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Morgans Hotel Group: designed for new horizons

At the beginning was Morgans. After the success of this first authentic boutique hotel opened in 1985, the visionary Ian Schrager built a collection of fashionable hotels. But its financial management led its founder to step down in 2005. The investor North Star Capital completely took over the reigns, launching a vast development plan and a brand strategy developed around the brands Mondrian and Delano. Such dynamism generates envy.

The Morgans Hotel Group is getting closer and closer to the Persian Gulf. The American hotel group has just announced the opening of Delano Dubai for 2012. But its headquarters just might make the virtual voyage earlier. Several newspapers, including the Times, have been talking about two Emirate investors’ growing interest in the pioneer of the boutique ho-tel concept. In order to buy this group listed on the Nasdaq, Zabeel, the Dubai sovereign fund that owns shares in the capital of Sony and EADS, is up against Mubadala, the Abu Dhabi sovereign fund that owns shares in Ferrari, Carlyle and that has become owner of the Chrysler Building, New York’s emblematic skyscraper.Other Mondrians will follow. The Mondrian SoHo will open in New York in 2009. In a JV with M Development, Chicago will welcome a Mondrian in 2010 thanks to the renovation of the historic 1924 the Cedar Hotel, bringing its capacity to 200 rooms. Palm Springs is on the pro-gram for 2011. Finally, the Morgans Hotel Group realized a double hit in Las Vegas. The result of a joint venture with the casino operator Boyd Gaming, a Mondrian and a Delano will open their doors in 2010 at the heart of the Echelon complex. While Fred J. Kleisner, an experienced hotelier with an impressive curriculum (CEO Wyndham, president Westin and GM Waldorf=Astoria) is now at the helm, the Morgans Hotel group is jumping into a new era with both feet. A story that the group will continue alone or with a partner?The majority shareholder NorthStar Capital Partners does not see this battle in a bad light. It hopes to raise the stakes and push the buying price, which is down to $17 today, above the IPO price ($20). In addition to taking over a major debt - 450 million euros - the transaction could run around a billion euros, according to the English newspaper.If one or the other investment fund brings its project to term – and there is no doubt that they have the means and desire– these funds will take control over the enfant terrible of the upscale hotel range, the one that initiated the boutique hotel eruption with the opening of the Morgans in New York. Zabeel or Mubadala would thus take over a group with an eventful past whose genesis hails back to a room... a prison room to be exact. Incarcerated for an explosive cocktail of drugs, cash and double sets of account books found in some ceiling panels of their mythical Studio 54, Ian Schrager and Steve Rubell invented a new adventure to relive the success of “the greatest nightclub of all times”. Conclusion: after setting the nightclub scene aflame why not revolutionize the muffled world of hotels?The two players had a very clear idea of their “Hotel as a theatre” concept: innovative design, personnel who look more like they came out of Elite model agency than the Lausanne Hotel School, a “fusion cuisine” restaurant, a trendy bar, all with a dusting of celebrities to add a touch of spice and attract gazes and local shoppers. All that was needed was to find a good deal. While they would have been happy to finance another temple of the night upon the pair’s release from prison, banks are more wary about this shift into the hotel world. But Ian Schrager and Steve Rubell are sure of themselves. Mark Fleischmann, who took over Studio 54, wants to resell his Executive Hotel. With support from Philip Pilevski, a real estate developer, the hotel Madison Avenue is acquired.And this establishment would undergo an outstanding metamorphosis. On October 1, 1985, the Morgans opened. Andrée Putman handled the decoration, making it both intimate and minimal. Discrete on the outside, the hotel attracted stars and made magazine covers. Very rapidly, the Morgans with its 113 rooms posted no vacancies. With this stroke of genius, Ian Schrager and Steve Rubell opened the Royalton in 1988. This time the new hoteliers opted for another French architect: Philippe Starck. This hotel would mark the beginning of close ties with the designer who later took on the job of giving the group’s other hotels a very personal touch.Morgans plus Royalton, these two hotels constituted the minimal basis for creating a hotel group. The Morgans Hotel Group was thus officially launched. It moved forward rapidly. The Paramount Hotel was bought near Times Square and it too was transformed by Philippe Stark to open in 1990. The group then moved away from New York towards Miami, the preferred holiday destination of VIPs, with the acquisition of the Delano in 1993. A first cri-sis gives the group a jolt: Steve Rubell, deceased in 1989, is no longer there to support his partner in these troubled times. With the first war on Iraq and recession, the Morgans and the Royalton went bankrupt. But financial difficulties wouldn’t stop Ian Schrager who enjoined help from known professionals. Steven Hicks, from Marriott, and William Sheehan, previously the head of Omni Hotels, joined the group. In the meanwhile, the Mondrian in Los Angeles and the Clift in San Francisco were added to the collection.To go any further, the group needed money. The REIT NorthStar Capital took a majority share in the group in1998, with its founder continuing to lead it. In order to play on his emblematic name, the Morgans Hotel Group became Ian Schrager Hotels. This new momentum resulted in new acquisitions: the St Moritz, Barnizon, Empire, Hudson and Mc Alpin in New York; and the Miramar, a historic late 19th-century resort near Santa Barbara in California. The group also took its first steps abroad, in London, with the St Martins Lane, in 1999, and then the Sanderson. Ian Schrager Hotels also enters into management contracts with the Shore Club in Miami.As if they were an integral part of the group’s DNA, grandeur and decadence alternate with one another. The aftershock of 9-11, the weight of debt, competition with brand new boutique hotels that have sometimes surpassed the original concept: times were hard for Ian Schrager Hotels. The Clift filed for bankruptcy protection. Several hotels such as the Miramar were sold. The number of listed hotels dropped to nine. July 2005 marked a turning point in the group’s life. Ian Schrager stepped into the shadows to fly to new openings. He took over the Gramercy Park, Bond Street and more recently accepted to enter into a partnership with Marriott to launch Edition hotels. Two top managers at NorthStar Capital, David Hamamoto and Edward Scheetz definitively took the helm. Without its mentor, the Morgans Hotel Group resumed its original name. The goal of the new management was clear: professionalize management and restructure the debt to enter the Nasdaq.This happened in 2006. The resulting money first went to a vast renovation program. The long list of closings for renovations began with the Delano in 2006. A success. The average daily rate rose 20% after the reopening. Mari Balestrazzi, ex-St Regis and VP Design for the group, supervised these operations. In 2007, the New York studio Roman & Williams was entrusted with “reinventing” the Royalton. Away with Philippe Starck’s lobby – to the great displeasure of the French designer for whom it was an important work, as well as to that of many observers – to make way for new decor with warm hues where ebony predominates. Let bygones be bygones? Not exactly. In 2008, it was the Morgans’ turn for a makeover. And the renovation was once again entrusted to Andrée Putman. The original boutique hotel closed its doors last May for a 9 million dollar facelift and should reopen in the coming weeks.Back on its feet, the Morgans Hotel Group relaunched an active phase of development targeting all major cities in America and around the globe. The goal: to maintain high revenues. In 2007, the RevPAR for the group hotels was $266 versus $240 for the W and Ritz-Carlton hotels in North America, for growth by 14.2% over 2006 versus below 10% for the competitors. Occupancy has been higher than 78% for 3 years. In order to offer a very loyal clientele new destinations, Morgans Hotel is starting by strengthening its presence in the United States. The group is finalizing the takeover and extension of the Hard Rock Hotel & Casino in Las Vegas with DLJ Merchant Banking. An ambitious renovation and expansion plan will lead to additional 950 rooms by 2009, and new meeting and lei-sure spaces (casino, restaurants, nightclubs).Another acquisition: the former James Hotel in Scottsdale. Bought for 47.5 million dollars in April 2006, the property reopened in January 2007 under the name Mondrian Scottsdale. This opening is emblematic of the group’s strategy. Morgans Hotel Group fully plans to play on all its recognized brands in order to give the Delano or the Mondrian younger cousins. In Florida, the conversion of a building into a hotel is almost complete and will become the Mondrian Miami, the third MHG hotel on the always-appealing South Beach market.Other Mondrians will follow. The Mondrian SoHo will open in New York in 2009. In a JV with M Development, Chicago will welcome a Mondrian in 2010 thanks to the renovation of the historic 1924 the Cedar Hotel, bringing its capacity to 200 rooms. Palm Springs is on the pro-gram for 2011. Finally, the Morgans Hotel Group realized a double hit in Las Vegas. The result of a joint venture with the casino operator Boyd Gaming, a Mondrian and a Delano will open their doors in 2010 at the heart of the Echelon complex. While Fred J. Kleisner, an experienced hotelier with an impressive curriculum (CEO Wyndham, president Westin and GM Waldorf=Astoria) is now at the helm, the Morgans Hotel group is jumping into a new era with both feet. A story that the group will continue alone or with a partner?

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