A range of Orange County hotels are declaring independence, testing the potential and limits of a hot hotel market and foregoing the regular business a brand can bring.
Monarch Beach Resort in Dana Point—previously St. Regis Monarch Beach—is the most recent to go solo.
It debuted on June 1 following a two-year, $40 million renovation. An affiliate of owner KSL Capital Partners LLC now runs the 396-room resort, which KSL bought in May 2014 for $317 million.
The Monarch Beach bow follows by two years the opening of Hotel Irvine, which once flew a Hyatt flag. The Hyatt affiliation ended in 2013, and Hotel Irvine soon got started on a renovation that the Business Journal estimates exceeded $20 million by the time it wrapped up in 2014.
The 536-room Hotel Irvine is owned by Newport Beach-based Irvine Company.
Hotel executives say the OC liberation movement has been spurred by a hot hotel market and hotels’ new ability to run beyond boundaries into boutique and unique territories.
“You can position your hotel to the customers you serve,” said Ralph Grippo, president of Irvine Co.’s resorts division, which runs Hotel Irvine. “We know where we are and what customers we want.”
Orange County itself attracts unaligned operators. “It’s the location,” said Ian Pullan, Monarch Beach general manager. “Independent resorts can operate well here.”
Operators say that’s thanks to the beaches.
Big Guys
Irvine Co.’s other resort properties—Island Hotel and Resort at Pelican Hill, both in Newport Beach—also run sans brand.
The former was a Four Seasons for 25 years before leaving the fold in 2005, while Pelican Hill, which opened in 2008, has never been part of a chain.
“We define what the three are—who we serve, what they want, and how to deliver it,” Grippo said.
Hotel Irvine is the largest of the three by room count, “less refined in terms of luxury” he said, and more likely for “a middle manager, versus the senior executive” who stays at Island Hotel. Chief executives or retired founders and their families take villas at Pelican Hill—the latter two properties also pulling well-heeled leisure guests.
Grippo called Hotel Irvine “lifestyle luxury” with a business focus, while the Newport Center locale of Island Hotel “draws more affluent consumers.”
He compared it to Irvine Co.’s malls, with “Neiman Marcus at Fashion Island and Nordstrom at the Spectrum.”
Monarch Beach Resort’s independence includes an upgrade of its spa, new and renovated restaurants, and a push to pull the locals into both.
Mid-Market
The flag lowering at Monarch Beach and Hotel Irvine—large properties that can command upper-tier room rates in their markets and are owned by big real estate companies—also has happened at mid-range OC hotels.
Among mid-tier establishments that now fly their own flags are:
• Grand Legacy at the Park in Anaheim, an ex-Ramada hotel, opened with its new name in April.
• Anaheim Majestic Garden Hotel switched off a Sheraton brand connection in May 2015.
• Buena Park Hotel & Suites was a Best Western prior to a sale in 2013; the new owners kept it independent.
The hotels said saving money, handling their own branding, and controlling operations were key to the choice.
Grand Legacy co-owner Brandon Garr committed $14 million over five years to the eventual changeover.
Work on the 40-year-old hotel included a complete room renovation—199 now, up from 186, and rates that start at $139, about 40% higher than Ramada hotels average in OC.
The $6 million main building has new restaurants and retail, along with a rooftop bar with views of the Disneyland fireworks.
Garr said he’ll save $500,000 a year on franchise fees.
Majestic Garden is on Disneyland Drive between the main Park and Downtown Disney retail. An affiliate of Japan-based Ken Corp. Ltd. bought it for $24 million in 2005, and it was a Sheraton until May of last year.
“Our franchise agreement was expiring,” said Cindy Smith, the hotel’s marketing director. “The initial notion was to renew and go ahead, but we realized we could be creative and more fun, rather than confined in a branded model.”
The hotel’s façade has “always looked like a castle from the outside,” and the hotel cultivates a “royalty” vibe in its marketing. “We thought we could break out,” she said.
Ken Corp. companies own and run 30 hotels worldwide. Majestic Garden is one of two in the U.S.—the other is in Lake Tahoe and also went indie a few years ago. Six of the 30, including the U.S. hotels, are classed by the owner as its “Premier Hotel Collection.”
Buena Park Hotel & Suites shed its Best Western status in 2012 or 2013 and sold in July 2013 to Industry, Calif.-based Pei Yi LLC for about $10 million.
“It wasn’t purchased in the greatest condition,” said General Manager Kirt Christensen, and the new owners were committed to renovations but on a schedule they wanted to set.
“We were going to go with Choice Hotels”—the property’s original affiliation when it opened in 1972—but the brand presented a “property improvement plan” with a to-do list 141 items long as a condition of joining.
“We can do everything the franchise would do, but we can do it ourselves and on our timetable,” he said. “The market is on fire, and we don’t need a brand.”
Cost-Benefit
The brand-to-indie trend comes in cycles, with ebb and flow (see box, this page).
It’s flowing toward indie in today’s market.
Room rates have risen for two years—rates at Christensen’s property are up about 15% from last fall alone—and the Orange County Visitors Association in Irvine forecasts further revenue growth this year and in 2017.
A savvy consumer using technology to research and book stays adds to the growth market where hotels want to run free, said Alan Reay, president of Irvine-based broker and consultant Atlas Hotel Group.
“You don’t have to depend on the brand’s reputation anymore,” Reay said.
Hotel managers agreed.
“Why should we pay somebody money when they don’t have influence?” said Buena Park’s Christensen.
Reay said brands bring recognition, loyalty programs, buying power, and easier financing, but owners will weigh that against a loss of control and annual fees that run 8% to 11% of room revenue.
“You’re spending a lot of money here,” Reay said—and not just year-to-year.
Property improvement plans can add 20% to a hotel’s purchase price, and breaking a contract triggers “liquidated damages”—payments to a brand’s parent company to replace lost future income.
Reay said Irvine Co. Chairman Donald Bren was at “at the forefront” of OC hotels going indie.
Irvine Co. was able to leave management contracts early at two hotels in “amicable separations,” Grippo said.
“We were just establishing the resort group” as Island Hotel was emerging from the Four Seasons chain, he said, followed by a “focus on developing, building and launching Pelican Hill.”
The division then renovated Island Hotel, Grippo said, and moved on to turning the Hyatt into Hotel Irvine.
“We’re in no hurry,” he said. “We’re going to be here forever.”
He said the results over time have proven successful.
“We do better now than we’ve ever done at all three properties,” Grippo said. “We make more money.”
