Money-Growing: Hotels: Investing in Pillows and Feathers

On the whole, there were no major acquisitions this year unlike 2003; however, a new, moderately priced “lifestyle” brand was launched. The first Indigo hotel opened in Atlanta. Some chains are trying to reposition their brands and move to a less expensive price category.

Having launched its franchising program a year ago Hilton International is today celebrating the success of its middle-class oriented Scandic brand. Deepak Seth of Hilton says the growth has already reached 70%. “Hilton seeks to establish a presence in the medium price niche,” he says. “We will first focus on Italy, Germany, Austria and Spain and then turn to France, Switzerland and Central Europe.”

To achieve further growth the company is set to promote small non-affiliated hotel chains, affiliated independent properties and new developments. The first hotel under the Scandic franchising scheme opened in January of this year in Bari, Spain. Eight new Scandic hotels are to be opened soon in Italy. One of those hotels will operate at Rome airport.

Best Chains

Best Western with over 4,000 hotels in more than 80 countries across the globe remains the world’s most popular hotel chain. But the MKG hotel ranking is by no means dominated by the internationally-known hotel industry giants.

For the second consecutive year, Inter-Continental appears on the first rung of MKG Consulting’s Worldwide Hotel Chain Ranking, and this despite a supply that has declined slightly (-0.7%). The dynamism of the brands Express by Holiday Inn and Crowne Plaza offset the rationalization of the supply of Holiday Inn (-3.1%).

While pursuing its real estate disinvestment process, throughout the year InterContinental pursued its goal to become a pure hotel operator and franchiser. On its domestic market, the British group put over 70 properties up for sale. This strategy of disposing of assets around the world brought the group nearly 1.75 billion pounds Sterling, part of which was distributed to shareholders. The year 2005 should be no exception since several hotels in North America and the Pacific zone have been put up for sale.

Cendant thus continues to hold second place with limited growth (+0.5%). In the United States, increased quality standards have led Cendant to purge its system of its lower performance properties, diminishing, in particular, its brand Villager Lodge within the brand Knights Inn. The major event for the American franchiser in 2004, however, was undoubtedly the acquisition of the remainder of the brand Ramada International previously co-owned with Marriott. Cendant already had its hand on this brand in North America.

Now the sole owner of Ramada worldwide, the group will invest several million dollars to reposition this banner with heightened quality standards for the American properties. A new logo should also be revealed. With a new organization that is more internationally oriented, Cendant crosses out of its boundaries to pursue its development, using Ramada and Days Inn as spearheads. Despite the transfer of its rights on Ramada International and the subsequent loss of 15,000 rooms, the Marriott group limited its slump (-2.2%) thanks to its star brands, Marriott, Courtyard by Marriott and Renaissance.

These brands continue to develop steadily. Up against a domestic market where its brands are already prevalent, Marriott is shifting its development abroad. “We are adding hotels all around the world with properties that are able to grow the value of our system,” confirms Laura Paugh, Senior VP of the group for investor relations. “Europe is primarily a conversion market. The Middle East and Asia are markets for new constructions. And in the United States, there is a blend of the two.”

Sweet Dreams

The major initiative in 2004 was the renewal of all the bedding at Marriott’s properties. Over 600,000 beds will be changed and the group will foot 20% of the bill for this undertaking. “We decided to invest $40 million in order to complete this job in one year. According to consumer tests, clients are willing to pay more for their rooms. These new beds will contribute to the improvement of our RevPAR”.

A new bedding concept also wins the seat of honor at Accor which, with its new concept “My Bed”, now offers clients a feather bed at those Sofitel properties equipped with this new bedding. A leader in Europe, Accor is strengthening its position as number four hotel group worldwide (+2.2%) beginning 2005. Equity participation in Club M?diterran?e, a partnership with the group Lucien Barri?re in casinos, reinforcement of the partnership with Dorint, total acquisition of holdings in GO voyages, strong growth of the brands Ibis and Novotel on an international scale: the French group was busy in 2004.

With exception of Formula 1, its brands have posted sustained growth on their domestic market. The United Kingdom and countries in Central Europe offer its economy brands lots of opportunities.

Outside Europe, the group Accor gives priority to its development in China, India, Russia, the Middle East and Latin America. Accor has set its growth at 20% of its supply in order to reach “550,000 rooms in 2008 and 5,000 hotels by 2010,” announces Christian Karaoglanian, general manager of hotel development for Accor. To ensure rapid expansion, the French group found a choice partner: Colony Capital. The American investment fund brings a billion euros to the French group to realize in three years what was initially planned for five.

Franchisers Attack

The groups that follow in the ranking, such as Choice (+3.9%) and Hilton Corporation (+2.8%), have shown a real dynamism to join the leading runners. The American franchiser is slowly closing in on 50,000 new rooms – 47,727 to be exact – added in one year. The year 2004 was marked by new standards that were set by the brand Comfort Inn, with a new logo that is being used progressively throughout the network.

“After Clarion and Quality, Choice decided to give a new wind to this banner that had been a bit neglected in recent years in order to revive it,” explains David Cook, CEO of Choice Hotels Europe. After five years of losses, the master franchisee of Choice for Europe outside Scandinavia is returning to the growth track.

Another event of the year: the subsidiary of the group in Asia-Pacific, Flag, has become Choice Hotels Australasia. This should reinforce the American group’s development throughout this region and in China in particular.

Starwood has undertaken to continue its development by signing several management contracts but also by franchising hotels under the brands Sheraton, Westin, Four Points by Sheraton and Luxury Collection. At the same time, the American group worked on finalizing its agreement with Lehman Brothers for the takeover of the chain Le M?ridien. These negotiations appear to have come to a happy conclusion last month with a goal of integrating the brand in Starwood’s current portfolio. This did not prevent Le M?ridien (-11.6%) from maintaining a steady development plan with 20 new properties for 2005 joining the 10 openings of 2004.

Simultaneously, Starwood is disposing of some more properties, including the Danieli in Venice, which it sold to an Italian real estate holding company, but will continue managing. Carlson, meanwhile, is suffering from Radisson’s shrinking supply, for which the rapid growth of Park Inn (+14.8%) and Park Plaza (+9.9%) does not totally compensate.

Outside its domestic market, Carlson Hotels Asia Pacific is readying itself to boost the group’s development in Asia-Pacific. In addition to the brands Radisson and Park Plaza, Carlson sets itself a major objective: the relaunch of Regent in Asia, the cradle of the luxury brand that was once owned by Four Seasons.

In 2004, Regent entered the European market with two openings in Zagreb and Berlin. This development is to the credit of Rezidor SAS, the master franchiser for the EMEA zone. Ties between the two parties were further strengthened when SAS, the Scandinavian airline, which is the parent company of Rezidor, sold 25% of its shares to the American hotel giant. In exchange, the strategic partnership between the two groups was extended until 2052.

Growing Appetites

The great change in this ranking with respect to the previous year is the arrival of Hyatt among the Top 10 worldwide. In 2004, the Chicago group surpassed Hilton International thanks to a major acquisition: the 143 properties of the mid-scale range AmeriSuites. For 12 to 18 months, the group took on the renovation of the brand before renaming it. End 2004: the group reorganized itself by bringing its latest acquisition and its domestic and international activities under the umbrella Global Hyatt.

Among the most dynamic hotel groups last year is Best Value Inn – a brand in the group Vantage Hospitality - or rather Americas Best Value Inn since its recent name change. This pure franchiser on the economy and mid scale segments saw its supply grow by nearly 140 properties and 10,000 rooms in one year.

“We were recognized as the chain with the fastest growth for two consecutive years,” remarks Peter Frantz, its marketing director. Other major changes in the United States: the merger of Mandalay Resort Group and MGM Mirage, resulting in a giant in the hotel-casino industry, and the buyout by the group La Quinta of the brand Baymont Inns.

In Europe, in addition to the launch of the brand Premier Travel Inn of the group Whitbread, Iberostar has progressed significantly with the opening of 7 properties (+11.1%).

As far as groups specializing in hotel management are concerned, M?venpick has the wind in its sails. The Swiss group has nearly doubled in size in 5 years. And 2004 posted the openings of 6 hotels, including those in Disneyland Paris, Berlin, Aswan as well as a 1,155-room property at Medina, in Saudi Arabia.

Many project openings are scheduled around the world: in Germany, in Tanzania and, above all, in the Middle East with several projects in Dubai in collaboration with Kingdom Hotel Investment.

Another group that enjoys the support of the Saudi Prince Alwaleed and his firm Kingdom Hotel Investment (KHI) is the Canadian group Fairmont. A joint-venture between the hotel group, KHI and the Bank of Scotland was set up at the end of 2004 to accelerate the development of the upscale chain in Europe.

The group’s buying power amounts to 800 million pounds Sterling. The first acquisition for the joint venture: the Grand H?tel in Monaco. Earlier this year, Fairmont took over the management of London’s Savoy, the eponymous group’s flagship acquired by KHI from the Irish investor Quinlan Private. Fairmont is not limiting its ambitions for growth to Europe. The group also has projects in the Middle East and in Africa where KHI has just finalized the buyout of five properties in Kenya.

Hotels Conquering the Orient

The widespread trend of globalization has also made its way throughout the hotel industry. Following the example of this ranking’s leaders, who have long tried to develop their networks on five continents, other actors, mostly on the upscale segment, are also falling into step.

In addition to the advantage of diversifying the financial risk, this movement is affected by forecasts for growth of tourism – particularly intra-regional – in several regions around the world with Southeast Asia and the Middle East in the lead – and the economic expansion of the demographic giants – India, Russia and China.

The Middle East – everyone’s Eldorado – has not stopped announcing openings. And India, too, is opening up. In the 80s, the major American groups had set the example by modeling their development – often in franchise – on the professional travel of their business clientele. Today, Asian groups are picking up the relay.

The opening of the Chinese outbound tourism market offers them exciting perspectives. They also hope that their properties will act as live advertising for their brand with regard to European or American clientele. Mandarin Oriental thus established itself in Paris in 2004 before opening in Prague in 2006. Soon to be present in Vancouver, Shangri-La plans its entry on to the European continent in 2009. In London, to be exact on Renzo Piano’s futurist London Bridge, before Paris and Frankfurt.

This movement does not just concern major cities. Banyan Tree hopes to attack the luxury resorts market by opening nine properties in two years. It already voiced this ambition in 1997 but it was postponed by the economic crisis in Asia, followed by SARS and planet-wide terrorism.

Today, the Singapore group has made a firm decision to establish itself in Dubai, Greece, Morocco, Mexico and China. But Asian groups are not neglecting their domestic markets, where competition from the giants in the worldwide hotel industry is strong. With the advent of an imposing middle class in India, Taj is getting ready to provide an answer to the growth of national tourism.

The Indian group is launching itself into the economy hotel industry with its new brand IndiOne. With a target of 150 hotels in India and the region, its goals are ambitious. In China, Jinjiang Inn, the super-economy banner of Jinjiang International is getting ready to make an equivalent foray into its domestic market. The Chinese group, resulting from the fusion of two state-owned hotel groups, plans to structure its supply of 130 hotels for nearly 30,000 rooms “Western style”, by breaking down its supply among six or seven brands and could be a part of this ranking very soon.

The Best of the Best

Seeking to push up occupancy rates hotels often resort to various tricks. Indeed, the title of “the most…” is likely to turn even the most ordinary hotel into a tourist attraction.

Thus, the world’s oldest hotel – Hoshi Ryokan – is to be found in Japan, in the hamlet of Awasu. It dates back to 717, when an inn was built near a hot-water spring said to have miraculous healing properties. The waters are still celebrated for their recuperative effects; Hoshi Ryokan now has 100 bedrooms and can accommodate up to 450 guests. Guests, upon arrival, are dressed up in a "yukata," the traditional Japanese cotton kimono.

The most expensive hotel – Empire – is situated on Borneo Island, Brunei. The Sultan of Brunei spent $2.7 billion on the development. The hotel has 433 rooms and an 11,000-square-meter seawater swimming pool – the largest in the world. But the most expensive hotel room is to be found at Chrystal Palace Resort and Casino in Nassau, Bahamas. The hotel charges $25,000 per day but guests who place high stakes at the casino stay there free of charge.

Those who are after something exotic are welcome at the 5-star Aria? Tower Lodge, the only hotel complex at tree-top level in the Amazon rainforest. Located some 50 kilometers from Manaus, Brazil, the hotel is made of wooden towers, the highest – built at a height of 60 meters – featuring a deluxe suite for newly weds called ‘Tarzan in Love’. Rooms are equipped with wooden furniture and linked to one another with wooden bridges.

The world’s only subterranean lodge is the 3-star Hotel Kousseila located in Matmata, Tunisia. The hotel is styled as troglodyte cave dwellings. The entrance to the cave leads into a patio with suites styled as caves around it. Each cave is equipped with a toilet, air conditioning and a TV. The hotel charges $30 per day. The hotel restaurant is situated outside the caves. Incidentally, the Star Wars movie was filmed in the area.

The world’s highest hotel is the 321-meter Burj al-Arab in Dubai, with 202 rooms, charging up to $15,000 per day. The complex features an underwater restaurant complete with a shark aquarium. The largest hotel in the world is MGM Grand Hotel/Casino in Las Vegas, with four 30-stroried buildings, 5,000 rooms, a 15,200-seat concert hall, and a 13.3-hectare theme park.

The former socialist bloc countries did not have many hotels. Some of them emerged as a result of conversion. Last year, the former building of East Germany’s Central Bank, near the Brandenburg Gate in Berlin, was redeveloped as an upscale Hotel de Rome, with 146 rooms. As part of the 71-million-euro project, the property, built in 1889, underwent considerable alterations. The rooms leading to the banqueting hall are the former cashier rooms of the bank and are largely in their original condition. The imposing, ancient vault of the bank was converted into a swimming pool, and the magnificent offices of the former board members of the bank were converted into suites.

The word 'motel' meaning motor hotel was coined by architect Arthur Heinemen and the first property was named Milestone. It was built in 1925 for only $80,000. The motel is situated halfway between San Francisco and Los Angeles, in St. Louis Obispo, Calif., US. Charging $1.25 per night the hotel offered its guests a 2-room bungalow with a kitchenette and an adjoining garage. All the ‘rooms’ face the inner courtyard complete with a swimming pool and picnic tables.

An Italian in Dubai

Inspired by the obvious success of hoteliers, the world’s renowned designers are joining in. Bvlgari, the start of a dynasty of Italian jewelers and watchmakers, was the first to break into the hotel business.

Established in Rome in 1884, Bvlgari, with over 200 boutiques across the globe, still retains its leading position in the world of fashion. In 2003, the company’s sales exceeded 750 million euros.

In 2001, the chain launched a new luxury hotel brand, Bvlgari Hotels & Resorts, through a joint venture with Luxury Group of Marriott International Inc., which runs the Ritz Carlton Hotels chain. The company plans to open 7 five-star hotels across the world. The first Bvlgari hotel opened in May of 2004 in Milan. The jewelers hold a controlling stake of 54.07% in the property, while the remaining 45.93% stake is floating on the Milan Stock Exchange.

Hoteliers, as well as fashion designers were greatly surprised to see Giorgio Armani enter the hotel business. In May of this year he signed a deal with EMAAR Properties to develop a chain of luxury hotels, Armani Hotels & Resorts, within the next decade.

In comments for REurope Armani said that he had long sought to find a worthy partner in the world of real estate. His choice fell on EMAAR Properties controlled by the government of Dubai. The parties are set to build what they describe as a long-term partnership with good prospects.

The landmark deal signed in May will open a new chapter in the history of Armani, the designer said. Armani plans to open hotels in New York, London, Paris, Tokyo, Shanghai and Milan, but the chain’s first hotel is to be opened in 2008, in Dubai, being part of EMAAR Properties' Burj Dubai development, which, when completed, will be the world's tallest residential and commercial building.

The Dubai Armani Hotel will include 175 guest rooms and suites, restaurants and a spa, covering more than 40,000 square meters. Alongside the hotel, the Burj Dubai will offer 160 luxury residential apartments all designed by Giorgio Armani and fully furnished also with a specially designed line of products from the Armani Casa home furnishings collection. The tower is the centerpiece of a new 160-hectare community adjacent to the Dubai Mall.

Under the terms of the agreement, Giorgio Armani S.p.A. is awarding a long term license to EMAAR Hotel & Resorts LLC for the operation of the collection of luxury hotels and resorts, whereby EMAAR will be fully responsible for real estate, construction, management and operations, with Giorgio Armani overseeing all aspects of content, design and style, including interiors and amenities, incorporating the various Armani fashion, furnishings and beauty collections. Investments are to exceed $1 billion.

Pursuing her new passion for interior design and home style Donatella Versace, too, has taken an interest in the hotel business. One of the most famous hotels styled by Donatella is Palazzo Versace Hotel, Gold Coast, Australia, with 205 rooms, 72 condominiums and a private bay with a magnificent view of the Gold Coast.

Guests From the Future

Choosing a hotel is tricky. Most hotels are designed and furnished to meet generally accepted standards. But, by launching a daring project to develop its Puerta America project in Madrid, Silken Group did not try to meet the standard requirements. 13 renowned designers and architects took part in the project, each of them commissioned to design one of the stories of the hotel of the future.

For example, Jean Nouvel was commissioned to design the 12th floor and facade. Estudio Mariscal was placed in charge of the 11th floor; Arata Isozaki the 10th floor; Richard Gluckman (of Gluckman Mayner Architects) the 9th floor; Catherine Findlay (Ushida Findlay Architects) the 8th floor; Marc Newson the 7th floor and bar; Ron Arad (Ron Arad Associates) the 6th floor; Victorio & Luchino the 5th floor; Eva Castro & Hoger Kehne (Plasma Studio) the 4th floor; David Chipperfield (David Chipperfield Architects) the 3rd floor; Norman Foster (Foster&Partners Limited) the 2nd floor; Zaha Hadid the 1st floor. John Pawson was responsible for the common areas, Christian Liaigre for the restaurant, Harriet Bourne and Jonathan Bell (B+B uk) did the landscaping and Arnold Chan (Isometrix Lighting and Design) worked on the lighting.

Each of the artists did their own thing. David Chipperfield elected to use a simple but luxurious range of materials such as handmade black terracotta flooring for the bedrooms, walls upholstered in wild silk in gold tones, white marble, etc. Norman Foster explained that the Basque sculptor Chillida was the source of inspiration for the second floor of the Hotel Puerta America. The result is that the rooms are transformed into flexible and sensual inner sanctuaries. The design and integration of spaces the materials and tones used… And Pritzker prize winner Zara Hadid said she sought to create a different architectural language, based on the new developments introduced by digital design and enhanced by today's production capabilities. The aim was to create fluid spaces.

When the hotel opened in June of this year, it caused a real sensation. Silken Group’s president called Puerta America a dream come true. The group had spent 75 million euros on the development of the 34,000-square-meter hotel, with 360 rooms.

Russians, too, are taking an increasing interest in the hotel business. The number of hotel fairs and conferences held annually is growing. But investors only show interest in the development and reconstruction of hotels in the regions most attractive for tourists, such as Krasnodar. The conditions for the creation of domestic hotel chains are being formed.

The future of Best Western Hotels in Russia is quite ambiguous. The only hotel launched by the chain in Russia is Neptune in St. Petersburg. Russia’s domestic chains – HelioPark and Stable Line – have a good chance of succeeding.

“So far, the best chance of success is either with national and regional chains or with joint ventures formed with foreign brands,” says Marina Usenko, the head of Jones Lang LaSalle Hotels Russia. “They will be able to respond more promptly to the specific requirements of guests and will more easily adjust to the ever-changing market conditions.”