibility and did so by authoring a textbook for the Appraisal Institute on hotel valuation. Soon thereafter, HVS was born.

It took the consulting firms about six to eight years to realize HVS had made serious erosions into their market shares for these types of products, according to Rushmore. "The beauty was they couldn't train their people to appraise without five years of experience and testing," he says.

The competition has since trained its people to compete with HVS' product, but Rushmore already had the Marriott business and the fortune of starting a business during a period of tremendous industry growth that required his services. "We were able to come up with a product that offered something different than what anyone else could offer and we had barriers to entry for five to 10 years," says Rushmore. "By that time, we had offices open, divisions started and a brand."

Expansion Plan

In 1985, Suzanne Mellen started HVS' expansion when she opened a West Coast office in San Francisco as a 50-50 partner with Rushmore. "This shows what I like to do," says Rushmore. "I give someone a large portion of a small pie, as opposed to a small portion of a large pie. If the partner is successful, they will benefit directly."

Shortly thereafter, offices were added in Boulder, Colorado, Miami and London, which triggered a change in the company's name to HVS International in 1991. Rushmore made the global push because he felt HVS had "the better mouse trap" when it came to the combination of market and feasibility studies, as well as valuations. "Reports in London, for example, were one-page documents done by chartered surveyors," says Rushmore. "They told clients they were the greatest in the world and this is the value-trust me. They weren't providing the detailed report and were charging twice as much as we did for a full report. Initially, we received a lot of resistance, but after three or four years we became the standard."

Offices in Singapore, Sao Paulo and Mexico City followed and the goal going forward includes adding HVS offices or creating alliance partners for every major gateway within the next 10 years. Immediate goals include opening offices in Paris and Germany, as well as Eastern Europe, the Middle East, South Africa, Hong Kong, Tokyo and Australia.

The common bond in all the offices is that Rushmore has 50% voting control; not necessarily 50% of the economic control. "That forces everyone to reach decisions by consensus, which leads to buy-in from all parties," says Rushmore.

New Services

As HVS became an established brand, the partners realized it was time to add other services and found people inside and outside the organization to start new business. For example, gaming and asset management divisions started in the San Francisco office; eco-hotels and executive search ran out of New York; food and beverage services out of Boulder; and investment services in London. The most recent division to open is based in Boulder where Greg Hartmann has launched HVS Technology Strategies, combining the office's operational and financial expertise with a technology focus.

Not only does this growth strategy give HVS the chance to build business, it gives its people a chance to spread their wings and fulfill their dreams. "If my people have good ideas and business plans to provide other services, then we try to accommodate them... If you are highly motivated, driven, work hard and do good work, you can do far better with HVS," says Rushmore.

HVS has also developed several alliances with separate companies, one of the most successful being HVS' deal with Hodges Ward Elliott, a hotel brokerage and finance company out of Atlanta. "Because of the nature of our business, we know what hotels are for sale," says Rushmore. "When we are asked to recommend a broker, we tell clients about our alliance with Hodges Ward Elliott. If they make the sale, we get a referral fee."

To give HVS the look and feel of a full-service consulting firm, Rushmore and his crew have developed similar alliances in the United States with a design firm, an architect, a third-party hotel management firm, a public accountancy, a purchasing organization, a timeshare exchange firm, a foodservice equipment specialist, a spa management company and others.

To date, three ventures have been disbanded, including a "secret shopper" business and an investment banking division started with Roger Cline, currently with Arthur Andersen. "We tried to do transactions in 1990 and 1991. It was bad timing," says Rushmore. "We never closed a transaction and spent hundreds of thousands of dollars, and it didn't work. You need a track record. If you haven't put together a deal, people don't tend to use you. We should have hired someone with a tack record."

While expansion has been impressive over the past 10 years, 60-70% of HVS' revenue still comes from valuations, market studies and feasibility studies. The next biggest revenue source is Keith Kefgen's executive search operation, and the rest is equally divided among the divisions, according to Rushmore. Through the first three-quarters of 2000, HVS' business was off 10% but Rushmore expects to end the year even with last year's revenue total. He attributes the flat numbers to the Federal Reserve's decision to spike interest rates and its short-term impact on transaction volume.

The Headaches

Of course, being an entrepreneur and business owner is not without its headaches. An industry source told HOTELS' Investment Outlook Rushmore has been named a defendant in lawsuits as many as 40 times and has published articles based on fabricated data.

Rushmore denies ever having used false information in any of his published materials and says he has been sued no more than four times. "During the Resolution Trust Corp. (RTC) time," he says, "the New York office did hotel appraisals for savings and loan offices which went out of business. The RTC went through appraisals and sued most professional service firms looking for insurance dollars as income. We settled these matters."

In another action, Marriott sold and HVS valued 70 Courtyard hotels in the late 1980s. The hotels didn't do well after the sale and investors sued Marriott because they were not satisfied with their return. HVS was eventually named in the suit and settled out of court. "We recommended the Marriott transaction at a fair and reasonable price, taking into account the overbuilding of the late 1980s," says Rushmore. "The other attorney said if there was overbuilding, we should not have recommended to buy the hotels."

Rushmore adds, "When you're a service firm and sell opinions, and things don't work out, people tend to sue when they see you have errors and omissions insurance. I have a US$1 million package and the four suits have not depleted the coverage."

The Private Side

There is another side to Steve Rushmore that is not all business. Not only is he very philanthropic, having endowed a professorship at the Cornell hotel school and donated the Jennings-Rushmore computer lab at New York University's hospitality program, he is an avid flyer and collector of hotel memorabilia. He plans to start an industry museum within, perhaps, the next five years.

Rushmore has collected and cataloged more than 8,000 key tags, one of his favorites being an original from Brown's Palace in Denver. He also has about 2,500 hotel pens, his favorite being the cobalt blue pen with the gold tip from Ritz-Carlton. He has an assortment of hotel keepsakes, ranging from menus and photos to the silver tray given to maitre d'hotel Oscar Tschirky at the Waldorf=Astoria on the occasion of his 50th anniversary with the hotel.

Plans for the museum include a working hotel with 15 to 20 replicas of famous rooms from around the world, including an original Holiday Inn room and, he hopes, a room from the Ritz in Paris. Rushmore wants to get sponsors to pay for the rooms and derive revenue from guests staying in the rooms. He is open as to where the museum would be located. A home at the Educational Institute in Orlando, Cornell in Ithaca, New York, or at New York University sound logical, but he wants to make sure it is at an easily accessible site.

Another fascination of Rushmore's is roadside "cuisine" and diner food. It started when his mother told his father she married him in sickness and health-but not for lunch. As a result, Steve got into the habit of eating at local diners or junk food havens such as White Castle. His favorite spot: a joint in Rochester, New York, called Nick Tahoe's, home of the Garbage Plate, which is a sandwich consisting of cold baked beans, hash brown potatoes, a layer of chili, a hot dog and hamburger topped off with another lay of chili.

Not surprisingly, as Rushmore travels, he loves to discover where the locals eat. About five years ago he was given a book about "road food," and about two years ago, he and his son met the authors. One thing led to another, and about four months ago a joint venture was created and a web site was launched called roadfood.com. Not intended to be advertiser driven, the site has been average more than 100,000 hits a day, causing the partnership to rethink its plans for commercial activity.

All kidding aside, when asked to consider his remaining professional objectives at this point in his career, Rushmore thinks about expanding the business but, perhaps, is more interested in developing his people. "We are looking a lot closer at training and getting people on a career path within the firm," he says. "We want HVS to be a job for life. If you want to stay in this industry, we should have a spot for you that will keep you motivated and excited for as long as you want."

Simply put, Rushmore says in closing, "My greatest personal satisfaction is giving highly motivated people opportunities to live their dreams. It's fun."