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Marriott & Schrager to Develop Boutique Hotel Chain

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I commented this morning on some of the financial blogs regarding this business venture. Many of my friend on the “street” don’t think it will work. True Mr. MarriottÂ & Mr. Schrager have different approaches 2 the hotel biz, but at the end of the day they both have the same objectives: create a memorable guest experience & make hella $$$!

Moreover, Starwood has been making a killing in the boutique sector, so it was only a matter of time before Marriott would get on board. Now the question is when will Hilton throw their hat in.

!YG

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By PETER SANDERS
June 14, 2007;Â PageÂ B1

Lodging giant Marriott International Inc., one of the industry’s most conservative companies, has struck a deal to develop a boutique chain designed by Ian Schrager, the entrepreneur known for his style-driven hotels.

The agreement, to be announced today, is intended to give Marriott a presence in the boutique segment of the hotel industry, which it has been unable to crack even as rivals like Starwood Hotels & Resorts Worldwide Inc. have found a lucrative vein with brands such as W.

For Mr. Schrager, the hotelier who was behind hip properties like Morgans Hotel in Manhattan, the deal provides a new platform for his hotel design. Bethesda, Md.-based Marriott has been in talks with the New York-based hotel entrepreneur for nearly a year, both parties say.

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In the new partnership, Mr. Schrager will focus on designing, marketing and branding the hotels. Marriott will operate them under long-term management contracts. As is now standard in the industry, the hotels will be owned by third parties, who will pay fees to both Mr. Schrager and Marriott. Marriott declined to disclose the financial terms of its deal with Mr. Schrager.

Mr. Schrager, 60, said he will be free to pursue other projects while working with Marriott.

The new brand, which hasn’t yet been named, will be added to a stable that includes Marriott’s flagship hotels, its luxury Ritz-Carlton brand, and the mid-scale Residence Inn and Courtyard by Marriott brands. Rates at the hotels, planned for cities including Miami, Los Angeles, Las Vegas, London and Singapore, will be in the luxury range of hundreds of dollars a night. They will likely have 150 to 200 rooms. As with Ritz-Carlton, which Marriott acquired in 1998, there will be no overt evidence of Marriott’s involvement, says Marriott Chief Financial Officer Arne Sorenson.

Marriott says it hopes to have five hotel deals signed by the end of the year, with a goal of 100 hotels under development globally within 10 years.

On paper, the marriage looks unlikely. Marriott, led by 75-year-old chairman and chief executive J.W. “Bill” Marriott Jr., is the world’s largest hotel company, with 2006 revenues of $12.1 billion and known for a largely conservative approach to hotel design. While the company has taken steps to change this image in recent years, updating technology and design at its various hotel brands, it remains a far cry from the corner of the hotel world shaped by Mr. Schrager.

After gaining attention in the 1970s and 1980s for the New York nightclub Studio 54, which he ran with his then-business partner Steve Rubell, Mr. Schrager served time in prison for tax evasion. When he emerged, he spawned the modern boutique-hotel industry, beginning with Morgans Hotel in New York, opened in 1984. His empire expanded with hotels like the Hudson and the Royalton in New York, the Delano in Miami and the Mondrian in Los Angeles.

With their design aesthetic and nightlife options, Mr. Schrager’s hotels helped define “boutique hotels” — generally, small, upscale hotels in prime locations that emphasize style. Widely copied, they became popular with certain travelers. It took years for mainstream lodging firms to break into the segment.

“We just knew it was time for us to get into that space and we wanted to do it with somebody who really knows how it works,” Mr. Marriott said.

Mr. Schrager says the collaboration will give him a chance to “elevate the hotel experience in terms of everything, especially service.”

“It’s really not going to be about design, which we had to do to get noticed in the past,” Mr. Schrager says. “Design is going to serve the mission here of doing this original experience.”

The Private Roof Club at Ian Schrager’s Gramercy Park Hotel in New York.

The new brand will compete with Starwood’s W as well as with nationwide boutique brands like the Palomar and Monaco hotels operated by San Francisco-based Kimpton Hotel & Restaurant Group LLC. In 1999, Marriott rival Starwood, based in White Plains, N.Y., opened its first W hotel in New York, and today there are 21. But Marriott and Hilton Hotels Corp. have yet to try their hand at boutique brands.

After leaving Morgans Hotel Co. in 2005, Mr. Schrager formed a new hotel and residential development company, Ian Schrager Co. Last year he opened Gramercy Park Hotel in New York. The hotel has a designer look and a bar scene, but rooms are larger and more luxurious than at his previous hotels, and Mr. Schrager emphasized service.

Mr. Marriott says he got serious about working with Mr. Schrager about a year ago after reading a newspaper article about Gramercy Park Hotel. With Mr. Sorenson, Mr. Marriott traveled to New York to tour the hotel while it was still under construction and meet with Mr. Schrager.

“This was a boutique hotel that I was more comfortable with than some of things I have seen in other boutiques around the country,” Mr. Marriott said. “It’s warm and friendly, and Ian used lots of color at the hotel, which I thought came off very well.”

Mr. Marriott says he liked the separation between the lobby and bar so guests “don’t have to go through the bar scene to get to your room.” Mr. Schrager points to a “private lobby” on the top floor, accessible only to guests. Both executives also like the room rates the Gramercy Park commands, starting at $500 a night and going up to around $2,000