STAMFORD, Connecticut—Smack dab in the middle of the Internet revolution of 1998, W Hotels was born. A well-documented technology industry crash and the two largest downturns in hotel industry history later, W is stronger than ever.
With 44 hotels comprising approximately 12,000 guestrooms open around the world, Starwood Hotels & Resorts Worldwide’s ultra-hip, trend-setting W brand has captured the attention of hoteliers everywhere. It even spawned a son-of-W brand called Aloft, which was referred to as Project XYZ during its development period as Starwood executives were immersed in alphabet mode. The “w xyz” name remains as the name of the bar in Aloft properties.
The W brand popularized the lifestyle hotel concept and has become a status symbol despite its relatively small footprint, according to sources.
“There are very, very few examples of a hotel brand with a relatively small denominator that has such high brand awareness,” said Marty Collins, president and CEO of Dallas-based Gatehouse Capital, which has developed a half dozen W properties and maintains co-ownership in two of them. “W has joined a very elite group of brands that people trust. In some ways it’s in a league with Apple, Virgin, Whole Foods.
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Frits van Paasschen Starwood Hotels & Resorts Worldwide |
“There’s no doubt there have been changes in hospitality because of W,” he added. “Just look at the number of entrants into the lifestyle hotels segment. It’s not like (lifestyle hotels) didn’t exist … They just weren’t fully developed, and they didn’t have anything like the Starwood platform.”
While W is part of the Starwood family, Frits van Paasschen, the company’s president and CEO, recognizes that in some regards it stands alone.
“It stands alone as a brand with its contemporary, informal position in the luxury arena just in terms of its absolute volume and size, number of hotels,” van Paasschen said. “But it also stands apart in that none of our competitors have been able to replicate that.”
W founder Barry Sternlicht, who served as CEO of Starwood Hotels from 1995 until his departure in 2005, didn’t respond to requests for comment about W’s growth. Sternlicht, the chairman and CEO of Starwood Capital Group (unrelated to Starwood Hotels), broke the mold when he launched the brand, sources said.
John Hardy, founder of the John Hardy Group, credits Sternlicht’s foresight and ability to stand his ground as key reasons why W has made such an impact.
“When he came out with the W, we were hiring retailer designers because the last thing we wanted was a hotel designer,” said Hardy, whose company has been involved in the development of several W properties. “When he wanted all-white bedding, everyone said it was going to be a disaster. He said, ‘I don’t care, I want to do it anyway.’ So all the fabric manufacturers have figured out how to create white fabric that doesn’t need to be dry cleaned every week and can stay clean.”
“Barry is a very, very smart guy—his record speaks for itself,” Collins said. “At the time when he was starting Starwood from the original acquisition of the paired-share (real estate investment trust), Barry was clever enough to realize the niche of hotels that were at the time being touted as boutique and lifestyle that was emerging in New York with Ian Schrager.
“Barry correctly assessed that there was this emerging psychographic that traditional hotels really didn’t resonate with,” he continued. “He led the discussions about the beds, about having a decent restaurant, about the high-energy bar, about the room being not so much about the armoire.”
Welcome to the living room
Paul James, global brand leader for Starwood’s luxury brands, said W’s introduction of the lobby-as-gathering place took the industry by storm.
“By blowing the lobby up and creating a living room, we broke people’s models,” James said.
“So this idea that the dead space that was most hotel lobbies could turn into a bar, could turn into a gathering place, where you could listen to music or just watch the people go by,” van Paasschen said.
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Paul James Starwood Hotels & Resorts |
Mit Shah, CEO of Noble Investment Group, said via email the W brand is able to stay on top of trends and maintain a consistent approach for owners with W properties.
“W has done a good job in ensuring that the brand’s continued focus on fashion and design are introduced in the form of programming and operations as opposed to continued capital requirements,” said Shah, whose company counts two W hotels and one Aloft property in its ownership portfolio. “Our team works very closely with the W brand team and the Starwood regional operating teams to make sure that these programs add value to our investment. And to the extent that there is capital required, we believe in its return on investment.”
Van Paasschen said creating the design stamp for W has been among the company’s biggest achievements, especially as it has grown around the globe by tying indigenous design into each locale.
“That’s made the brand develop even more legs, but continuing to think through how to find the right balance between style, newness, attitude and profitability is something we have to continually work on and optimize,” the CEO said.
“We are most definitely a design-led hotel, and that philosophy connects through the entire programming,” James said. “It’s about music, fashion, design … what’s new, what’s next.”
Van Paasschen said the economic model for W is not compromised by the fact that it has to stay fashionable.
“We can engage in the world of fashion, but we don’t have to redo our hotels with every fashion season to try to keep up, and I think that’s an important thing to keep in mind,” he said.
Growing into the luxury segment
W wasn’t a hit from the beginning.
“People at the time felt Barry had his hands full with Westin and Sheraton, which is where the broad asset mass was,” Collins said. “I don’t think there was such broad support for yet another new brand. He steadfastly stuck with it and converted some of the assets in those companies and invented the W Bar.
“Like all new, edgy brands, it evolved with the consumer as Barry, and subsequently others at Starwood learned more about their consumers for specific brands, then the brand evolved,” Collins said. “It became a little more disciplined as they learned more about that customer.”
Van Paasschen said W’s rise into luxury was inevitable given the demographics of the guests it was attracting in the early days.
“The reality is there was such a gap in the market and there was so much demand for that new kind of luxury that incorporated popular culture, contemporary design, a certain casual irreverent attitude, the brand was actually pulled up market,” he said. “It’s very rare, not just in the hospitality business but in the world of branding, for a brand to be launched at the high end of the mid market and to be pulled up into luxury, and yet because of the void that’s exactly what happened.”
The W brand in November 2012 was aligned with the St. Regis and Luxury Collection brands.
“One of the great and exciting things we saw in W has been the evolution and appearance of a new customer not being satisfied by the traditional upper-upscale hotels,” said James, who oversees Starwood’s three luxury brands.
Collins has been a believer in the W brand since the beginning and likes the returns.
Working with Kennedy Associates, Gatehouse developed the former W in Silicon Valley (it is now an Aloft hotel and owned by a different group). Gatehouse opened the W San Diego in 2002 and in 2004 sold it to Sunstone Hotel Group, which later lost the hotel in a much-publicized strategy to give it back to the lender at the height of the Great Recession. Gatehouse, along with Hillwood (a Perot company) developed the W Dallas Victory Hotel & Residences, and with HEI Hotels it developed the W Hotel & Residences in Hollywood. Gatehouse remains the co-owner of both of those properties.
“Barry has proven that sometimes swinging for the fences brings sometimes higher returns,” Collins said. “As a developer that was a driving force.”