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They say the beautiful people are coming back to Hotel Shangra-La.

Actress Sharon Stone stayed there recently. Kiefer Sutherland’s family threw a party. And globetrotting visitors are spending time at the hotel by the beach in Santa Monica.

It’s all happened since the completion of a two-year, $30 million renovation of the iconic art deco hotel aimed at restoring its former glory in the midst of the worst hospitality market in a generation.

“I wanted it to be relevant,” said Tehmina Adaya, chief executive of Indus Investment Inc., the family entity that owns the Shangra-La. “We feel like we’re back on the map.”

The hotel closed in 2007 after a storied history that began in 1939, when the ocean liner-shaped lodging was constructed as an apartment hotel. After short service as a World War II Navy barracks, it returned to being an apartment hotel until Adaya’s father, Ahmed, bought it in 1983; he spruced the place up and turned it into a celebrity hangout.

During its heyday in the 1980s and ’90s, the hotel was frequented by such famous guests as Madonna, Sean Penn, Tom Cruise, songwriter Randy Newman and President Clinton when he was governor of Arkansas.

The place was often a backdrop for music videos and fashion shoots. But all that faded in the late 1990s when the father’s health began to wane.

“He had the Midas touch,” Adaya said of her father, “but with his health failing he couldn’t be as hands-on.”

The elder Adaya died in 2005, leaving his daughter in charge of the hotel and a 3 million-square-foot real estate portfolio owned by his Adaya Asset Corp.

Two years ago, Adaya, 45, shut the hotel, loaded up on debt and undertook the renovation, which lasted 23 months. The project’s goal: to preserve the building’s historical integrity while transforming it into a modern boutique-style hotel.

Reconstructed in its original art deco style, the Shangra-La now has 71 rooms and suites (17 more than before), a rooftop lounge, several bars, and a courtyard with cabanas and an elevated pool. It also has a new restaurant, iPod docks in every room, an outdoor caf & #233; and an exercise room.

Four months ago, the reincarnated Hotel Shangra-La had its grand reopening, with rates ranging from $305 a night for a standard room with a queen-size bed and flat-screen TV to $2,500 for a penthouse with a large private terrace. A two-bedroom suite with an ocean view costs $1,050 a night, and for $950 you can stay in the “rock ‘n’ roll” room with a shower big enough for a guest and five friends.


Taking risk

The prices, Adaya said, are about 50 percent higher than before the renovation and she hopes to increase them an additional 30 percent by mid-2010.

She said she took out a loan to pay for the project.

All of which, in retrospect, may seem like a daring gamble in the midst of a major recession. Other luxury hotels in Los Angeles, even new ones such as Sam Nazarian’s SLS at Beverly Hills, have been forced to cut rates. And industry analysts say discounted rates will be the industry norm through at least next year.

Moreover, with hotel industry revenue off nearly one-fifth this year, according to industry reports, more than 300 hotels in California were in foreclosure or default on loans as of Sept. 30. That included at least 140 in Southern California and 33 in Los Angeles County.

However, L.A. hospitality consultant Bruce Balton said that in the long run, the Shangra-La’s gamble may work, noting it’s just one of a few luxury hotels on Ocean Avenue with views of Santa Monica Bay.

“I like what they’ve done. The place has good bones and a good location within a good market,” said Balton, whose downtown L.A. firm, PKF Consulting, has worked for Shangra-La in the past.

“Obviously, (luxury hotels in Santa Monica) are having trouble this year due to the recession, but in the past they’ve done very well. There’s no reason to assume that, once the economy recovers, there’s not room for the Shangra-La. The fundamentals are there to make it work.” he said.

Though the hotel is not yet attracting as many guests as she would like, Adaya said, she is satisfied with its progress. The hotel occupancy rate hit the “high 90s” in the summer and has fallen to the “low 70s” this fall during the off-season.

Adaya figures business is off by one-tenth because of the recession. Even so, the occupancy is competitive with the 75.3 percent average occupancy rate for hotels in Santa Monica, where the price of a room averages $241, according to PKF.

One recent guest said he had visited the renovated hotel repeatedly in recent months on his trips to Los Angeles.

“I’ve stayed here several times,” said Rolf Hess, 54, a self-described Swiss entrepreneur in town to examine potential deals. “The location is fantastic and the design is exciting; I think I’ll be back.”

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