Staff Reporter
Lewis Wolff may be the closest thing L.A. has to a hotel mogul.
As co-chairman of Westside-based investment firm Maritz, Wolff & Co. he controls some of the most luxurious establishments in the nation, including the Four Seasons Biltmore in Santa Barbara.
Wolff entered the hotel business in the 1980s when he developed, owned and operated the Burbank Airport Hilton and the La Mirada Gateway Plaza Holiday Inn. Both hotels have since been sold, and now Wolff focuses strictly on up-market properties.
Since November 1994, he has purchased eight luxury hotels through his firm’s Hotel Equity Fund L.P., including the Ritz-Carlton in St. Louis and the Mansion on Turtle Creek in Dallas. The fund has a 50 percent stake in the Rosewood luxury hotel chain, and Wolff is moving to acquire a controlling stake in the Fairmont Hotel Management Co. from members of the Saudi royal family.
That deal will bring with it Fairmont hotels in San Francisco, Dallas and New Orleans.
Q: You have hotels all over the nation, but nothing here in L.A. Any plans to buy something locally?
A: We’re dying to find a location here, but we can’t find one. We’d rather deal with an existing hotel than build one.
Rosewood used to manage and own the Bel Air Hotel, so there are still a lot of people in the community who know (us) from that.
We think L.A. is one of the top three gateway cities in the U.S., so we have to be represented here.
Q: Can downtown L.A. support more luxury hotels?
A: I think downtown L.A. is going to surprise a lot of people. I would bet doughnuts to dollars that we get the Democratic convention there.
I think the Sports Arena will be the last piece of the puzzle that will make downtown sing.
We would love to be considered as one of the developers of the hotel for the Convention Center. I think a Fairmont hotel would give a four-and-a-half-star boost to the project, rather than a traditional convention hotel. But there are no negotiations going on right now.
Q: L’Ermitage is reopening in Beverly Hills. Even with the economy picking up, do you think we are at risk of seeing an oversupply in luxury hotels in L.A?
A: There really are not a lot of five-star hotel rooms in Los Angeles, and most of them are concentrated in and around Beverly Hills. L’Ermitage only has 124 rooms. It’s a drop in the bucket. I think it will do very well.
If we could put a hotel into that (Westside) market, we would be very comfortable. It just seems that the Westside has the greatest concentration of tourists and business people of anywhere in the city.
Q: You say you want to jump into that market, but how would you distinguish yourself from the competition?
A: By buying one of them out. L’Ermitage may be up for sale at some time.
Q: You own a stake in Grill Concepts, which operates the Daily Grill chain. Are we going to see Daily Grills in all your hotels?
A: Not in all our hotels. But we do feel that the Daily Grill design, menu and marketing is very appealing to a lot of full-service hotels around the U.S.
We come into this with a lot of hotel knowledge. Grill Concepts has the restaurant experience.
Hotels are trying to figure out how to make their restaurant operations more efficient. Why should they spend money doing that when we can provide that service?
Q: The luxury hotel sector was in an abysmal state when you entered that market back in the early 1990s. What made you think you could turn a profit in the long term?
A: I had been staying at the Ritz Carlton in St. Louis for about eighty bucks a night. It was a beautiful, brand new hotel. And even at that time, the Ritz was $30 or $40 a night above anyone else.
In that period a lot of business people were using top-tier hotels because the prices had come down and they were exposed to levels of service they had never gotten before. The people I saw in the lobby were middle management, not the same people that would have been there if rates had been $150 a night. So I thought that when the market changed they would have a hard time dropping back down, because their expectation levels had been raised so high.
Then I got a call from a friend saying that the hotel was going to be taken over by the lender. So we bought it. I think the hotel cost over $80 million to build, but we were buying it for $40 million.
Q: Now hotels seem to be in the middle of a sweet spot economically. But how long do you think you can ride this wave?
A: I’ve been through a lot of cycles. At one Holiday Inn I owned years ago, we gave the manager a bonus because he was able to punch up the occupancy rate to 35 percent one month.
I can’t predict when we are going to see another downturn. But it seems to me that 1998 is going to be very strong for all our hotels. 1999 should also be strong. Beyond that would just be a guess.
Q: Once you have bought a hotel, how do you make it more efficient?
A: We don’t interfere directly with the management. We call it friendly infiltration.
We ask the hotel controller to call his suppliers and tell them that the new owners like the service but need a 5 or 10 percent price reduction. And if the vendor says they can’t do it, then we tell them that we are going to have to put their contract out for competitive bid.
The first time we did it was in St. Louis. The controller called me a few days later and said that he had knocked out $265,000 of his expenses and nothing about the service had changed.
Q: So do you find investing in hotels more fun than investing in office property?
A: No. I just think it is the time to do it.
If you get enamored in the real estate you can get yourself trapped, because the real estate is a static item. But if you own the brand and you manage on a long-term contract, it is pretty risk-free.
Q: So is it fair to say that you are doing this purely as an investment rather than out of a love for the hotel industry?
A: I’ve learned that inanimate objects are just that, inanimate. But we do love the hotels we have. Sometimes this office becomes like a travel agency because everyone wants to get reservations at the Santa Barbara Biltmore.
I always joke with our younger people that if we were getting exactly the same returns from standard brand hotels rather than luxury hotels, nobody would be as interested.
It is something intangible. Some of these hotels are so special that it is almost like owning a ball team. It has an asset value greater than its actual return.
So sometimes you can sell a trophy property for a very high price because the buyer may be more enamored with the trophy than the net income.
Q: With all the attention being lavished on REITs, are you tempted to go public?
A: Right now we just want to nurture the Fairmont and Rosewood brands. I personally like the freedom that comes from not being public. We are trying to do this in a way that is most beneficial to our investor and we don’t have to worry about whether we have a certain increase in revenue each year.
Q: What are you doing to prepare for when the market does go into a downturn?
A: We don’t put on too much debt. So in bad times we won’t run into a problem. Not only do you need to ride out the bad periods, but you also need to have enough money to maintain the hotels.
During the weak periods an independent hotel owner might say that he won’t spend money on new carpets. He’ll wait until the next year. But that is a big mistake, because a hotel can go to seed very quickly.
At the Four Seasons, for example, you can’t afford to have a carpet that looks like it needs replacing. You have to replace it before it looks like it needs replacing.
Q: What is your role in this operation? Do you micro-manage or do you delegate responsibility?
A: My job is basically in the front-end negotiations. Sometimes gray hair helps a little bit, I’m finding out.
