The Slatin Report | February 5, 2008
NO STANDARD EDITION FOR SCHRAGERBy Peter Slatin
Six months after announcing their startling partnership, establishment standard-bearer Marriott International and trend-setter Ian Schrager unveiled a name for their hotel brand rollout along with the planned locations of the first nine properties.
With Edition, we feel we found something that captured the desire to brand but also to encompass a collection of hotels that will be very different in appearance market to market," says Arne Sorenson, chief financial officer of Marriott International (nyse: MAR).
The hotels will be designed, Schrager told The Slatin Report, to riff off the theme of “edition,” transplanting a fashion and publishing concept to development. “We’re using different designers for every hotel. They will be different by definition, and not locked into any book of standards.”
Schrager has turned to an old rival to oversee implementation of the new look: he has hired Aaron Richter from Starwood, where Richter was responsible for the success of the W line – itself a corporate rollout in response to the success of Schrager’s early hotels in New York, South Beach and LA.
The Edition logo’s typeface itself speaks volumes: it is taken from the font that "was invented for Punch/Vogue," says Schrager. It's a clear statement of both the desired ambiance and ambition for the properties.
The announced nine locations in eight cities (two in Los Angeles) are the advance guard of a wave of announcements that will include at least five more by year-end – ahead of a Manhattan deal - and "a couple of dozen behind that," says Sorenson.
Despite the volume, "These are not going to be cookie cutter hotels that look the same from market to market," he declared. "This is a new direction for us."
Sorenson says the first Edition (will it be signed?) is slated to open in Paris in 2009 in a renovated historic apartment house near Place de l’Opera. There is one other foreign location – Costa Rica – while the US locations are all in top markets – LA, Miami Beach, DC, Chicago and Scottsdale. A Manhattan deal is "not fully baked," says Sorenson. The Miami Beach project, in what is now the Miami Beach Marriott, is the only property that is already in use as a hotel. Only a couple of the projects are “ground-up development.”
As promised at the unveiling of the partnership last year, Marriott and Schrager will not own the real estate but will oversee the design and operate the hotels. The developers designated so far, some of whom have worked with Marriott before, are all local to their markets and are neither public companies nor institutional owners. For example, the South Beach property is in the hands of Diego Ardid of Key International; Chicago's offering is through Neil Gehani's Monaco Development, which developed the Kimpton hotel of that name in Chicago; and Five Star Developments in Scottsdale will handle that Edition.
Sorenson pegs the development cost at between $500,000 and $1 million a key – a hefty sum for a rollout. The Paris property will be in the higher bracket.
Each of the hotels will be financed by its developer, but Sorenson thinks that, even in the current strained market, the Marriott name will help. "Lenders often are comforted by strong brand affiliations and expertise," he says. "The reaction will generally be a positive one." The projects, he notes, are "very center city real estate and relatively easy deals to underwrite. Our stability will be to our advantage, as will Ian's ability to underwrite a high level of performance."
Still, Sorenson acknowledges that the money won't come all that easily. "The biggest question mark is around debt. These are extremely weak debt markets, and it's important that they begin to strengthen a little bit." But noting that even though the overall economy may be softening, he says that "our business lags the economy by a couple of quarters, but it's fairly clear that if the economy weakens it will have an impact on hotel demand. But it shouldn't be that dramatic in a recessionary environment."
For Ian Schrager, the flexible Edition identity is a mass-market idea that’s ahead of the curve – or is it the other way around? "What's going on now is customization, not wanting to be like everybody else – that's what you see in retail and fashion," he says.
Schrager takes the mass-market lead to a logical extreme."Marriott says they want to build over one hundred Editions. I say over five hundred." Why? It’s what he sees demand for. "I don't do market research, I look at companies like Apple, Sony, Target, Gap, Nike. They have achieved huge market caps, and huge markets, selling well-designed things."
If the customized mass-market approach takes its cues from outside real estate, here's a notion that turns the basic real estate equation upside down: "Our hotels don’t require the kind of great location that most brands do. We can be a little bit off."
In pricing, though, Schrager goes back to basics: "I feel that if we're more than $35 from another hotel in our category in that location, we're not competing."
The half-year lag between` announcing the team and fleshing out the concept stirred up its fair share of speculation that the partnership between clear-eyed mainstream businessman Bill Marriott and the creative and countercultural Schrager had turned sour. “People thought it would be a partnership from hell,” shrugs Schrager. “But we share the same DNA.”