The Henry is undergoing a multi-million dollar renovation to rehab the guestrooms and the first-floor space including the restaurant, lounge, tearoom and lobby areas.

“Hi, do you want to buy a Ritz-Carlton in Dearborn, Michigan?” When veteran hotel broker John Jameson posed that question to prospective buyers this spring on behalf of seller Host Hotels & Resorts, the response he received over and over again was “no”.

The reaction hardly came as a surprise. After all, Detroit has one of the highest unemployment rates in the nation (14.3% as of June) following several years of massive job cuts in the U.S. auto industry. And the Ritz-Carlton Dearborn was financially underperforming by any measure.

“You know how many times I was hung up on?” recalls Jameson, managing director of the Chicago office of real estate services firm Molinaro Koger. Bargain hunters were candid about their dilemma. “Everyone is looking for a turnaround opportunity,” they told Jameson. 'But oh my god, will my investors kill me if I go to Dearborn.”

But that was before Denver-based Greenwood Hospitality Group entered the picture. The management company, along with an undisclosed investment group, acquired the former Ritz-Carlton on June 3.

The sale price wasn’t revealed, but Jameson, who brokered the deal along with his firm’s president, Rob Koger, says it was for less than replacement cost and less than the $64.8 million Host Hotels & Resorts paid in 1998. Ford Motor Co., whose headquarters are located across the street in Dearborn, built the 11-story, 308-room Ritz-Carlton in 1989.

Greenwood immediately dropped the Ritz flag and rebranded the property as The Henry, an independent hotel affiliated with Marriott’s new Autograph Collection of upper upscale and luxury properties. The plan is to maintain rate and the luxury experience while growing occupancy and reducing operating expenses. The transaction shows how one owner’s struggle can be another’s opportunity.

Struggles and strategies
Ed Walter, president and CEO of Bethesda, Md.-based Host Hotels & Resorts, explained the motivation for selling the hotel in a first-quarter earnings call in April. “This asset is in one of the most challenging markets in the country, generates negative net operating income and has significant capital needs.”

The property’s struggles date further back than just the recent downturn. “There was always this challenge of trying to reach the Ritz-Carlton average daily rate, and with Ritz comes different staffing guidelines that makes it very problematic,” explains Jameson. “It hasn’t done well for years.”

Through recent years, room rates had been approximately $150 per night when an amount closer to $250 was needed to maintain Ritz’s operating model. “This is not a Ritz-Carlton market,” Jameson says.

What’s more, the hotel was in dire need of major renovations. The guestrooms hadn’t been touched in eight years and were outdated and tired, with TVs almost half the size of the new 37-inch LCTVs being installed now. It’s why Host Hotels & Resorts wanted out. It’s also why Conran and Greenwood wanted in.

They knew the challenges, but saw an opportunity. “I heard three consistent themes,” Conran says. “One, the ‘AIG effect’ associated with the Ritz-Carlton name; two, the property did not provide loyalty points for its guests; and three, it had a very antiquated guestroom product.”

The AIG effect was coined to explain the anti-luxury rhetoric following American International Group’s posh retreat to a St. Regis days after a federal bailout in 2008. The backlash was crippling to luxury hotels and resorts catering to high-end group business.

Greenwood liked the efficient layout of the hotel with 26,000 sq. ft. of meeting space and its quality construction of marble and millwork that would be hard to affordably reproduce today.

It liked the intangibles, as Conran describes them — the experience and quality of service provided by the employees, especially the culinary expertise afforded both the transient and group sectors. And Greenwood, which manages the nearby Ann Arbor Marriott at Eagle Creek, knew and liked the market.

Signing Autograph
The question for Greenwood was how to maintain and improve rate and occupancy, while lowering costs from the previous Ritz levels. The choice to become independent became easier with the affiliation to Marriott’s Autograph Collection.

“We felt an alignment with the Autograph Collection afforded us an opportunity to establish a level of independence showcasing our unique property attributes while taking full advantage of the Marriott platform,” Conran says. “And the Henry name mitigated the AIG effect.”

Autograph, now with 11 members, allows independent boutique properties to keep their distinctive personalities, yet tap into Marriott’s reservation system, loyalty program and corporate and group markets.