BUSINESS WATCH

Building the world’s largest luxury chain

Most of Canada’s real estate-based companies are in the doldrums, but Four Seasons has pulled of the hotel deal of the century

Peter C. Newman August 3 1992
BUSINESS WATCH

Building the world’s largest luxury chain

Most of Canada’s real estate-based companies are in the doldrums, but Four Seasons has pulled of the hotel deal of the century

Peter C. Newman August 3 1992

Building the world’s largest luxury chain

BUSINESS WATCH

Most of Canada’s real estate-based companies are in the doldrums, but Four Seasons has pulled of the hotel deal of the century

PETER C. NEWMAN

This week, Isadore (Issy) Sharp, who owns 80 per cent of the Four Seasons hotel and resort chain, takes over 10 of the most prestigious hostelries in the Pacific region. The arrangement, which cost the Toronto-based operator only $122 million, expands Sharp’s empire to 43 locations with 14,400 rooms in 17 countries, turning the Four Seasons into the world’s largest luxury hotel chain.

The deal involves Sharp acquiring ownership of Regent International Hotels Ltd. of Hong Kong, formerly owned by Harunori Takahashi, a onetime billionaire who got too close to Alan Bond, the discredited Australian financier. At one point, Takahashi was running 125 companies (including Air Pacific and Air Caledonia) worth $5 billion; now, the banks have moved in and forced the sale of his crowning asset: the Regent hotel chain. As well as its 10 anchor Pacific properties, Regent also has hotels under construction in Milan, New York City, Bali, London and Jakarta.

The arrangement will eventually benefit Four Seasons’ bottom line. Earnings in 1991 declined a precipitous 84 per cent from the previous year, though the company's balance sheet remains marginally in the black to the tune of $2.8 million on revenues of $631 million. Last year saw the worst slide in business travel the chain has experienced in its 30year history, but Four Seasons still remains ahead of its competitors.

“We purposefully control what we buy, based on what we think we’re able to do,” the 60-year-old Sharp told me just before the deal was completed. “By that, I mean we didn’t get caught in the frenzy of the 1980s, when everybody was throwing too much money at every deal and growing beyond their own speed. So we held back and did what we thought we could properly do. We’ve always grown on the premise that our latest hotel to open is the best and kept ourselves in check by never compromising on existing operations.”

This isn’t Sharp’s first entry into the Asian

market. It took him five years to plan and build the $300-million Four Seasons in an exclusive Tokyo district (it opened in January). Like all of Sharp’s operations, the Tokyo hotel has adapted itself to local trade and customs, including a wedding chapel and a health club that features hot-spring baths brimming with special spa water trucked in from the Izu Peninsula, 100 km to the southwest.

“We’ll be keeping the Regent name for most of the Asian properties, because it’s as great a brand name there as Four Seasons is here, though there’ll be a common reservations system,” Sharp explains. He is meanwhile also expanding Four Seasons’ core holdings, with eight new hotels (in Singapore, Paris, Puerto Rico, Carlsbad, Calif., Japan, Scottsdale, Ariz., and two Hawaiian resorts), all in various stages of development.

In today’s economic climate, that kind of growth—especially the Regent buy—takes guts, but Sharp isn’t worried. “Asia is the market of the future,” he says, “and if you’re going to be part of that world, it’s going to be tough to be competitive. Selling and buying opportunities don’t necessarily coincide with the cycle of good times and bad. What they depend on is your company’s ability to buy and

sell at precisely the right moment, as well as the kind of capital you can command. The best time to make a good deal is when the markets are not at their peak, so you can negotiate sensible values. Hotels are built to last 50 to 100 years. That’s why being in a trough right now shouldn’t be the determining factor.” In other words, at a time most of Canada’s real estate-based companies are either expiring or breathing hard to stay alive, Sharp’s Four Seasons chain has pulled off the hotel deal of the century.

While other recessions have mainly affected blue-collar workers, this one hit executives just as hard, and according to the Civil Aviation Organization, world airline passenger traffic last year declined by 4.1 per cent, the largest drop since such statistics were first gathered in the 1940s. “We’ve suffered,” Sharp acknowledges, “but our occupancy rates are down only a few points. The problem is that they don’t have to go down very much to affect our bottom line, especially since costs have kept going up, and we can’t remain competitive if we raise our room rates.” The luxury end of the North American hotel market (about 12 per cent of rooms in most large cities) has recorded a 62-per-cent occupancy rate in recent months. That’s not quite as serious as it sounds because most of these uptown units are designed to break even at 70 per cent.

Indeed, a recent Four Seasons survey of what hotel guests want most was led by “nohassle check-ins and outs,” “consistent, reliable service” and “good value.” Last on the nine-item fist was “low-price accommodations.” Sharp explains that phenomenon by asking: “What’s the difference if I pay $20 more a night for a room if I have a comfortable bed and service that anticipates rather than responds? If you put together the cost of a trip, whether it’s business or pleasure, work out the airfare and other costs, the price difference between hotels is a relatively minor item. We never mention luxury in our advertising, stressing value instead; we don’t indulge our guests, we try to assist them. One example: most hotels have a gimmick. When the maid turns down the bed at night, she leaves a chocolate on your pillow. We never do that. We don’t see any value in eating a candy at midnight. Instead, we offer complimentary shoe shines, overnight pressing and bathrobes, so that if you wake up at 3 a.m. because your body clock is out of whack, you can have something comfortable to sit around or work in.”

Issy Sharp is as low profile as you can be in an industry that deals in glitz and glamor. He just seems to keep plodding happily along, while his celebrity partners, Eddie Creed and Murray Koffler, have seen some of their other business interests decimated. “You’ve got to start with what’s important to the employee before you talk about what’s important to the company,” Sharp concludes, trying to explain the reason for his company’s success. That’s why the locker rooms and staff cafeterias in Four Seasons hotels are nearly as well appointed as the rooms—and that’s why the chain is expanding while every other real estate business is in the doldrums.