Like his inspiration Churchill, hotelier won't stay down

Chicago HotelsEconomy, Business and FinanceReal EstatePropertyHotel and Accommodation IndustryMergers, Acquisitions and TakeoversRestaurant and Catering Industry

To say that Chicago-based luxury hotel investor Laurence Geller is captivated by all things Winston Churchill is something of an understatement.

   As chairman of the Churchill Centre, a not-for-profit dedicated to preserving the legacy of the iconic British statesman, Britain-born Geller has rubbed shoulders with the likes of former British Prime Minister Margaret Thatcher and Churchill's daughter, Mary Soames.

   His West Loop office is filled with Churchill-related memorabilia, including an exact replica of Churchill's stand-up desk. And early last year, Queen Elizabeth II named Geller a Commander of the Order of the British Empire, an honor stemming in part from his Churchill-related endeavors.

   For Geller, who started out as a hotel busboy in Switzerland at age 15, Churchill's leadership during the darkest hours of World War II strikes a deep chord. While Geller's battles have been smaller and more personal in scale -- a near-death experience and several professional setbacks, including a perilous corporate nose dive during the recession -- he has pushed through to firmer ground and this year was awarded a one-time extra bonus worth about $15 million.

   Churchill "got knocked down so many times, and the silly old bugger kept getting up," Geller said, with his characteristic blend of respect for achievement and salty irreverence. "In the end, he had a date with destiny. Perhaps I do. I just don't know where."

   For the foreseeable future, the frenetic dealmaker, at age 64, is trying to steer his stabilized real estate investment trust, Strategic Hotels & Resorts Inc., into a more robust recovery or toward an eventual sale.

   "If we could get more GDP growth ... it would make our properties a lot more valuable, and either my stock would go up or we'd find somebody to buy the company," he said. "I'm not into empire-building anymore."

   Meanwhile, as chairman of an ad hoc committee formed by Choose Chicago Chairman Bruce Rauner, he is working to guide Chicago's long-range efforts to reinvigorate its tourism and convention industries.

   "What I've been looking for is a way to have the same impact of an Olympics every year for tourism," said Geller, founder, president and CEO of Strategic, which has ownership interests in 18 high-end hotels and resorts, including three in this area: Fairmont Chicago, InterContinental Chicago and Lincolnshire Marriott.

   Elements on the table: How to drum up greater marketing funding and how to lure privately developed attractions. He declined to be more specific about evolving plans, however, noting that Mayor Rahm Emanuel hasn't seen them all.

   "If I showed you now, the mayor would have the little testosterone I have nailed to the flag at City Hall," he said with a laugh. "He's terrifying. He's brilliant in many ways."

   Tempered toughness

   Geller, too, is a complicated amalgam, according to those who know him well or have observed him over the years. A largely self-taught Renaissance man with great stores of charm -- he speaks seven languages, has penned two thrillers centering on savvy hoteliers, paints in miniature, runs marathons and sky-dives -- Geller also is known as a far-sighted strategist, a shrewd dealmaker, an exacting asset manager and a demanding boss.

   He runs on overdrive, at least partly because of the influence of his late father, a conductor of the Royal Philharmonic Orchestra, whom he describes as larger than life and hard to please.

   Hotel industry consultant Ted Mandigo recalls when one of his staff members decided to accept a job with Geller.

   "I said, 'Let me tell you, you'll be working at 11 at night getting financial reports together, and he'll say: Here are three revisions it needs, and I want five bound copies, and meet me at the airport in the morning. I'm on my way to London.'"

   Subsequently, the former employee reported back to say, " 'Ted, you were wrong. He was on his way to Tokyo,' " Mandigo said.

   Geller acknowledges a reputation for being tough. "Mediocrity is unacceptable," he said. "Ninety percent of your best is not acceptable." But, he said, his early years in the "sharp end" of the business, in hotel kitchens, taught him the importance of delivering serious messages with humor and grace.

   "I knew how tough it was to execute," he said. "I knew when I was beaten up I lost my motivation."

   Among those who felt the weight of Geller's high expectations was Doug Geoga, a protege when Geller was a key executive with the Pritzker family's Hyatt Development Corp. in the mid-1980s.

   "He was demanding," Geoga said, but "a coach is supposed to get the most from his team, to help them achieve even more than they thought they could." Geoga went on to serve as president of the Hyatt hotel business. He now heads Hinsdale-based Salt Creek Hospitality, a private equity/turnaround firm.

   One recent day, Geller swung by the InterContinental Chicago, a Strategic property, to critique plans for a $9 million renovation of its north tower.

   Simeone Deary Design Group has been working on the plans since April and had set up a model corridor and guest room where existing shades of gold and maroon were replaced with a cream-and-earth-tones color scheme.

   Shortly after he arrived, Geller licked his palm and smacked it on the outside surface of the guest room door. The design team was laughing nervously as he examined the door for fingerprints. He suggested it be covered with a spray or film that will make it easier to clean.

   In the guest room, he picked up a red rosette accent pillow from the couch and said, in a stage whisper: "This will end up in someone's suitcase. Don't do it."

   In the course of the 20-minute visit, he quizzed the team on whether the headboard fabric could stand up to hair grease (yes), whether the colors and images in the artwork could be softened (yes) and whether the old-school bathroom pipe work could be modernized (yes, if the budget was stretched upward).

   "OK, done, sold -- I just spent nine million bucks," he said of the project, scheduled for completion this spring. "No delay! No delay!"

   Asked about the whirlwind visit, Alicia Francis, senior project designer, said, "I didn't feel overwhelmed by it ... it was very valuable."

   Surviving downturns

   Geller has hit the shoals a number of times since arriving in the U.S. in 1976 to work for Holiday Inns and later in hotel consulting and investing.

   He lost most of his investment in several Texas and Louisiana Holiday Inns after the collapse of oil prices in the late 1980s triggered economic turmoil. Afterward, he narrowed his focus to consulting.

   In 1994, Geller, an avid scuba diver, nearly died after a carotid artery burst near his right eye while on vacation in the Cayman Islands. He underwent five surgeries, and during his recovery he realized he was ready to take on risk again.

   "I once again wanted to be a principal and hotel owner rather than an adviser," he said.

   He started doing small deals, and by 1997 he launched Strategic, which went public in 2004.

   In 2005, Hurricane Katrina inflicted devastating damage on the Hyatt Regency New Orleans, which provided Strategic with 19 percent of its operating income at the time.

   "We resolved then not to have any one asset that could do that to us," Geller said. "We went out and we bought what we thought were good deals."

   The acquisition spree left the company highly leveraged when the recession began decimating business at luxury hotels. Strategic's stock, which had been trading near $24 a share in 2007, fell as low as 65 cents in early 2009.

   At that point, observers questioned the company's viability, though Geller said he never lost faith.

   "When everyone said, 'Oh, you're finished,' we knew that the value of these high-end assets was always greater than just the value of the earnings," he said. "So we never really feared losing the company. ... We had to deleverage."

   Among its painful moves, Strategic in 2008 scrapped its plans for a 225-room expansion of its Fairmont Chicago in the Aqua tower going up across the street, a withdrawal that cost the company slightly more than $30 million.

   "It was crazy," Geller said. "It was one of those things you did in the environment." Ultimately, different owners took over the project and developed a Radisson Blu Aqua in the space.

   "This is one of the few cases where you build your own competitor and give it away," he said.

   Longtime friend and neighbor Robert Wislow, chairman and CEO of U.S. Equities Realty, said he has been amazed by Geller's ability to blow through difficult times.

   "He sees light at the end of the tunnel, even if it's really dim, or not there," he said.

   Since January 2010, the Chicago-based company has taken a number of steps to right the ship. It sold some assets, including the InterContinental Prague and lease rights at the Marriott Paris Champs-Elysees; issued more stock; refinanced property loans; and negotiated new joint ventures on other properties. The company nearly halved its net debt, bringing it to 7.6 times operating income by June 2012.

   Its stock price has been hovering in the $6 range, giving it a market capitalization of about $1.2 billion.

   "Strategic has been through some rocky times, but it appears to be well-positioned for recovery," said Will Marks, a lodging analyst with JMP Securities LLC.

   Its portfolio "is a collection of high-end, largely iconic assets that are irreplaceable, so I think there's a lot of worth just on real estate," said Smedes Rose, an analyst with Keefe, Bruyette & Woods. "And there has been a steady rebound for luxury accommodations."

   Strategic's properties include the Four Seasons in Washington, D.C., and Punta Mita, Mexico, as well as Ritz-Carltons in Laguna Niguel and Half Moon Bay, both in California.

   A big bonus

   Moving the company back from the brink brought Geller and other key executives a one-time bonus in April. His is worth about $15 million, with half in deferred stock he will receive in 2014. The sum will be adjusted upward if the stock rises above $6 for 20 consecutive days in the fourth quarter.

   His bonus comes atop his 2012 base salary, annual bonus and other compensation, which have the potential to be close to his $3.9 million package in 2011.

   The one-time bonus raised a few eyebrows. "Paying someone a bonus to get out of a hole they may have had a part in digging, from a shareholders' standpoint, is a little odd," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

   Institutional Shareholders Services deemed it excessive.

   Strategic defended the bonus plan in an amended proxy statement, saying the board's compensation committee thought it was necessary to retain and motivate the executive team as the company pulled out of the downturn.

   "It sure as heck motivated this company, the management team. I don't think anybody will say we didn't perform miracles," Geller said.

   Recently divorced after a marriage of more than 40 years, Geller is selling his longtime Victorian home in Lincoln Park for more than $3 million.

   Meanwhile, he and his girlfriend, Grace Leo, a Paris-based boutique hotelier, have poured energy into renovating an elegant three-bedroom condominium on Lake Shore Drive that Geller purchased out of foreclosure in late 2010 for $1.9 million. He has listed it for sale for $2.85 million.

   "If I can get a good number, I'll trade up," he said, noting the apartment is on the second floor, and he would like an upper-floor unit with a better view of the lake. "I like doing apartments."

   As this new phase is beginning, he also is wrestling with getting Strategic's stock price out of its holding pattern.

   While the company recently made a joint-venture acquisition -- the Jumeirah Essex House on Central Park South in New York City, with plans to rebrand it as the JW Marriott Essex House -- this doesn't necessarily signal a buying binge, Geller said.

   "If I can find great deals, and we can find the equity, yeah, I'll buy more," he said. "But most of our money is going against expanding the existing hotels because it's the cheapest deal to buy. We already own the square footage."

   Geller's strategy for boosting profit margins, which he refers to as his "secret sauce," involves slashing management costs at individual properties, wedging high-profile restaurants and retail into prime ground-floor space in urban properties and rolling out a wide array of beauty treatments and fitness offerings at resorts.

   He cites the Michael Jordan's Steakhouse at the InterContinental Chicago on North Michigan Avenue as an example of a home run.

   "We owned that square footage. It cost us $4.25 million, I think, to do (the restaurant buildout). We'll make 25 to 30 percent annual returns on that," he said. "We could do a lot of those. And that's what we try and do."

   For Geller, who observers say is often ahead of the times in his strategic thinking, the possibilities go beyond high-profile restaurants and luxury merchants.

   "If I had my way, I'd build an ice bar somewhere on Michigan Avenue, completely made out of ice, inside and outside," he said.

   "We're working on something," he said, "because I don't mind trying."

   - - -

   Laurence Geller

   President, CEO and founder, Strategic Hotels & Resorts Inc.

   Company: A real estate investment trust that owns and provides asset management services for luxury hotels in the U.S., Mexico and Europe. It has ownership interest in 18 properties with a total of 8,271 rooms, and a market capitalization of about $1.2 billion.

   Civic activities: Chairman, the Churchill Centre; executive committee member, Choose Chicago; board member, Children's Memorial Hospital; chancellor, University of West London (formerly Ealing Technical College).

   Education: Graduate, Ealing Technical College's school of hotel management and catering.

   ----------

   kbergen@tribune.com | Twitter@kathy_bergen

Copyright © 2014, Los Angeles Times
Comments
Loading