High-End Hotels Are In Bloom
<B>High-End Hotels Are In Bloom</B>
By Bruce Serlen
Upscale and deluxe hotel chains are forging ahead with expansion of their luxury offerings, despite falling occupancy rates and stalled room revenue growth in key U.S. cities.
Deluxe chains Ritz-Carlton Hotel Co. and Four Seasons Hotels & Resorts are growing their products both domestically and internationally, while Marriott International created its own new luxury brand, to be called Bvlgari Hotels & Resorts, and announced a New York addition to its J.W. Marriott brand, the top tier of its core Marriott Hotels & Resorts product.
Not to be outdone, Starwood Hotels & Resorts Worldwide last month announced plans to build a St. Regis, its premier brand, in a highly visible project in San Francisco scheduled for completion in 2003. And Regent International last month announced that its fourth U.S. location will be Boston.
Certainly, when it comes to building new hotels, agreements were put in place and financing arranged months before the current downturn began. Underlying all the activity, however, is a basic act of faith: that, unlike other lodging industry categories, demand for accommodations in top-tier hotels is considered to be recession-resistant, if not outright recession-proof. In announcing Ritz-Carlton's aggressive plans, for example, the brand's new president and COO Simon Cooper spoke of Ritz-Carlton guests' "continued demand for top of the line accommodations around the world" as a key driver behind the growth plans.
For travel buyers coping with restricted travel budgets, should the national economic slump accelerate, this may or may not be the case. Granted, deluxe hotels appeal to the very top echelon of business travelers--the presidents, chairmen and CEOs for whom exceptions to policy often are quietly made.
But another trend also is behind the current ambitious wave of development. Many of the recently announced projects are part of multi-use, high-rise developments that include high-end condominium apartments along with retail components, such as sports clubs and designer boutiques. At Ritz-Carlton, for example, six of the 25 new hotels and resorts the brand plans to bring online by year-end 2003 are mixed-use complexes of this kind.
At Four Seasons, new projects in San Francisco and Miami, scheduled to open in 2001 and 2002, respectively, fit this profile. Curiously, in the case of both Ritz-Carlton and Four Seasons, the real estate developer is the same: San Francisco-based Millennium Partners.
Starwood's St. Regis project in San Francisco also is a mixed-use condominium development, though undertaken in conjunction with developer Carpenter & Co.
The new Regent, scheduled to open in 2003, is a four-building complex to be called The Regent Boston at Battery Wharf Hotel and Residences. The real estate firm there is the Development Management Corp.
For the developers behind these deals, the idea of working with brand names as recognizable and esteemed as Ritz-Carlton, Four Seasons, St. Regis and Regent has a very strong appeal. Branding the project with one of these names associates it with a high degree of personalized service and amenities and separates the condos from other apartments coming online in that market.
"In addition to buying an apartment, owners of the condominiums are entitled to use of the hotel's services, ranging from the health club and spa to the restaurants," said Barbara Talbott, Four Seasons executive vice president of marketing. In uncertain economic times then, real estate developers get a marketing bonus, while the hotel companies get the financing they need to proceed.
At Ritz-Carlton, a number of the newly announced hotels are in gateway cities where Ritz-Carlton already has a presence. But this only creates an opportunity for a brand to saturate a market and, thereby, build market share. In Washington, D.C., for example, Ritz-Carlton opened a 300-room property in the city's west end last fall and is scheduled to open another in toney Georgetown in early 2002. "But this will be a 92-room boutique and have a much different profile," Cooper said. Similar multiple hotels are planned for New York, Boston and Miami, again targeting different sub-markets within a larger market.
Aside from its San Francisco and Miami projects, Four Seasons also plans to focus on international markets. New hotels are scheduled to open later this year in Shanghai and Sharm El Sheikh, Egypt, and next year in Budapest, Amman and Riyadh. "We're targeting global gateway cities that increasingly are visited by our frequent guests, but where there isn't yet a hotel of our caliber," Talbott said. Consistent with this approach, Four Seasons already this year has opened hotels in Dublin, Prague and Caracas.
The St. Regis project in San Francisco, which will be called the St. Regis Museum Tower, will be the 11th in the chain since Starwood created the brand based on the landmark New York original. "The hotel will occupy the first 20 floors of the 40-story tower, with the remaining floors being condos," said Diane Briskin, director of brand management.
Given its more modest U.S. presence, Regent International--a unit of Carlson Hotels Worldwide that mostly is known in Asia--first is establishing itself in gateway cities. "The Boston project will establish what we see as the next generation of luxury hotels in this important destination," said Eric Danziger, president of Carlson Hotels.
As the name of Marriott's new deluxe brand suggests, the project is a joint venture with Bulgari SpA, the luxury Italian jewelry maker. Marriott said it expected to open five to seven Bvlgari Hotels in the next five years. "A couple should be under construction by 2003," said Leeny Oberg, senior director of investor relations, adding that sites in London and in southern California were under consideration.
"The idea is to attract the sophisticated, world-class traveler. As a brand of jewelry and accessories, Bulgari appeals to a trendy, fashionable consumer. The challenge is to translate that sensibility to hotels," Oberg said. While she "wasn't wild about the word 'boutique,' " Oberg said that in terms of size the hotels would be 85 to 300 rooms, compared with the 225 to 600 rooms in a typical Marriott Hotels & Resorts property.
Ironically, given the amount of deluxe hotel development underway, Oberg said the number of Bvlgari properties would remain limited. "It's the value of what we call the scarcity factor," she said. "We wouldn't ever expect to see 30 Bvlgaris around the world."
To accommodate its latest brand into its portfolio, Marriott created the Luxury Group operational unit to include Ritz-Carlton as well as Bvlgari. The group is based in Atlanta, where Ritz-Carlton is headquartered, rather than Marriott's Washington, D.C., base, suggesting that Bvlgari will be given the leeway to create its own persona.
J.W. Marriott, by contrast, shares more of the existing Marriott Hotels & Resorts profile. With the addition of the first New York property, this top-tier Marriott now has seven U.S. properties, including a Washington, D.C., flagship, and seven international locations. The New York site is a conversion of the former all-suite
Rihga Royal Hotel. "Regarding market penetration, Marriott now has 6,500 guest rooms in New York in 10 hotels across all its brands, said Roger Borsink, regional vice president for the New York market.
As with accelerated development in any lodging category, the wave of expansion at the deluxe level raises questions about consistency: Can any brand open hotels in quick succession, not only in the United States, but internationally, and be able to ensure a consistently high level of service across them all? Operationally, hotels that are part of large apartment complexes are very different from small, free-standing boutique hotels. Likewise, service expectations vary widely in Miami, Budapest and Riyadh.
Ritz-Carlton's Cooper believes his company, for one, can deliver on this expectation. "Our customers have faith in what we represent," he said. "While we grow larger, our commitment to service excellence strengthens even more.