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Fame and fortune in upmarket hotels

Article from The Wall Street Journal January 06, 2012 5:19PM

NO strangers to being pampered on the road, the rich and famous in recent years jumped into the luxury-hotel game - just in time to watch the economy slide into recession.

But neophyte hoteliers such as entertainer Gloria Estefan, eBay founder Pierre Omidyar and Microsoft chairman Bill Gates can rest easier: As business travel starts to pick up, high-end hotels are rebounding, offering their famous owners some solace that their purchases will be more than costly trophy assets.

The four-star, 94-room Costa d'Este Beach Resort in Vero Beach, Florida, owned by Estefan and her husband, Emilio, a music and movie producer, opened ahead of the recession in 2008 after several years of delays due to hurricane damage in the area. "A lot of people said, 'You should scrap that,'" Mr Estefan said. "But I'm very persistent. We took a big risk."

But now, he says, "people are coming back" and revenue per available room, a key measure of hotel profitability, is up 16.7 per cent during the first 11 months of 2011 compared with the same period a year earlier.

All hotel categories are seeing improvements, but high-end hotels are faring better than most. Luxury and upscale hotels in the US posted gains in revenue per room of 21 per cent and 13 per cent, respectively, in the first 10 months of this year in comparison to the same period in 2009, according to Smith Travel Research.

The surge is in part because the fortunes of affluent business and leisure travelers have sprung back faster than for the masses, according to analysts.
Hotel ownership long has appealed to celebrities and business titans, who find that their fame and personal touch brings guests to the properties, as they do with restaurants. Actor Robert De Niro owns the Greenwich Hotel in Manhattan, for example. But the real-estate boom brought a string of high-profile purchases, including Dell founder Michael Dell buying two Four Seasons hotels in Hawaii and Omidyar financing a new chain of ultra-luxury hotels.

Celebrities and business moguls tend to invest in hotels "for reasons other than economic returns," including the artistic element in the design and the feeling of being a host, said Bjorn Hanson, dean of the New York University Tisch Center for Hospitality, Tourism and Sports Management. "That said, I am certain even famous hoteliers are relieved by the industry's recent rebound."

Indeed, some properties that were facing debt defaults just a year ago are now landing mortgage refinancing deals.

In 2009, Beanie Baby tycoon Ty Warner's four hotels, including the Four Seasons New York, weren't generating enough cash flow to qualify for an automatic extension of their mortgage without Warner making concessions. He ultimately paid $35 million of the loans' balance to win a two-year reprieve.

Now, with cash flow up 300 per cent since 2009, Warner's Ty Warner Hotels & Resorts obtained new loans for the hotels in November, according to people familiar with the loans.

The rich and famous were drawn to the hotel business in part through their own experiences. "Half of my life is spent in hotels," said Kate Pierson, a founding member of the B-52s pop band, whose hits included Love Shack. "I just knew what I'd like to see."

Pierson bought a 10-suite hotel west of Woodstock, New York, in 2003. She and her business and life partner, Monica Coleman, recast the retreat with eclectic, 1950s decor and renamed it Kate's Lazy Meadow Hotel. But the renovations took years, forcing them to draw on Pierson's music earnings. With an average nightly rate of $200, the hotel turned a profit in 2010 and has been improving ever since.

"With the way the economy has been, I don't know if someone who didn't have another primary source of income could survive," Coleman said.

At Omidyar's Montage Hotels and Resorts, chief executive Alan Fuerstman said the hotels are benefiting from a burst of visits from wealthy business and leisure travellers, especially those from Asia and South America. "There was clearly a tightening of the belt by consumers in 2008 and early 2009. It's all trending very positively now," he said.

Omidyar owns Montage's properties, but Fuerstman owns most of the brand and management company.

Among the largest hotel deals by high-profile buyers during the boom came in 2007, when Saudi Prince Alwaleed bin Talal's Kingdom Holding and Bill Gates's Cascade Investment acquired Four Seasons Hotels and Resorts for nearly $US3.4 billion.

In the first nine months of 2011, the luxury chain has registered a 9 per cent increase in revenue per room compared with the same period in 2010, according to the company. Sarmad Zok, chief executive of Kingdom Hotel Investments, a unit of Kingdom Holding, described the prince and Kingdom as "delighted" with the Four Seasons investment and added that the prince wants to accelerate the chain's expansion.

Article from The Wall Street Journal 

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