Cypress Property to Be Exchanged for 30% Holding : McDonnell Douglas Moves Into Hotel Business

McDonnell Douglas Corp. is about to take off into the hotel business.

The aerospace giant’s real estate wing, McDonnell Douglas Realty of Irvine, has struck a deal with a Brea hotel developer to build a $14-million, four-story hotel at McDonnell Douglas’ Cypress, Calif., location. In exchange for the property, McDonnell Douglas will receive a 30% interest in the hotel.

“They have the right site, and we have the right product,” said Brad Hutton, vice president of hotel development for D&D; Development Co., which is building the hotel and will own the remaining 70% interest.

Ground-breaking for the 200-room hotel, which will be operated by the Raffles hotel chain, based in Vancouver, Wash., is expected to take place in three months. The project could be completed by spring, 1987, Hutton said.

McDonnell Douglas will not be involved in the day-to-day operation of the property, said Bill Goltermann, project development manager at McDonnell Douglas Realty. But the hotel project will be closely watched by officials of the aerospace firm. “We report directly to (Sanford McDonnell) the chairman of the board in St. Louis. The construction of this hotel was approved by him,” Goltermann said.

Consultants in the lodging industry generally applauded the idea. Although big enterprises like insurance companies have long been regarded as potential investors in hotels, two hotel consultants interviewed said they know of no other defense contractors that has any interests in hotels.

“It’s a logical extension,” said David Kinkade, manager of leisure-time industries at the Costa Mesa office of Laventhol & Horwath, an accounting and management consulting firm. “If you have excess real estate, why not use it for another business like hotels?”

“It would certainly be a convenient place for corporate visitors to stay,” added Larry Kantor, senior consultant at the Newport Beach office of management consultants Pannell Kerr Forster. The hotel will have nearly 8,000 square feet of meeting space.

While working on the Cypress development, McDonnell Douglas also has been drawing plans to consolidate most of its area business at a Santa Ana site near the Newport Freeway. The company, however, said it will continue building an office park on the 70-acre Cypress site, which it acquired several years ago. The hotel will primarily serve out-of-town visitors to the complex.

McDonnell Douglas’ information-systems group now operates from the Cypress site, along with other large corporations such as Mitsubishi Consumer Electronics and PacifiCare.

Raffles Hotels & Inns, the company that will manage the hotel, is a year-old chain with 15 hotel projects, primarily in the Western United States. Many of Raffles’ senior executives are former Red Lion Inns officers who left that company after it was sold last year. The chain primarily operates hotels in the $50-per-night range.

Raffles is attempting to make its mark as a hotel chain specializing in fine food, said Lamont Smith, Raffles’ vice president of operations. The chain’s general managers all come through the ranks of the restaurant business, he said.

“We were aware of a lot of office development going on in the (Cypress) area,” Smith said. “When we got in the car and saw it for ourselves, we decided this was a great place to run a hotel.”