Do Not Disturb
FOR A FEW DOLLARS MORE,
I COULD BUY A HOTEL
BY MICHAEL MATTHEWS
June 22, 2006 -- As I write this, the Powerball lottery is a measly $15 million. But last week someone in Oklahoma won $101 million. And the question is this: Would I buy a hotel if the powerballs that be chose me to win $100 million?
After 45 years in the business my answer would be, decidedly, NO. I just know too much about it all. Besides, I wouldn't get much for my hundred million. Maybe a Marriott or the like. God forbid.
On the other hand, it seems that everyone with a few bucks lying around--and when I say a few bucks, I mean a few billion--has suddenly found my industry an interesting investment. They are pouring their wealth into hotels like there is no tomorrow.
Take Ty Warner, the man who invented the phenomenon called the Beanie Baby. He's worth $4 or $6 billion, depending on whose list you believe. He's quietly buying hotels like collectors stock up on Beanie Babies.
I know Ty. He is one of the nicest men you will ever meet and a very low-key fellow. But he's a perfectionist, which bodes well for the guests of the hotel empire he is assembling. He runs some of the hotels himself and lets management companies run others for him. But they are all becoming Warner creations.
Like the Four Seasons in New York City. He's poured millions into creating an amazingly good hotel. And then there's the unit on the 52nd floor: a one-bedroom suite rumored to have cost him more than $20 million. It will rent for an astounding $35,000 a night, before taxes and service charges of another $7,000 a night. Ty also owns the hugely successful Las Ventanas al Paraiso in Los Cabos, Mexico; the Four Seasons Biltmore Resort in Santa Barbara, California; and the wonderfully romantic San Ysidro Ranch in the same California town. He even purchased the dated and somewhat rundown Kona Village resort on the Big Island of Hawaii two years ago and has plans to renovate that one, too.
Not to be outdone, Michael Dell, he of the eponymous computer company, just plunked down a huge (but undisclosed) sum this month for the Hualalai Resort next door to Kona Village. Among the amenities at the 865-acre resort: a 240-room Four Seasons hotel, two 18-hole golf courses and private homes. Dell owns one of the homes, too, so the room service from the Four Seasons should be especially speedy. Besides, Hualalai should make a nice companion to Maui's Four Seasons Wailea Resort, a property that Dell purchased two years ago.
Robert L. Johnson, the charismatic founder of Black Entertainment Television and owner of the Charlotte Bobcats basketball team, just bought 63 hotels of varying brands. The $1 billion deal means Johnson now owns a total of 94 hotels. Then there's Benny Alagem, who made billions in the early days of personal computers with Packard-Bell. A few years ago, he bought the Beverly Hilton from a better-known billionaire, Merv Griffin, the entertainer and game-show magnate. And while we are at it, let's not forget the Sultan of Brunei, who owns illustrious hostels such as The Dorchester in London and The Beverly Hills Hotel. A member of the Saudi royal family owns the Fairmont and Raffles chains and a grab bag of other luxe hotel properties around the world. And the list goes on.
Now there is a new entrant: Tim Koogle, an entrepreneur who made his money leading Yahoo! from a six-person company to sales of over a billion dollars in a matter of months. He's now building what we can expect to be the finest small resort in the world. It's on a wondrous and very secluded beach in Punta de Mita, just outside Puerto Vallarta, Mexico. The resort will be part of his development called El Banco, where the oceanfront lots are already sold, mostly to Koogle's other millionaire friends. The resort will be very expensive to build and even more expensive to visit for a night or two.
Who says birds of a feather don't flock together? And why do they do it?
That's hard to answer. Part of it must be ego, of course. After all, at the prices being paid for hotels these days, it will be a long, long time before any one of these billionaires sees a meaningful return. The rule of thumb in our business: For every hundred thousand dollars you spend "per key" (per room) to buy a hotel, you need to charge $100 a night before you start to make money. Since $1 million a key is now almost the norm, I wonder just how many guests can pay a thousand dollars a night?
Then, perhaps, it's a true love of the business, but I doubt many of these billionaire hoteliers have ever ventured as far as the kitchen or garbage areas of their trophy properties.
If I ever win the lottery, I think I will leave hotel buying to the Warners and the Johnsons and the Koogles. I'd prefer to buy myself a sports team.
After all, it worked for Mark Cuban, the young fellow who created Broadcast.com and sold it to Yahoo! for $6 billion. He bought the Dallas Mavericks basketball team a few years ago and the Mavs made it all the way to the NBA championship before losing this week to the Miami Heat, a team owned by Mickey Arison, whose father created the Carnival Cruises empire.
This column originally appeared at joesentme.com.
Copyright © 1993-2006 by Michael Matthews. All rights reserved.