Jonathan M. Tisch, president and chief executive officer of Loews Hotels, based in New York, literally grew up in the hospitality industry. While other teen-agers were playing football, Tisch was carrying luggage and cleaning rooms at his family's Americana Hotel in New York City.
Working under the pseudonym Jonathan Mark, the young Tisch learned the business inside and out. Even then, he was being groomed to run the company founded by his father, Preston "Bob" Tisch, and his uncle, Laurence Tisch. Named president of Loews Hotels in 1986 and CEO three years later, Jonathan Tisch has overseen the company's growth and its emergence as a collection - not a chain, he stresses - of unique hotelproperties.
Today, Loews Hotels, the founding division of the $70 billion Loews Corp., currently owns and/or operates 15 hotels and resorts in the United States and Canada. Tisch was recently named to the office of the president of Loews Corp. - which includes CNA Financial, Lorillard Tobacco Co. and Bulova Corp. - along with his cousins, James Tisch and Andrew Tisch.
In addition to his duties at Loews, Tisch has served as chairman of the American Hotel & Motel Association (AHMA), and is currently chairman of the Travel Business Roundtable, a coalition of chief executives representing various sectors of the travel industry. Since 1995, Tisch has also served as the chairman of the annual NYU International Hospitality Industry Investment Conference.
NATIONAL REAL ESTATE INVESTOR recently spoke with Tisch at his New York City offices, across the street from one of Loews Hotels' best-known properties, The Regency Hotel, where he has breakfast nearly every morning when he is in town.
Q: Loews Hotels is known for its conservative development philosophy, yet the company is currently in the midst of a $1 billion expansion program, its largest ever. Why build rather than buy?
Jonathan Tisch: In the mid-1990s many hotels were being bought by the REITs and by offshore investors. Our sense then was that these investors were paying pretty big prices and we were not going to use acquisitions as a method to grow.
So instead, we decided to build, and we're now in the largest expansion in our 53-year history. We've committed $200 million of our own money to build $1 billion of hotels. And we're still looking to do other deals. We've already opened two new hotels, Loews Miami Beach, the first new construction in Miami Beach in 30 years, and the first-ever House of Blues Hotel, a Loews Hotel, in Chicago.
We are also developing a 585-room hotel in Philadelphia and three new hotels at Universal Studios Escape in Orlando - the Portofino Bay, a Hard Rock Hotel and a South Seas-themed property, the Royal Pacific Resort. Portofino Bay is scheduled to open in September and Loews Philadelphia on April 1.
We're small but aggressive. We beat out nine competitors for the chance to build the Miami hotel, an 800-room property, and we became partners with the City of Miami Beach. One of the things that set us apart from other bidders was that we could put up sizable equity to show the city we were serious. Our competitive advantage was access to the Loews Corp.'s balance sheet.
While we were involved with the negotiations in Miami Beach, the Universal opportunity became available. Originally those hotels were going with another chain. Once again, having access to Loews' cash became our advantage. We put up $100 million, along with the equity of two partners, Universal and The Rank Organization, so the hotels had $200 million in equity at the very beginning.
Q: You say Loews is not a hotel chain, but a collection of hotels. In this era of branding, will that philosophy change?
Tisch: What separates us from other hotel companies is that we do one-of-a-kind, unique, non-cookie-cutter hotels. We don't build airport hotels or suburban properties or three-star CBD hotels. We have to differentiate ourselves from our competition.
Q: In Miami, Loews was part of a program to help channel former welfare recipients into the workforce. How has that worked out? Have other cities adopted this program?
Tisch: It's always been my sense that hotels need to understand their role in communities in which they operate. That notion is greatly exacerbated by the government's diminishing role in various services.
In Miami, I served on the advisory board of the Welfare to Work Partnership, which started when the Welfare Reform Act was signed two years ago. We came up with a blueprint to understand the needs of people coming off welfare rolls and how to help them get jobs and become members of the community. In Miami Beach, the need was there for workers. We were building an 800-room hotel and we needed 750 hotel employees.
But it was not just us. Other hotels were saying they needed to find workers too, so we all put aside individual concerns and worked together. Loews and 44 other hotels made a commitment to hire 500 people over a two-year period. Already we've hired 300 individuals, including 40 at Loews Miami Beach. The Welfare to Work program is a great example of how you can focus on the bottom line, while also doing the right thing for the community.
Q: Will consolidation in the industry continue? What do you see in the future for hotel investment? What about REITs? There is always talk that Loews is for sale. Would you ever sell?
Tisch: Loews Hotels will remain an independent company. We get calls every week from people asking if the company is for sale, or if we want to be spun off from Loews Corp. We have no interest in any of the above. We have a strong parent and access to capital that allows us to continue growing. As for the industry, my sense is that consolidation will continue, but the pace of deal making will slacken because, one, there are not many hotel companies left, and two, the currency of an acquisitor's stock is becoming less valuable.
Concerning REITs, once again, it's a question of what will their currency be. I think there was a period there when REITs were very strong. There are big, strong, dynamic companies that control a lot of brands. They will continue to grow. It will be a little bit harder for smaller companies to remain independent, but the hotel industry just mirrors the industry in general. There is always room for small, nimble companies.
At Loews Hotels, we look at a number of opportunities. But in today's current real estate environment, we still do not see our growth through purchasing hotels. Other organizations that have easy access to capital are willing to pay more than we are. There is still a lot of money chasing deals in the hotel industry, money coming from Wall Street, from offshore or opportunity funds. But we still feel there is growth primarily through development.
We are continually talking to potential partners about building new hotels. There are still some cities Loews needs to be in. San Francisco, Boston, and Atlanta are the main ones, maybe Dallas, and we'll continue to focus on those cities. Any acquisition would also have to fit in with Loews' investment criteria - one-of-a-kind, unique, profitable hotels, with a high barrier to entry.
Today in the hotel industry, we have to be careful that we don't enter another era of overbuilding. Some 150,000 new rooms were added in 1998. That number will be reduced by 25% this year. The industry is being cautious. Our industry depends on a strong economy, and we have been blessed by a strong economy. Hopefully it will continue. It's also important to note that as our industry is being taken over by Wall Street, we must continually remind ourselves we are in the hospitality business. We have to provide service. When people travel on business, they want to be served.