Ian Schrager, the pioneer of the boutique hotel concept, agreed to buy a development site in New York City as he prepares to open his first property under the Public brand tomorrow in Chicago.
His company, Ian Schrager Co., also is close to completing a second Manhattan deal as part of a plan to develop trendy, less-expensive properties in “gateway” cities, Schrager said in an Oct. 7 interview. He declined to give details of the plots or say how much he’s paying for them.
Ian Schrager Co. plans to build and revamp properties in metropolitan areas including Los Angeles and Paris. Last week, it won a 76 million-pound ($119 million) bid for a Crowne Plaza hotel in London that likely will be the next Public location, Schrager said. The company bought the property now known as Public Chicago in the city’s Gold Coast section for about $25 million and spent about the same amount to renovate it, he said.
“We bought it at the bottom of the market when everything was in the garbage bin,” Schrager said by telephone from New York. “The building had great bones. It’s an iconic landmark. It might be Chicago’s Plaza Hotel.”
Schrager’s company plans to spend $250 million to develop 10 to 15 locations in the next five years.
The hotelier’s expansion plans come as the lodging industry improves. Occupancies in the top 25 U.S. markets climbed to 68 percent this year through August from 65 percent in the same period last year, according to Smith Travel Research Inc. of Hendersonville, Tennessee.
Slowing Economic Growth
Slowing growth in the U.S. economy may begin to weigh on hotel occupancies and room rates, Patrick Scholes, an analyst at FBR Capital Markets Corp., said last week before Marriott International Inc., the largest publicly traded U.S. lodging company, reported a third-quarter loss. The U.S. jobless rate was 9.1 percent in September and has been stuck at 9 percent or higher for all but two months in the last two years.
“Of course it’s easier to open a hotel when the economy is strong, but we aren’t trying to time it,” Schrager said. “I opened my first hotel in New York when interest rates were 22 percent. We’re not in the timing business. We buy fundamentally sound investments.”
In New York, new supply may also put pressure on room rates. Sixteen hotels are scheduled to open in Manhattan in 2012, and at least 18 are slated to come on line in the following three years, according to a study by PricewaterhouseCoopers LLP. More than 65 hotels are in the pipeline with unspecified opening dates, the firm said.
‘Get Market Share’
“There’s already pricing pressure in New York,” Schrager said. “But there’s always an opportunity to get market share. It’s not unlike Steve Jobs. When he came up with his hardware, the market was already full of products, but he did something special. There’s always business in New York. It’s just a question of getting it to your hotel.”
Schrager and his business partner, the late Steve Rubell, started the boutique-hotel trend in 1984 with the Morgans Hotel in New York. Schrager also opened the Delano in Miami; the Mondrian in West Hollywood, California; and the Hudson in New York, all now operated by New York-based Morgans Hotel Group Co. He left the company in 2005 to start Ian Schrager Co.
The Public Chicago is in a wealthy neighborhood near Oak Street Beach on Lake Michigan. The property, formerly the Ambassador East Hotel, is in a mostly residential area where JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon once had a mansion.
At the hotel, a 275-square-foot (26-square-meter) room with a king-sized bed, flat-screen television, down comforters and marbled-floored bathroom starts at $195 a night for the week of Oct. 17, according to the property’s website. The highest price for that week is $495, for a one-bedroom suite.
Occupancy for all hotels in Chicago climbed to 64 percent from January through August from 62 percent a year earlier, and the average daily rate gained 5.3 percent to $114.20, according to Smith Travel.
Schrager has said his company won’t compete with the Edition boutique brand he’s creating for Bethesda, Maryland-based Marriott, a partnership announced in 2009. Edition hotels will be four-star properties, while Public locations will be less expensive and an Ian Schrager Co. brand that hasn’t been named yet will feature pricier rooms.