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 Barnett on Business Travel

chris THE CLIFT FALLS OFF
ITS PERCH BY THE BAY


BY CHRIS BARNETT

August 21, 2003 -- When United Airlines and US Airways filed for Chapter 11 bankruptcy, flights were cutback, frills vanished and glum cabin crews feared for their jobs and benefits but the airlines kept flying. So what happens when a posh hotel like Ian Schrager's heavily touted Clift Hotel in San Francisco seeks similar protection from its creditors?

Not much.

Three nights after Schrager dove for the cover of bankruptcy on August 15, the doors of the 88-year-old, but starkly contemporary, Theatre District hotel are still open. The doormen, front-desk staff and other employees are visibly smiling and seemingly carefree. There's still no name on the front door, no sign out front. On a slow day in a slow summer, the Clift's glamorous, bizarre lobby, with its 28-foot ceilings, is busy. Its legendary Redwood Room bar, so named because it is supposedly paneled from the wood of a single tree, is buzzing with GQ and Cosmo magazine types laughing, flirting, schmoozing and swilling $11 Mojitos. (Steep? At his Miami Beach hotel, the Delano, Schrager gets $12 for Cosmopolitans.)

Yet, behind the Clift's Fellini-esque façade--an ostrich-hide sofa fashioned out of steer and mountain sheep horns, an oversized lobby chair suitable for the Jolly Green Giant, digital paintings, flickering candles everywhere, a blazing fireplace made from volcanic rock--the basics of hospitality appear to be sacrificed for hipness.

Amateurs answer the phone brusquely and I was twice put on hold before I could utter a word. Three times I asked to be put through to the Redwood Room and I got voice mail every time. "Oh, they don't answer the phone when they're busy," I was told.

It's sort of like kids playing hotel at a property that quotes $325 a night as a rack rate. But only a rube would pay rack in a town as depressed as San Francisco.

Herein could lie Schrager's financial problems and a nice opportunity for business travelers who favor and savor style over substance and like to rub tushes with the glitterati. Under pressure, the Clift is currently selling rooms online at all sorts of travel Web sites for just over half price. FaresRus.com is quoting $175 a night and so are five or six other sites.

Since hotels price their rooms using a supply/demand/forecasting software program known as "yield management," that bargain rate could hold through the fall. Reliable sources say the Clift's occupancy rates are hovering around 60 percent. But even if they were hiked $25 a night, the Clift could still be a moneyloser.

Why? A partnership called Clift Holdings formed by Schrager paid about $80 million for the Clift and spent an additional $50 million for a top-to-bottom transformation of this 1915 building into a sleek temple of cool. At 373 rooms, that's an investment of $348,525 a room. Say the hotel could get $200 a night for rooms. Assuming 60 percent occupancy, it would take the Clift seven years just to recoup its bricks-and-mortar costs. And that's not counting the debt service on the money borrowed to buy and renovate it.

So will the bankrupt Clift scale back on guest services? To find out, I left four messages requesting to speak with the general manager, but she never returned the calls. A spokesman for Northstar Capital, Schrager's financial partner in Ian Schrager Hotels, insisted the Clift is not hurtling toward oblivion nor about to be stripped down.

He said the Clift was simply in the midst of refinancing 100 percent of its debt, but could not get 100 percent of its bondholders to agree on terms. By filing Chapter 11, it only needed two-thirds of its creditors to approve a refinancing. The Northstar spokesperson claims Schrager has new financing in place and predicts that the Clift will be out of bankruptcy in 90 to 120 days.

Schrager is financially strapped, but his predicament at the Clift may not be all that dire. Bjorn Hanson, the respected hospitality analyst at Pricewaterhouse-Coopers, says hotels fall victim to two kinds of bankruptcies. The more lethal version is the "wrong hotel product at the wrong time that's poorly managed." The other, less fatal type of bankruptcy, is a "well managed hotel in excellent physical condition with too much debt."

Hanson admits that he hasn't crunched the Clift's numbers, but he puts it in the latter category and thinks that it will survive. "This kind of bankruptcy," he adds, "has no visual effect on the guest."

Still, the flamboyant, publicity-grabbing hotelier, who gained fame in the 1970s as the hedonistic impresario and co-owner of Manhattan's Club 54, is scrambling. Schrager was recently facing loan repayment deadlines on $355 million in debt covering a half dozen of his other properties, including the Royalton and Morgans in New York, the Mondrian in West Hollywood and the Delano. But he got eleventh-hour extensions and retained control.

This, of course, is the same man who told a hotel-industry reporter two years ago to forget talk of downturn, slowdown or recession. "It's irrelevant to me," he claimed then.

Behind the scenes now, Schrager is trying to woo mainstream business travelers who are over 30 and don't dress in all black, especially at the Clift. While his New York hotels are known largely for their smallish rooms and haughty staffers who fancy themselves too-cool-to-smile, that hipper-than-thou attitude doesn't fly in San Francisco.

Schrager himself recently told The New York Times that his hotels have a reputation for being "exclusionary" in its bars and restaurants. "We haven't been as good on service as I would like to have been."

To correct that flaw, he's raided luxury hotel chains, hiring executives who know how to pamper. At the Clift, for instance, the general manager and sales director were lured away from Ritz-Carlton.

Still, the Clift as Schrager originally envisioned it has an uphill battle. In the late 1990s, Schrager expected it to be San Francisco's bunkhouse for visiting entertainers, film and fashion industry players, photographers, models and the city's then-reigning royalty: nouveau riche, free-spending dot-commers who wanted to shed their geek image. But by the time the Clift actually opened in 2001, half their target market had evaporated and, after 9/11, coast-to-coast business travel slowed to a trickle.

One New York hotel executive says the Clift was commanding $400 a night at first, but not for very long.

"Schrager survived in the heyday because the self-indulgent publishing, fashion, entertainment, dot-com crowd was driven by the pulse of business. When that changed, his core audience either stopped traveling because they lost their jobs or were told they couldn't pay those rates." Says another hotel manager: "Ian Schrager Hotels has to change from a 'name' to a 'brand' that delivers an implied promise consistently."

Of course, there are young and hip people still traveling who believe Ian Schrager is a hotel god who delivers a style no one else can match.

Julia Hoffman, a very young and stylish production coordinator from New York, is a prime example. Three days after the bankruptcy filing, she was in the Clift's lobby, using her Apple Powerbook's wireless connection to read and send E-mails.

Asked why she was staying at the Clift, Hoffman purred: "Impeccable design, impeccable service. It's so Schrager."

And, if you can get Ian at $175 a night in San Francisco, it's a cheap night at the cabaret.

Copyright © 2001-2004 by Chris Barnett. All rights reserved.