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NoMad Hotel Gets Investors to Plant Roots

NoMad Hotel Gets Investors to Plant Roots

The Wall Street Journal 6/3/2011

By CRAIG KARMIN

Ronald Burkle, the billionaire activist investor and big Democratic fund-raiser, is jumping into New York’s increasingly crowded boutique hotel business by taking a stake in the NoMad Hotel, a long-delayed project at Broadway and 28th Street.

The investment is the first one being made by a new venture that Mr. Burkle’s Yucaipa Cos. has formed with Sydell Group, a New York hotel developer and operator, to invest in boutique hotels valued between $600 million and $1 billion, according to Sydell Chief Executive Officer Andrew Zobler.

“We think the sweetest spots are existing hotels that need capital, don’t have the right branding, or could use an upgrade or repositioning,” Mr. Zobler said in an interview.

Mr. Burkle couldn’t be reached for comment. A friend of former President Bill Clinton’s, Mr. Burkle made headlines last year for lobbying the board of bookseller Barnes & Noble Inc. to sell the company.

Mr. Burkle’s venture with Sydell has raised eyebrows in the hotel industry because Yucaipa recently raised its ownership stake in Morgans Hotel Group to around 30% and Mr. Burkle took a seat on the board.

Morgans, the operator of four New York hotels—including the Mondrian SoHo, the Royalton and the Hudson—could be a competitor of NoMad and other hotels that Mr. Burkle’s new venture purchases.

On the other hand, Mr. Burkle’s new venture could hire Morgans as an operator at hotels it acquires. “Depending on how this venture is structured, it could be good for Morgans in that it could give them access to other hotel projects,” says John Fox, a hotel analyst with Colliers PKF Consulting, “or it could be disadvantageous if it opens them up to competition.”

A Morgans Hotel spokesman declined to comment. A Yucaipa spokesman didn’t respond to requests for comment.

The boutique segment of the hotel industry, which features chic design and appeals to the young and the hip, has become increasingly popular. “They are entering a very competitive market where a number of players are bringing capital, expertise and recognizable brands,” says Anthony Marino, head of Virgin Hotels, which is pursuing a similar strategy.

Clothing designer Tommy Hilfiger and a partner also recently signed a contract to acquire the Clock Tower building near Madison Square Park with designs on turning it into a fashionable hotel.

The Sydell Group owns or operates four hotels nationwide. The company jointly owns two of the popular Ace Hotels, including one in Manhattan that is a block from the NoMad on Broadway.

The NoMad, which will have 168 rooms and is slated to open in the first quarter of 2012, is aimed at more affluent travelers. It will have room rates starting around $400 a night, or about $100 more a night than at the Ace, Mr. Zobler said.

Sydell was involved with the project before the recent investment was made by the venture it formed with Yucaipa. About four years ago, Sydell acquired a 124-year ground lease for the limestone-façade property, but its plan for a gut renovation to the 1903 Beaux Arts former office building was put on hold during the financial crisis. Earlier this year, the developer obtained a $50 million loan from Deutsche Bank and construction has resumed.

Mr. Zobler hired French architect and interior designer Jacques Garcia, best known for the opulent Hotel Costes in Paris, and he is using that hotel as an inspiration for the NoMad. The property will include a seasonal rooftop dining room, library, glass atrium and a 200-year-old fireplace brought over from France, Mr. Zobler said.

The NoMad gets its name from an acronym for the neighborhood, North of Madison Square Park. A century ago the area was known for hotels like the Grand Hotel, the Gilsey Hotel and the Breslin, which is now the Ace Hotel.

Decades later, the neighborhood became nondescript, with numerous costume jewelry stores and fast-food outlets locating in the area.

The opening of the Ace Hotel in 2009 helped jump-start a revitalization of the neighborhood, though it is still scruffier than popular downtown destinations like SoHo or the Meatpacking District.

“You’ll still find wig stores and a mosque next to these hotels,” Mr. Zobler says of the NoMad and the Ace.

Some of Yucaipa’s other current or past investments have included Sean ‘Diddy’ Combs’s clothing line, the Pathmark supermarket chain and American Apparel.

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