Spend a few minutes talking with Laurence Geller and you get the distinct impression that he's part personal motivator and part entrepreneur. In fact, the president and CEO of Chicago-based Strategic Hotels & Resorts exudes a can-do spirit similar to actor Gene Hackman in “Hoosiers.” Uttering phrases like “have the courage of your convictions, be bold” or “be convinced of your own skill set,” Geller's battle cry is also reminiscent of former General Electric chief executive Jack Welch, but with a decidedly British accent.
Strategic Hotels, which owns and manages luxury hotels and resorts in the U.S. and Europe, is drawn to projects that are big and complex so that it can leverage its asset management skills. The genteel 679-room Hotel del Coronado, which sits on Coronado Island across the bay from San Diego, appears to be the perfect match.
Geller's company holds a 45% ownership stake in the Victorian beach resort built in 1888 on land originally purchased for $110,000. Private equity firm Kohlberg Kravis Roberts owns 41% of the hotel. KSL Resorts, which operates the resort, owns 14%. The partnership reportedly paid $385 million for the hotel in 2003.
“Here you had a trophy piece of real estate that was under-invested,” says Geller. “This is a hotel that people have a lot of affection for. I want to make it how it was.” In its heydey, the Del provided respite for presidents and princes, not to mention American legends like Thomas Edison and Charles Lindbergh.
The City of Coronado has approved a 15-year master plan for the hotel that runs through 2020. The $70 million first phase included a renovation of the hotel's spa and the development of Beach Village, 35 two- and three- bedroom condo hotel units spread over 11 buildings.
Prices for the beachfront units range from $2.6 million to nearly $5 million. Some 24 of the 29 units to be delivered this April have already sold. Buyers are limited to 90 days use of the hotel each year. When not in use, owners can either rent out the units themselves or participate in the hotel's rental program with room revenues equally split between the hotel and the owners.
The condo hotel concept enables the hotel owners to recycle their capital and reinvest in other improvements, says William Dodds, vice president of development for the Hotel del Coronado. Condo hotels also expedite the construction process by reducing the project's capital requirements, Dodds adds.
The long-term plans call for nearly 1,000 surface parking spaces to be moved underground and the main driveway will be reoriented to create a more grand entranceway. The hotel already has also constructed a boardwalk along the oceanfront to make it more accessible to the community.
In a project of this magnitude and capital outlay, investor returns in the high teens or low 20s would be considered a disappointment, Geller says, adding that so far the asset's performance has met expectations. “We're a long-term owner as opposed to a short-term owner focused on IRR (internal rate of return),” emphasizes Geller. “We take a long time to get it right.”