Hotel King Lew Wolff Looks to Check OutBy
Lew Wolff began acquiring luxury hotels in the 1990s, when they were considered a risky investment. Now he may be selling some high-end properties just as the market is recovering and rivals are buying.
Maritz Wolff, the Los Angeles-based company founded in 1994 by Wolff and Philip "Flip" Maritz, has cut its portfolio to nine hotels, including Manhattan's Carlyle, from almost 50 a decade ago. By 2007, the closely held firm had sold hotels for a total of $1.1 billion. The partners would like to return $500 million to investors in the next four years after disposing of more properties. Wolff says the company can wait until it gets attractive offers. "We don't have any of the pressure that public companies have," says Wolff, who is also co-owner and managing partner of the Oakland Athletics baseball team and co-chairman of Sunstone Hotel Investors, a real estate investment trust. "We have time to find legitimate buyers at a price we wouldn't necessarily pay ourselves."
The 76-year-old investor is planning sales as hotel values begin to recover from their recession slump. Prices peaked at about $126,000 per room in 2007, then plunged 39 percent to a low two years ago, according to research company Real Capital Analytics. The average price climbed to more than $160,000 a room in last year's fourth quarter because of a surge in luxury-hotel transactions.
Even with the increase in values, it's too soon to be a seller of lodging properties, according to Patrick Scholes, an analyst with FBR Capital Markets. "After what we've just come through," he says, "for the most part it's probably better to be buying at this point than selling, because we're still early in the price appreciation of hotels."
That doesn't bother Wolff or Maritz. "Lew and I would rather zig when others are zagging," says Maritz, 50. "There are so many buyers, REITs, or pension funds that are looking to deploy money. We'd rather be the sellers at this point than the buyers."
Maritz and Wolff, both St. Louis natives, met in 1990, introduced by a mutual friend. Wolff had been president of the real estate division of movie studio 20th Century Fox, while Maritz was working in office-building leasing in Northern California. One of their first investments together was in sports. In the early 1990s, the owners of the St. Louis Blues were considering moving the National Hockey League franchise out of the city. The two men participated in a group to acquire the Blues and keep the team in town. The duo's first luxury-hotel investment was the 1994 acquisition of the Ritz-Carlton in St. Louis, which was financially troubled. The purchase paved the way for Maritz Wolff to become one of the biggest luxury-hotel owners in the U.S., with stakes in 49 properties at its peak in 2001.
John J. Fisher—son of Gap co-founder Donald Fisher, who died in 2009—and his family have been investors in Maritz Wolff since its formation. The Fishers have a majority stake in the Oakland A's and also co-own the San Jose Earthquakes soccer team with Wolff. "Lew sees things far ahead of most other people," says Fisher, 49, who helps manage his family's fortune.
Wolff has faced challenges with both his hotel and sports investments. Attendance at Oakland A's ballgames last year was down by 50 percent from its peak in 1990, and the owners' attempts to build a new stadium have failed. Wolff purchased a stake in the franchise in 2005 at the suggestion of Major League Baseball Commissioner Bud Selig, who was Wolff's fraternity brother at Pi Lambda Phi in the 1950s when both attended the University of Wisconsin-Madison.
In the lodging business, one Maritz Wolff setback is the Fairmont San Francisco, a hotel the company owns in partnership with Saudi billionaire Prince Alwaleed bin Talal. The investors have been unable to get city permission to convert a portion of the Nob Hill hotel into a residential tower, and Maritz Wolff is considering selling its stake. "We're at a point where we feel, maybe let the next guy figure it out," says Maritz.
Maritz Wolff has had to contend with natural disasters as well. In the West Indies, the company had to rebuild the Four Seasons Resort Nevis twice when hurricanes damaged the property. After a third storm, the company handed the hotel over to its lenders. The Fairmont New Orleans was "pretty much devastated" by Hurricane Katrina, Wolff says. Wolff Maritz used insurance proceeds to pay back all the lenders, then sold the hotel to a local developer, who rebuilt it as the Roosevelt New Orleans.
Any of the duo's remaining nine properties, including the luxury Carlyle on Manhattan's Upper East Side, may be sold should an offer prove appealing. "I have no emotional ties to any property," Wolff says. "They are inanimate objects. That's the only way we can be fair to our long-term investors who trust us to do what's best."
The bottom line: Maritz Wolff has sold all but nine of its 49 properties for $1.1 billion and hopes to sell another $500 million worth by 2015.