One thing that drives me crazy though is being at the scene of the event and taking away a completely different picture of the event than is reported in the media (I’ve experienced this NUMEROUS times with my local home town newspaper) and what amazes me is how often the media takes things out of context, or instead of following the straight road makes a sharp left (not politically ”left”).

A perfect example of this is the recent news of Ivanka Trump’s “interest” in purchasing/developing Rat Island in NYC.

Most people have never heard of Rat Island – and for a good reason, its a two-acre (I think thats being generous) rock formation that juts out of the water on the Long Island Sound, east of Pelham Bay.

Here’s a Google Map of the location:

View Larger Map

It has no power, water, nor even a dock to tie your boat up too. Lastly, in high tide most of it is underwater – if there is a storm, it’s completely underwater.

But back to my story:

Of all news organizations, the Wall Street Journal is not one I would expect to hop on this bandwagon, but last week, in an article in the Metropolis section, “A blog of reporting and news from New York City” they did just that. Now, granted, it’s not the Print Version, but this story did make the frontpage of WSJ.com which is how I found out about it.

The story says:

Talk turned to pungently named 2.5-acre piece of land, “off the coast of the Bronx,” according to a real estate listing, going up for auction October 2. Trump was not too familar with Rat Island before this reporter explained it. (“I first thought you meant Necker Island,” she said. “Richard Branson’s.”)

“Rat Island sounds really interesting,” she said, when we asked whether she’d buy it and develop it under the Trump banner. “But there’s not a lot that’s undiscovered in the tri-state area. So when there is, there’s usually a reason why it’s undiscovered.”

She stated she never heard of it before, thought the island sounded “interesting” (who wouldn’t think that – a 2 acre island for sale in the middle of the Long Island Sound?!), but then stated – if there is an undiscovered area, there must be a reason its “undiscovered” in other words – she is smart and realizes that there must be something wrong with it if there is no development on it.

And she is exactly 100% right.

But the media had a field day! If you just read the headlines you’d think she found the greatest site for the next Trump project, or was seriously considering it for a future project:

Is Ivanka Trump A Buyer for NYC’s Rat Island? – Private Island News

Ivanka Trump Mulls Rat Island Purchase – The Real Deal

Trump on Rat Island? – Metro NYC

Obviously no true “news of record” wrote an article about it (except, well.. The Wall Street Journal), in fact the NY Times, and CBS New York wrote about the island, but didn’t mention anything about Ivanka, but it’s still worth mentioning how the smallest bit of news – even if it isn’t news, can easily be taken out of context and made into something that is “newsworthy”, without even checking the facts, or taking a step or two back and thinking about what the story is actually about.

andrew@alconic-inc.com

Here is Hilton’s Statement

In the lawsuit, originally filed in mid-2008, Starwood accused Hilton of stealing thousands of confidential documents and material which had information on how to create, brand and operate a boutique/lifestyle hotel brand. At the time, Hilton had wooed two Starwood Executives, and essentially their entire support staff and in a matter of months created the Denizen hotel brand. The support staff and executives had intimate knowledge of Starwood’s W hotel brand.

Starwood was sure to win this case from the beginning – starting with the drop shipment of thousands of propriary Starwood documents to Starwood’s corporate headquarters with a note from Hilton’s lawyers stating in essence “we found these in our possession, and thought they should be sent back to you”.

In the aftermath of the lawsuit, Hilton’s boutique/lifestyle brand – Denizen – was completely cancelled, and their entire luxury development team fired, it went right up to the top with Steve Goldman stepping down from Hilton.

The settlement between Starwood & Hilton has been detailed as containing the following three items

1. A moratorium on Hilton working on the development/planning/creation of any lifestyle brand until January 2013
2. A cash sum payment to Starwood, the amount of  which was not detailed
3. The supervision of Hilton by federally appointed monitors to ensure Hilton will be abiding by these rules.

In addition, it mentioned that the Federal Grand Jury investigation is still continuing and this settlement has nothing to do with that investigation. According to the Wall Street Journal, Hilton has been told it should not expect charges to be filed against it in the investigation; I think the settlement with Starwood should push that investigation to a close and will probably result in no action since Starwood seems to be satisfied with the results.

There was really no doubt in my mind that the case would end this way – it was just a matter of how long it would be until Hilton could develop a boutique/lifestyle brand, and how much Hilton would have to pay Starwood. I still wonder what it has done to the careers of Amar Lavlani and Ross Klein.. Are they ever to be employed by a major corporation again? It’s a sad story because I knew both of them, and have met them a few times, so I’m still a little suprised that they did what they did – but I think it comes down to this: money talks.

andrew@alconic-inc.com

I have to say, it’s hard to believe that this day actually came – almost a year later than it was originally supposed to open under the original developer Bruce Eichner, and 5 years after the project had its groundbreaking. In fact, a lot of people thought it would never open at all. It’s interesting to note that the Cosmopolitans neighbor – MGM’s CityCenter – took less time and is much, much much bigger.

I wanted to share some sidenotes about the Cosmopolitan and it’s development that seem to have been lost in the shuffle of it’s grand opening today..

-Unlike the original plans, condos will only be in the West Tower (the West Tower is the one not on the Las Vegas Strip), originally the condos were to be split between the two towers and intermixed with hotel rooms.

-There are about 2,000 condos available for sale still, only 214 are under contract – possibly to close on Jan 1st. (via LV Review Journal)

-Bruce Eichner, the original developer of the Cosmopolitan, is already off onto another project – just like he said he would be in the WSJ article I posted to in my first Cosmopolitan Las Vegas post. He is looking to finish the troubled One Madison Park highrise right on NYC’s Madison Square Park, an absolutely beautiful building which is going through the same troubles that the Cosmopolitan once went through – at least this time he’s trying to be the savior instead of looking for one.

-The interiors of the Cosmopolitan were designed by David Rockwell and the Rockwell Group – he’s the same person who created Starwood’s aLoft interiors, and a favorite restaurant of mine which is a little closer to home – Bobbys Burger Palace. Apparently Bruce’s original interior elements contained 20-ft high dancing robots, which to me would be just ridiculous.

-The Cosmopolitan project is still owned by Deutsche Bank, and Deutsche intends to make the project a long term investment and play an active role in its management. Out of all the other major Vegas/Atlantic City casino projects, Deutsche is the only one who actually stuck to it’s guns and finished the project in this economy. They get kudos in my book for that. Recently, Morgan Stanley let it be known via an SEC filing that they would let their Revel Atlantic City project essentially sit vacant and unfinished for years until the economy bounces back since they have been unable to find a buyer. That’s even after Morgan Stanley was willing to take no money for the project until the investor made a 20% return on their investment of at least $1.2 billion to finish and open the development.  The Fountainebleu in Vegas, which is over 70% finished – a lot of rooms were completely furnished – was purchased for only $150 million by Carl Icahn, leaving the lenders with almost a $1 billion loss.. Wow.. I think that in 5 to 10 years Deutsche Bank is going to look great by finishing this project and not selling it for a song. This economy is tough though, and if you don’t have the capital, well – you’re hands are tied. Deutsche Bank is a large, worldwide company, but they are still almost have the size of JP Morgan Chase & Bank of America by assets.

-Ok, I have to make one mention of the interior of the hotel which has been bugging me until today.. You know those 8 pillars in the lobby (if you’ve seen pictures or video of the lobby, you’ll know what I mean) are full video walls on all four sides, floor to ceiling, no projection screens, no 3D images, no LED walls, they are full motion video screens. Wow.

Best of luck to the Cosmopolitan! Only 40 more minutes until the first bet is placed.

andrew@alconic-inc.com

Ever since I started this blog I’ve made posts here and there about Vernon Hill’s banking ventures – Commerce Bank/Metro Bank USA and then taking the Commerce Bank/Metro Bank concept overseas and I was really excited to see it launched in the UK. While reading a lot of news articles on the opening of the bank – from customers reactions, to “analyst” reactions, three  themes always become apparent and as I customer of the original Commerce Bank – and still to this day, a customer of TD Bank (Commerce Bank was bought out by TD Financial a few years back) thought it was worth explaining to those who are not that familiar with the UK Metro Bank brand/business model.

#1 Similarity to Commerce Bank

Looking at the interior pictures of Metro Bank UK, vs what I see – even today – in the Commerce Bank/TD Bank locations its like a mirror image. It’s almost eerie how everything from the wood paneling, the fabric designs on the chairs and even the carpeting is exactly the same. It’s clear that Hill and his wife’s design team are using the successful design ideas and essentially re-releasing it.. As they say – if it ain’t broke, don’t fix it!

#2 Low Savings Interest Rates vs the Overall Market
One of the biggest complaints – really, the only complaint – I’ve been seeing about the launch of the Metro Bank brand are interest rates that aren’t as competitive as other banks in London – which people think is odd, especially for a brand new banking brand which is trying to make a big push in a market that has seen little or no real competition in decades. One story even goes so far as to say in order for Metro Bank to succeed it needs to be “competitive in rates as well as customer service.”

I’ll tell you this: Metro Bank will probably never have the best rates in banking compared to their peers, probably a few tenths of a percent higher for mortgages, or lower for savings accounts – but that’s not what is going to bring in the customer. The customer service and the Commerce Bank concept is what will win the customer.

A major cloud over Commerce Bank’s head when it was being shopped around was what larger bank would have the stomach to purchase Commerce and keep it’s “convenience” features that cost so much (7-Day banking, etc), one reason that Commerce was able to get away with not following the industry with rates was because the customer benefited in other ways – which I’ll explain in a bit.

#3 The Metro Bank (Commerce Bank) Concept
Metro Bank was launched with the tag line of “Love Your Bank At Last” and has a 4-point Metro Bank Promise: 1) Surprise and Delight every customer 2) 7 Day Banking 3) No Stupid Bank Rules 4) Satisfaction Guaranteed.

There are a few things that to this day prevent me from leaving TD Bank, and those are the things that Vernon Hill pioneered through Commerce Bank and will further refine with UK Metro Bank ..

7-Day Banking and Extended Hours – I can bank on Sunday afternoon,  meaning, if I have a question on my account, I can walk in and see an account representative on a Sunday afternoon. Need a cashiers check? Same thing – no waiting for the next banking day. How about if I’m off on a holiday – Columbus Day, or Labor Day for example – great day to go to a bank right? TD Bank agrees – and that’s why there are lines in the drive-thrus and always a few people waiting on line to see a teller inside. What if I need to cash a check after work – say, 6PM? No problem. TD is open until 8PM, 5 days a week.

In case you haven’t realized – there are no other banks that are open that late – even on a Friday. In fact, Wachovia (soon to be Wells Fargo) closes every single day at 5PM – except for Friday, they are open until 6. Anyone who drives past a TD Bank can attest – there are always cars in the parking lot, no matter what time it is. It was always a running joke between my friends and I that they would rent cars and park them in the parking lot so they always look busy – nope.. Not true. They just always are busy.

7-Day Banking & Extended Hours isn’t just a gimmick, its a feature that TD Bank customers have become reliant on.. And it still amazes me that the other national banks in America haven’t caught on to it yet.

Free Coin Counting – When I was younger I’d save up my pennies, quarters, nickels and dimes. Once the container was overflowing, I’d spend a few days rolling coins, have to label the coins with my bank account number and then bring them to the bank. Sometimes I even had to make an appointment so they could count the coins over again. Commerce Bank thought to put a free coin counter in every single branch, then allow anyone – even those who don’t have an account with them – to bring in as many coins (loose, and mixed coins – they don’t have to be rolled or categorized by type) as they can and have them counted in a matter of seconds – or minutes if you really had that many. Its such a convenient, yet simple idea that has brought in thousands of customers.

No ATM Fees – If you use an ATM Card at a non- TD Bank ATM, TD Bank does not charge an ATM fee for using another banks ATM. Sure, the other bank may still charge you something but TD doesn’t tack on their own charge (but if you have over $2,500 in your account, TD will even refund the fee the other banks ATM charges). TD Bank is the only bank that I have come across  (except for credit unions and savings banks) that does not charge you to use another banks ATM. I have not seen one regional or national bank that has a policy similar to that for everyone from the lower-end customer who keeps an average balance of $50 in their account to the super high end client who keeps tens of thousands in ther account. No discrimination.

Instant Debit Cards - If you open an account at TD Bank, you walk out of there with a permanent working Visa debit card. No waiting 2 weeks like every other bank I’ve ever seen for the card to be printed and then mailed out to you. Have you ever lost your ATM card, or had to have it replaced due to fraud? No problem, call their 800 number, then find the closest branch – even if its in another state and not the branch you opened your account in – and within minutes you can walk out with a working permant Visa debit card. That’s ground breaking right there.

Metro Bank is going to blow the UK banking market away. The latest stats have UK Metro Bank reaching their 1st year goals in opening new accounts and capital in only 3 months – encouraging them to expand alot faster than they expected and reach their goal of 200-250 branches within the London metropolitan market.

Congratulations Vernon, you did it again, and I’m proud to say – I’m still a fan.

andrew@alconic-inc.com

Today at Wyndham Worldwide’s first global brand conference, it was announced that Wyndham has licensed the Planet Hollywood name and likeness, enabling it to begin franchising hotels using the brand throughout the world.

This is a great coup for Robert Earl who will finally be able to rapidly expand its presence with almost no capital and begin collecting licensing and franchising fees. Currently the only Planet Hollywood Hotel is located in Las Vegas and it was recently purchased by Harrah’s Resorts, Earl was previously a part owner in it along with Starwood Hotels & Resorts who used to operate the hotel portion of the resort.

I consider the Hard Rock & Planet Hollywood brands very similar, playing on the consumers desire to expose themselves to celebrities, Hollywood, movies, music, etc.

With that said, I’m not so convinced that there will be a very big market for the Planet Hollywood brand (similar to the Hard Rock Hotels brand really) – I can’t see Planet Hollywood Hotels becoming as ubiquitous Sheraton, or Hilton – I envision them located in large areas that can sustain a resort/convention center hotel – Orlando, LA, etc. The Planet Hollywood name evokes fun, craziness and over the top/big; which may be a bit more than most people want.

It will be interesting to see how the brand comes about.

andrew@alconic-inc.com

One of the 2 towers that make up the Cosmopolitan Las Vegas

It’s been a very interesting journey for the Cosmopolitan – starting back in 2005 with the announcement that it would be managed by Hyatt Hotels, then after the original foreclosure and take over by Deutsche Bank, it was heavily rumored to be turned into a W Hotel.. Then after Ross Klein left Starwood to join Hilton Hotels – it was an open secret that the Cosmopolitan would end up being one of the first Denizen hotels, and well – we all know where that went.

It’s a huge win for Marriott, a big loss for Hilton – who was originally hoping to come into the marketplace swinging with the Cosmopolitan as a Flagship Denizen property, and Starwood still doesn’t have a presence in Vegas for its W Hotel brand, a location which would be perfect for the W.

This is a huge step for Marriott because it gives them a huge appearance front and center on the Vegas Strip – up until now Marriott had no boutique or architecturally significant properties in Vegas. It’s also going to assure that the property will be managed by an experienced group and will be frequented by many people who are just looking for a place to utilize their Marriott Rewards points.

I’m really curious to see how the Ritz-Carlton tie in will appear, I have a feeling that one of the two towers may be catered toward Ritz-Carlton guests, be a bit more high end, but we’ll see how that ends up playing out as time goes on.

andrew@alconic-inc.com

Another day, another casino in the sights of the Starwood Capital Group.

What’s going on here?

It’s interesting to watch how Starwood Capital has shown so much interest in Las Vegas casinos over the past month or so – the past few years even if you consider their initial bid for the Riveria on the strip.

Although its all rumors at this point, Bloomberg Business Week has a story about Starwood Capital’s (and Colony Capital’s) interest in purchasing the Rio casino from Harrahs. Harrahs has been looking to divest the property since they purchased the Planet Hollywood and is looking for interested bidders. Harrahs purcahsed the Rio in 1998 for $888 million, and according to the Business Week article – the property is only worth $500 million now.  

So why are all these private equity firms looking to get into the casino business? Its interesting to watch Carl Icahn place a bid on almost every project in Atlantic City & Las Vegas that is having financial difficulty, Starwood Capital’s interest in the Riveria and now apparently the Rio, along with Colony Capital’s current ownership of the Hilton Las Vegas and Atlantic City. Why?

I’d think that it would be too much trouble to go through the gambling licensing procedures for a private equity firm to even consider dabbling in this, but if you look at the history of these three firms – they have gambling in their blood.

Colony Capital has owned the Hilton in Las Vegas since 2004, the Atlantic City Hilton since 2005 and Resorts International since 2000.

Carl Icahn purchased the Sands casino in Atlantic City in the early 2000′s but quickly sold it to Pinnacle Gaming, but now he owns the unfinished Fontainebleau and the Tropicana in Atlantic City

Barry Sternlicht, from the Starwood Capital Group was probably the first out of these three to get into the casino business with his purchase of ITT-Sheraton which included Caesars World in I believe 1998.

Its interesting to see what everyones intention will be – its known that casinos are great for their free cash flow – something a Private Equity firm loves, but its obvious that some people look at the purchase of a casino as just a passing investment – similar to how Carl Icahn has looked at his investment in the Sands in Atlantic City and possibly how he will look at the Fontainebleau once the economy picks up.

andrew@alconic-inc.com

Tomorrow’s Wall Street Journal is publishing an article detailing how a Federal Grand Jury is weighing whether to criminally charge Hilton and/or some of its executives in the trade theft case.

We’ve seen how Hilton all but canceled their Denizen brand (well – they haven’t publicly announced it, but its assumed), Ross Klein has been replaced by John Vanderslice, Amar Lalvani and a huge contingent of other employees who jumped from Starwood to Hilton are no longer with Hilton and Steve Goldman – formerly Hilton’s head of Global Development – has suddenly departed from the company as well.

Some have speculated that Hilton is close to reaching a settlement with Starwood, but unless I’m mistaken (I’m no lawyer), a Federal Grand Jury investigation would still continue even if Hilton & Starwood reached a settlement.

The part that makes me wonder – and I’m sure scares the Hilton leadership team is the possibility that Hilton Worldwide itself may get criminally charged with wrongdoing – in addition to it’s former accused executives. That could leave the company struggling to do business as normal in an already difficult time for the hotel industry, from the WSJ article:

Prosecutors have exercised particular caution in pursuing criminal charges against major companies since the 2002 indictment of Arthur Andersen LLP. Criminal charges against Arthur Andersen for allegedly destroying evidence in the massive fraud case against Enron Corp. are widely regarded as having led to the big accounting firm’s demise. The Supreme Court eventually reversed the firm’s conviction on those charges, but only after the firm was disbanded.

An alternative approach that has become more common in recent years is for prosecutors to seek what is known as a deferred prosecution or nonprosecution agreement. That typically requires that a company be supervised by a federally appointed monitor and commit to reforms over a period of years.

I think it will come down to how many within Hilton – including the top members of Hilton’s executive team were aware of the actions of the Denizen development team.

I wonder if we’ll ever find out.

One thing is definite though, no matter what the outcome of this Grand Jury investigation ends up being – Hilton will be years behind Starwood and Marriott in creating a boutique hotel brand, and that’s exactly what Starwood was trying to achieve.

andrew@alconic-inc.com

Today’s big story (in my mind at least) is a Wall Street Journal article today that brought to light Starwood Capital’s new found interest in the Extended Stay bankruptcy battle. (I’m writing this directly from my blackberry so I can’t get a direct link).

In a nutshell – it states that Starwood Cap is joining a group of investors (mainly those involved with the first mortgage of the deal) in putting down funding to take the deal out of bankruptcy court.

This deal does have some pretty hefty requirements – 10% down, within 10 days of closing – in cash, but nothing too unmanageable.

This sounds like it could be one of the first major deals that Starwood’s new REIT is getting involved in, as it fits directly in line with their intentions when they launched the IPO.

The question I have is what is Starwoods intentions – is this simply a deal which they are getting involved in due to the potential upside, or is this a deal they want to get involved in to expand their hotel portfolio? About a year or two ago I expected Starwood to purchase Extended Stay Hotels, since at the time, it would have fit in with their hotel expansion strategy.. Although now, with the different outlook on the lodging industry that’s a different story.

I’m glad to see that Starwood is getting involved, as it does add some legitimacy to the process, plus they also seem to have the backing of all the other mortgage holders and even the federal government who holds a portion of the mortgage through their takeover of Bear Sterns last year.

Andrew@alconic-inc.com

Here’s why:

The reason I don’t see the Cosmopolitan being branded as any Hilton Family hotel is quite simply because of Hilton’s current lawsuit with Starwood Hotels. One of the main points of the Starwood/Hilton lawsuit was the accusation that in the beginning of 2008, two newly hired Hilton employees, (Ross Klein & Amar Lalvani – formerly of Starwood Hotels) stole confidential documents and knowledge of projects that Starwood was actively developing (among other things).

Around that same time Starwood Hotels was apparently working on a deal to put a W Hotel & St Regis hotel in the Cosmopolitan; but once Klein & Lalvani moved to Hilton, there was complete silence on any possible deal with Starwood and the Cosmopolitan.

It wasn’t until earlier this year that Deutsche Bank was said to be working on a deal in which the Cosmopolitan would be managed by Hilton; although it wasnt ever officially announced, it was pretty common knowledge in the industry that the Cosmopolitan would end up being one of Hilton’s first Denizen Hotels.

I can’t see how Starwood would enable the courts to let Hilton even come near the Cosmopolitan – especially since the individuals who were privy to the W & Cosmopolitan deal went to Hilton and suddenly, the Cosmopolitan was going with Hilton.

I could be wrong – but I think its safe to assume that the news bit that the LVRJ is relying on is old information which may have been correct back in March of this year, but is no longer correct since the Starwood/Hilton lawsuit. I still firmly believe that if one of the major lodging companies are to brand and manage the Cosmopolitan – it will be Starwood with the W Hotel, and perhaps even a St Regis or Le Meridien.

In other good Cosmopolitan news: the joint finally has a General Manager, and has reiterated their planned opening date of late 2010 – still a year away, but since the project has been under continaul construction throuhgout hte past few years, I see that as a realistic date.

I wouldn’t be surprised to see the Cosmopolitan making a big announcement either right before MGM CityCenter opens, or in the beginning of 2010 – after the CityCenter hoopla dies down, because the end of this year will be totally dominated by CityCenter news/announcements/reviews, etc.

andrew@alconic-inc.com