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 Business News | January 2007 
Geller Has No Reservations About the Heights of Hotel Luxury
 Ted Pincus - Sun-Times
| | Laurence S. Geller |
It takes a one-of-a-kind guy to amass a premier collection of one-of-a-kind hotels. It also takes a guy with vast experience as a top innkeeper combined with colossal aspirations and even bigger bravura. But then, a Laurence Geller doesn't come along very often. Otherwise, there wouldn't be enough five star hotels to go around.
Consider that from a standing start three years ago, Geller has boldly but quietly bought no fewer than 20 of the world's ultra-luxury hotels. Imagine picking up the Fairmont and Intercontinental in Chicago; Four Seasons in Washington, D.C.; Four Season Punta Mita near Puerto Vallarta, Mexico; the Ritz Carlton Laguna Niguel in Southern California; the Westin St. Francis on Union Square, San Francisco; the Marriott London Grosvenor Square; the Scottsdale Princess; Ritz Carlton Half Moon Bay in northern California; Hyatt Regency La Jolla; Four Seasons Mexico City; the Marriott Paris Champs Elysees; the Intercontinental in Prague, and others equally elegant.
Robust appetite for plus
As disposable income of the planet's upper echelon soars to new dimensions, and at a rate hardly contemplated a few years ago, the appetite for plushier accommodations has expanded even faster.
"We believe fervently that if you treat people like billionaires, you'll attract billionaires," Geller says, explaining the basic premise behind his Strategic Hotels & Resorts (NYSE: BEE). "But I regard our hotels as iconic rather than trophy properties. Trophies are reserved for wives."
Since buying each of his hotels, he's poured millions more into upgrading and sharpening their images. But upgrade a Four Seasons? Hasn't that lily already been well-gilded?
How do you do it? By changing the focus, and thereby changing the mix of business and improving volume and margins, he says. "When we buy each hotel, we first do intensive, highly sophisticated, computer-modeled market research. In most cases, we've found that the high-end of the industry hasn't kept pace with opportunity. They're still focused on the baby boomers when it's the Generation-Xers who are now spending the money on luxury."
That kind of research told Geller that the Fairmont here, for example, should have a full reorientation and revitalization aimed at the Gen-X crowd.
During 2007 the lobby will be remodeled, all rooms upgraded, wine room and sushi bar added, with new dining rooms plus a 20,000-square-foot ballroom adjacent to a 5,000-square-foot terrace overlooking Chicago's emerging cityfront.
Not missing a beat, Geller also grabbed the rights to 15 floors of the new 82-story Aqua Building rising next door for an additional 210 Fairmont suites.
"It's going to be today's version of the Waldorf Towers," he says.
Geller follows boldness with boldness. After laying out sums like $440 million for the St. Francis, he's not shy about paying more to transform each prize. He estimates improvement spending totaled $40 million to $50 million companywide in 2006, and will rise to perhaps $80 million in 2007. Part of this outlay will be for expanded facilities at his lyrical Four Season Punta Mita, a sumptuous Pacific oceanfront resort complex that's a prime lesson in what price-is-no-object Gen-Xers are all about today.
Focus on the young
"We made a bet by pioneering the concept of focusing young there," he says, "and last Christmas our appeal to upscale-youth-with-families resulted in at least 10 hotel bills of more than $150,000 each. One was for our mega-suite with pools and kitchen that rents for $10,000 per night. Our newer ones are going to rent for $15,000 per night."
"This is the most exciting part of my job," says the ebullient 59-year-old Englishman who went up the ladder at London's Grand Metropolitan chain and was executive vice president of Hyatt before founding a hospitality consulting firm in 1989. Since launching Strategic Hotels with a 2004 IPO, it has been nonstop. In a REIT industry filled with hot players such as Chicago's Sam Zell and John Bucksbaum, Geller's company was the fifth best performing REIT in 2005 with a total return of 31 percent.
The Street consensus says BEE earned $1.39 per share in 2006 on revenues of $734 million, and he agrees that's "very possible." The Street projects $1.73 per share for 2007 and $991 million in revenues.
Despite the seemingly free-spending, risk-taking style, Geller has managed to maintain a fairly modest degree of leverage. He estimates that the December 2006 balance sheet will show $1.8 billion in equity against $1.8 billion in debt. But he dreams big.
"Just imagine," he says, "our Intercontinental Hotel here sits on over an acre of the best North Michigan Avenue land. Think of the possibilities."
Ted Pincus is a finance professor at DePaul and an independent communications consultant and journalist. |
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