The luxury hotel market is sizzling hot. If you need proof, try to book a room at a New York City luxury property. If you can even get a reservation, you'll find that mid-week rack rates for standard high-end rooms are $700 and up. And while high rates and occupancies usually portend a building boom, few luxury center-city or resort hotel openings are on the horizon. Yet, in July two new luxury chains debuted, signaling a renewed hunger in the marketplace for new luxury products.
One announcement, Horst Schulze's launch of Solis Hotels and Resorts, had been expected for many months. The other, the creation of Graves Hotels. Resorts, was more opportunistic and partly the result of changes at the Le Meridien brand.
“Construction in the luxury segment is inching back up, but it's certainly not gangbusters yet,” says Patrick Ford, president of Lodging Econometrics of Portsmouth, NH. He says just three luxury hotels will open this year. Next year should bring an additional four properties on line; in '07, eight properties will open.
According to Ford, whose firm tracks all hotel transactions and new construction, luxury development bottomed out in the fourth quarter of 2003, when 13 properties with a little more than 4,000 rooms were in the construction pipeline.
“Six quarters later, at the end of the second quarter of '05, the pipeline has grown to 28 properties and 7,760 rooms,” says Ford. “But that's still only half of what it was at its high-water mark in the first quarter of 1999, when more than 14,000 luxury rooms were in the pipeline.”
Ford expects to see additional luxury development announcements in the coming months and into 2006. Until then, few projects will get done unless they include a residential component.
“Luxury lodging is very expensive to develop, and at this point in the industry cycle it is very difficult to wring out returns on a project unless residential of some sort is part of the development,” says Ford.
It's no secret that Horst Schulze has been anxious to get back into the luxury game since he left as chief of Ritz-Carlton Hotels four years ago. The new Solis brand is an outgrowth of Schulze's West Paces Hotel Group, a high-end management company he formed in 2002.
Solis, with six properties in the initial pipeline, will focus on several core values — consistency married to top-notch service — Schulze refined at Ritz-Carlton. Schulze believes Solis can be the first six-star luxury brand.
“Horst and the top lieutenants he brought from Ritz-Carlton can create a level of service unmatched in the industry and one that appeals directly to our core audience,” says Dave Philp, senior vice president of hospitality investments for Crown Realty, developers of the Montelucia Resort, Spa and Residences, one of the first properties to affiliate with Solis. Montelucia is a $200-million rebuilding of the former Doubletree La Posada in Paradise Valley, AZ that should open in 2007.
Other Solis properties are in the works for Atlanta, Chicago, Orlando, San Antonio and Frankfurt, Germany. All but the Chicago Solis will be new-construction properties.
UNDER THE RADAR
Whereas Solis launched with a big bang, the debut of Minneapolis-based Graves Hotels. Resorts was more under the radar. A big difference is that the Graves announcement came with a ready-made property, the Graves 601 Hotel Minneapolis. That 225-room downtown property was formerly the Le Meridien, at which Graves had a hand in developing the Art+Tech guestrooms for Meridien.
According to President Benjamin Graves, the new chain intends to create a product that combines “modern luxury and sophistication.
“Many boutique properties have very stylish public spaces, but the guestrooms don't work very well for the business traveler,” says Graves. “Ours will focus on the four things business travelers want: a great bed, a great TV — in our case, 42-inch plasmas — an adequate workspace and a super shower.”
Graves expects to start development on five additional properties that will open in the next two to three years. Locations on the drawing board include the Chelsea neighborhood of Manhattan, downtown Chicago, the San Diego suburb of Coronado and two resort properties in Costa Rica.
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