Underperforming Ritz-Carlton Dearborn gets new life and new identity as The Henry.
“Hi, do you want to buy a Ritz-Carlton in Dearborn, Michigan?” When veteranbroker 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 (14.1% as of July) 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 theoffice of real estate services firm Molinaro Koger. Even bargain hunters said, ‘Oh my god, will my investors kill me if I go to Dearborn.”
But that was before Denver-based Greenwood Hospitality Group, with undisclosed investors, acquired the former Ritz-Carlton on June 3. 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.
“This asset is in one of the most challenging markets in the country, generates negative net operating income and has significant capital needs,” Ed Walter, CEO of Bethesda, Md.-based Host Hotels & Resorts, explained in a first-quarter earnings call in April, before the hotel was sold. It was always a challenge to reach the Ritz-Carlton's average daily rate and meet staffing guidelines, adds Jameson.
Rooms sold for approximately $150 per night in recent years, but $250 was needed to maintain Ritz's operating model. “This is not a Ritz-Carlton market,” says Jameson.
What's more, the hotel was in dire need of major renovation. Guestrooms hadn't been touched in eight years and were outdated, with TVs almost half the size of the 37-inch LCTVs being installed now. Host Hotels & Resorts wanted out. And Conran and Greenwood wanted in.
They knew the challenges, but saw an opportunity. “I heard three consistent themes,” says Conran. “One, the ‘AIG effect’ associated with the Ritz-Carlton name; two, the property did not provide loyalty points for guests; and three, it had a very antiquated guestroom product.”
The “AIG effect” described the backlash against luxury resorts after American International Group's posh retreat to a St. Regis days after a federal bailout in 2008. To improve rate and occupancy while lowering costs, Greenwood chose to become independent and affiliated with Marriott's Autograph Collection. Autograph's 11 members can keep their distinctive personalities.
The Henry, named for city founder Henry Dearborn and car icon Henry Ford, is undergoing renovation to rehab guestrooms, the lobby, and other areas.
“The Henry will be a phenomenal part of this collection,” says Kip Vreeland, Marriott's vice president of the Autograph Collection. Marriott bought a controlling interest in the luxury Ritz chain in 2000.
By connecting to the local market through its name and personality, Greenwood hopes to improve the perception of luxury. “We're the only four-star lodging in this market and we'll keep the luxury experience in the hotel, but price specific to this market,” says Conran.
In Progress: Fordham Plaza in the Bronx
DEVELOPER: New York City
LOCATION: The Bronx, N.Y.
SIZE: 1.9 acres
BUZZ: Fordham Plaza is envisioned as an updated $26 million world-class transportation hub. The plaza now provides access to 12 bus routes, a bus terminal and train station. Some 80,000 pedestrians and commuters traipse through the area daily. A still-evolving plan aims to reduce congestion and develop retail space.
PROJECTED COMPLETION: To be determined.