Hotel Company Talks Turkey in Global Expansion

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When Viceroy Hotel Group adds hotels to its portfolio, it doesn’t always check into the most obvious places. One of its hotels, on the Caribbean island of St. Lucia, sits on the grounds of an 18th century sugar plantation. Another, in Abu Dhabi, straddles a Formula 1 race track. Its most recent addition is no different.

The L.A. hotel management company, formerly known as Kor Hotel Group, announced earlier this month that it will operate a five-star resort hotel in what used to be an orphanage in Istanbul, Turkey.

The Viceroy Istanbul, scheduled to open by the end of 2013, is the 18th hotel the company has been hired to operate. It will be the company’s first in Europe. A second hotel in Turkey, the Viceroy Bodrum, was announced earlier this year but it won’t open until 2014.

Viceroy manages the hotels’ staffing, operations and reservations, charging owners for its services. The company employs about 3,500 people.

Anton Bawab, regional president of Viceroy in Abu Dhabi, said the company has been looking to enter the European market for years.

“We’ve been very active since 2008 looking to grow the company in this part of the world,” Bawab said. “We’re picky about the markets we go into. We don’t want to shortchange the brand.”

Konstanze Auernheimer, director of marketing and analysis for Smith Travel Research Inc. in London, said Turkey is an attractive market for hotels because its economy is stable compared with the rest of Europe.

“It wasn’t affected too much by the whole economic downturn,” she said.

Bawab said the country’s political stability is contributing to increased tourism.

“Countries like Egypt, Tunisia and Syria, they were a great attraction for tourists from all over the region to go and spend time,” he said. “But with political instability, a lot of travelers are choosing not to go there and other countries are benefiting from it.”

In addition to the hotels in Turkey, Viceroy announced it will begin operating two more U.S. hotels: Hotel Milano in San Francisco and Cassa Hotel in New York.

Mike Lorenz, senior vice president of sales and market strategy for Viceroy, said the company’s goal is to add at least two hotels to its portfolio every year.

“We might have one or two more this year if everything goes well,” Lorenz said. “We looked at several projects in London and Paris and Spain. We’re just waiting for the right opportunity to find a developer who has the ability to drive a project home.”

Bruce Baltin, senior vice president in the L.A. office of PKF Consulting, said rapid expansion has to be monitored carefully.

“The challenge, especially when expanding internationally, is not to outgrow your capacity,” Baltin said. “They need to make sure to continue to provide the same level of service, because as a management company, that’s what you’re selling.”

The company launched in 1999 when Bradford Korzen bought a senior living facility and turned it into the Avalon Hotel in Beverly Hills. The company was then known as Kor Hotel Group, the hospitality division of Korzen’s real estate business. Kor first expanded internationally in 2006 when it began operating a hotel in Zihuatanejo, Mexico. In 2008, Mubadala Development Co., an investment vehicle of the government of Abu Dhabi, acquired a 50 percent interest in what is now Viceroy.

Korzen changed the company’s name in 2009. He has since left the company to focus on the real estate business. The chief executive position is vacant.

In its first years, the company owned at least a portion of many of its hotels. But in recent years, it has gradually sold the properties to focus on management.

Last year, for example, the company sold the Viceroy Santa Monica hotel to LaSalle Hotel Properties Inc. in Bethesda, Md., for $80.1 million. Viceroy continues to manage it.

In Istanbul, Viceroy partnered with Turkish development company Nef Bebeköy to refurbish the one-time orphanage. The hotel, when complete, will have 58 guest suites in 10 buildings. The resort will sit on 16 acres in view of the Bosphorus, the strait that forms the boundary between Europe and Asia.

Bawab expects the cost of a room at the Viceroy Istanbul to be north of about $515.

Lorenz said the company’s recent growth comes with the recovery.

“In 2008 and 2009, there were a lot of stalled projects,” he said. “We were actively looking at projects, but developers didn’t have the resources to move forward. As we get out of this crisis, a lot of these projects are becoming reality.”

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