Los Angeles Times
12/23/15

Edition Hotel Project in West Hollywood Gets $260 Million in Financing
By James Rufus Koren

http://www.latimes.com/business/la-fi-edition-hotel-20151224-story.html

L.A.’s newest trendy boutique hotel — a luxurious 190-room property with not one but two rooftop pools — is expected to rise from the Sunset Strip this spring now that the developers have received $260 million in financing.

The project from New York developer Witkoff Group will be the first West Coast outpost for the Edition hotel brand, a collaboration between hospitality giant Marriott International and former nightclub impresario Ian Schrager, a pioneer of the boutique hotel business.

The financing, disclosed this week and arranged by brokerage Jones Lang Lasalle, will cover most of the estimated $300-million construction budget for the project at Sunset Boulevard and Doheny Drive, which will include as many as 20 expensive condos.

That price tag implies a very high-end property, fitting for its location on the Sunset Strip, which has become a magnet over the last few years for posh hotels.

Developers have proposed or are building hotels at a handful of spots, including a 149-room hotel at the site of the now-closed House of Blues and another rumored for atop the old Hustler store.

Like many other proposed projects, the Edition West Hollywood will be a boutique hotel, with a focus on unique and high-end design as well as trendy restaurants and nightlife.

The category has been a hot one in the hotel business, especially in urban areas such as Los Angeles, where the new hotel will be competing with the Standard, the SLS Beverly Hills and Starwood’s W hotels, which cover territory from downtown to Westwood.

The Edition also will be less than a mile away from the Mondrian, a hotel that Schrager developed years ago with his former company, boutique hotel pioneer Morgans Hotel Group.

Several years into a resurgence of the hospitality market, the boutique category — with its appeal to younger and freer-spending travelers — is still growing and is increasingly attractive to big hotel chains, said Alan X. Reay, president of Irvine hotel consulting firm Atlas Hospitality Group.

“The boutique market is the one area of the business where you can really drive very high room rates,” he said. “And not only that, but they do tremendous business in food and beverage. They’re very profitable.”

Reay said high-end boutiques are an especially good fit for West Hollywood, an upscale market that draws many travelers and has a stronger-than-average market for hotel rooms.

“When you look at demand and room rates, the Edition in West Hollywood makes a lot of sense,” he said, even at a construction price of more than $1 million per room.

He expects the Edition to command “extremely high average daily rates” of $400 to $500, which would be more than double the average room rate of hotels in downtown Los Angeles.

At the Edition in Miami, the lowest available room rates over the next month range from $430 to more than $1,000. At the Edition in Manhattan’s Flatiron district, room rates range from about $300 to $700.

Boutiques started as one-off properties or small chains, but big hotel groups have taken an interest over the years.

Marriott teamed up with Schrager, a former owner of New York’s iconic Studio 54 nightclub, in 2007 to launch the Edition boutique brand years after competitor Starwood — now a Marriott acquisition target — launched its W boutique brand.

Marriott has 19 hotel brands, including Ritz Carlton, Courtyard and Renaissance, and about 4,300 hotel properties, most of which are operated as franchises owned by private investors. If it successfully acquires Starwood — plans for a merger were announced last month — it would be the world’s largest hotel company.

Schrager and a partner have been credited with creating the boutique hotel concept in the 1980s, when they turned a few Manhattan flophouse motels into small, hip hotels, with a focus on good design and trendy nightlife offerings.

His Morgans Hotel Group developed a handful of hotels, including West Hollywood’s Mondrian, before Schrager sold his stake in the company in 2005.

The Edition brand had a rocky rollout, stunted by the recession, which forced Marriott and Schrager to relaunch the brand last year. Edition properties opened in London and Miami last year and in New York in May. An Edition in Istanbul has been open since 2011.

Witkoff Group and its partner, Miami real estate investment firm New Valley, will own the West Hollywood Edition, while Marriott will run the hotel and Schrager will sign off on design details, said Steven Witkoff, chairman and chief executive of Witkoff Group.

“There’s not a design decision that gets made without his input,” Witkoff said. “It’s the lighting controls, it’s everything. I’m going to use the word obsessive, but I mean it in a positive way.”

Witkoff said he hopes to open the hotel in the second half of 2018.

The Edition is the first Los Angeles-area project for Witkoff Group, which has done most of its work developing office, hotel and condo projects in New York, including an Edition hotel now being built in Times Square.

The Edition West Hollywood will feature two rooftop pools and a third, separate one for residents of the condominiums, as well as a rooftop bar and restaurant, a ground-floor restaurant and an underground venue and event space.

The two-building project — a 13-story tower facing Sunset with a nine-story building behind it — was designed by British minimalist architect John Pawson, who also did the plans for the Edition Miami Beach.

Witkoff said the project will include 60,000 square feet of condo space, which could be divided into as many as 20 units or into fewer, larger spaces.

Prices have not been set yet and units won’t be on the market for more than two years, but Reay said he wouldn’t be surprised if the condos sold for an aggregate price of $100 million or more.

“Those condos could be very high-end — they could be $4 million to $5 million per condo,” he said.

Marriott bought the site at Sunset and Doheny in 2012 for $31.5 million. The spot was home to a small office building, a parking lot and some small shops, which have since been demolished.

Despite all the hotel projects in West Hollywood, both underway and proposed, Reay said the area can handle more rooms given occupancy rates of 75% to 80%.

He noted that the construction boom is mostly the result of a slowdown during the recession. Nothing was built for a few years, so developers are playing catch-up.

“It’s very healthy,” Reay said.