The Miami Herald
March 3, 2005
Schrager Betting On North Beach Chic
By Douglas Hanks III
Would Paris Hilton do North Beach?
Probably, if Ian Schrager gets his way. The New York-based hotelier who helped invent South Beach chic when he opened the Delano a decade ago is in talks to launch a new hotel in the up-and-coming neighborhood well north of Miami Beach's main tourist districts.
''It's [being] a little bit less the pioneer we were when we went into 17th Street with the Delano,'' Schrager said, referencing a time when South Beach was seen as something of a dreary nightclub district. "I think Miami Beach is moving up there already. So I would sort of ride that high tide.''
Schrager's North Beach leanings come as he plots a significant Florida expansion. He said he is also negotiating to acquire a hotel site in the city of Miami, another in South Beach and one in Orlando. And he and his partners recently began converting South Beach's Shore Club into a condo-hotel complex.
''I think it's the Golden Age down here,'' he said during a recent interview in a Shore Club bungalow. "It's no longer this tropical resort going through these boom and bust cycles.''
But as he enters the condo-hotel arena, Schrager faces a market with plenty of skeptics. Developers from Fort Lauderdale to Islamorada are selling off hotel rooms to fund dozens of projects, though the concept is so new only a few have actually opened. Now Schrager is joining in with gusto, trumpeting plans for the Shore Club and signaling more to come.
''It's better financing than the bank can provide to you,'' Schrager said. "I would consider it for every hotel I do.''
Using funds secured by advance sales, the Shore Club plans about $25 million in renovations to add kitchens, warm up the hotel's sleek look with wood finishes, and knock out walls to turn the 1947 oceanfront hotel's 325 rooms into 240 units.
Prices start in the $400,000s for the smallest rooms and soar to $20 million for the three-level penthouse. The suite price makes the Shore Club one of the most expensive condo-hotels on the Beach, fitting for a property that, like the Delano, commands about $500 a night for its rooms.
But Schrager said he's not wedded to the high end of the South Florida market as he eyes an expansion.
''In the Miami area, I think it could use a very inexpensive and stylish hotel. I've done it before,'' he said, referring to the Hudson in New York, where tiny rooms go for about $100 a night.
Schrager said he hasn't settled on a financing strategy for the new Florida projects under consideration, which he said could include residential components. He declined to provide any details about the potential acquisitions, but said he is in talks for specific properties in each area.
They would mark his first local ventures since signing on as the operator and a minority partner at the Shore Club in 2002.
A Schrager property in North Beach would be perhaps the biggest departure yet for the one-time nightclub impresario who has so far picked New York, San Francisco and other hip, urban areas for his celebrity-friendly hotels.
But North Beach, loosely defined as the stretch of Miami Beach running from 63rd Street to Surfside, is certainly in the midst of an upgrade. Canyon Ranch spas is building a resort there, developers are converting the 153-room Comfort Inn into a private beach club, and townhomes at Craig Robins' Aqua development on nearby Allison Island are selling for as much as $7 million.
''I would consider North Beach the new frontier,'' said William Talbert, president of the Greater Miami Convention & Visitors Bureau. "It's on the water; you've got affordable land.''
Condo-hotel sales let a hotel pass most of its debt and operating costs onto unit owners while raising millions of dollars in cash up front.
Although Schrager faced financial challenges in recent years -- including a year in bankruptcy protection for a San Francisco hotel and a scramble to refinance about $355 million in debt partly secured by the Delano -- he says his portfolio performs well enough to raise plenty of cash from lenders. But he described condo-hotels as a concept too appealing to ignore.
''I think it's a new way of owning hotels,'' he said.
But critics aren't convinced the concept makes sense for buyers, who may see owning a piece of a popular hotel as a cash cow.
Real estate executive Craig Studnicky said he met with Schrager last summer and urged him to convert the Shore Club into a traditional condominium complex in part to avoid any risk of letting down buyers expecting high returns.
''No one's ever going to be disappointed with the location of the Shore Club [or] with the price they paid,'' said Studnicky, a partner in International Sales Group, a major condominium seller that would likely compete with the Shore Club for buyers. "They're only going to be disappointed by the income stream.''
Federal law bars condo-hotels from discussing revenue possibilities with potential buyers. Schrager emphasized that the Shore Club will market itself as a glamorous place to purchase a vacation home, not as an investment.
And he is pitching ownership there as a sort of gold pass into the Ian Schrager world, with VIP treatment at his eight other hotels, including guaranteed entry past the ever-present bouncers and their guest lists.
''You're buying into a lifestyle with the kind of services and privileges most people only dream about,'' he said.