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

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all but canceled their Denizen brand (well – they haven’t publicly announced it, but its assumed), Ross Klein has been replaced by John Vanderslice, Amar Lalvani and a huge contingent of other employees who jumped from Starwood to Hilton are no longer with Hilton and Steve Goldman –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

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

Back in April, Starwood Hotels sued Hilton Hotels, and two of their employees – Ross Klein and Amar Lalvani for taking trade secrets and confidential information to build the Denizen hotel brand. At the time Hilton came back with their standard boiler plate response to a lawsuit “we feel this suit has no merit and will vigorously defend it” – but I think it was clear that they really had no leg to stand on.

Since that lawsuit was filed Hilton was ordered to stop all further development or marketing of the Denizen brand and they put alot of the employees within Hilton’s Prestige Portfolio’s development team on paid administrative leave – the same employees who had worked at Starwood’s Luxury Brands Group under Ross Klein.

Hilton has pretty much removed all references to Denizen from their websites and press releases and taken down the Denizen Hotels website – but no official word from Hilton or Starwood has come out about Denizens actual fate.

For a comparison – Hilton’s other recently announced brand – Home2Suites has already been integrated into the brand bar at the bottom of all Hilton Family web pages.

Most likely Starwood & Hilton will do an out-of-court settlement which will force Hilton to scrap anything having to do with the Denizen brand, start from scratch on a new boutique brand, and fire the employees who used to work at Starwood then moved over to Hilton. The alternative is a long and protracted legal battle that Starwood is almost definitely going to win.

Hilton was dumb, they put themselves in a precarious position and because of that will end up having a black-eye within the industry and end up even further behind in creating a boutique hotel brand. At this point Marriott’s Edition is looking better than Denizen, even though Denizen apparently had more contracts under negotiation and more work done Edition did in less time. Then again – Denizen’s development was sped up by the use of Starwood’s confidential documents.

It also leaves to question the status of the projects which were expected to include a Denizen – first and foremost, the Cosmopolitan Resort & Casino in Vegas. That project has seen more high-profile problems and issues than anything I’ve ever seen before. I suspect yet another delay in the project and yet another hotel brand (perhaps W?!).

My friends over at HotelChatter have also been following the Denizen saga, so you might want to read up on it over there as well.

andrew@alconic-inc.com

Not much has been said about these new positions – the information was gleaned from an interview that Derek Gale, a writer from Hotels Magazine had with W’s Vice President of Brand Management.

W’s marketing focus will move even further toward events, with more fashion programming (like W’s backstage lounge at New York’s Fashion Week) and music release parties in cities across the globe.

The fact that they are willing to hire someone to be a music curator and a fashion director – for a hotel brand – speaks volumes about the direction Starwood sees W going in. It’s similar to what Starwood did with the LeMeridien brand when they started LM100, and its no coincidence that W’s new boss is Eva Ziegler, whose previous position was brand director at LeMeridien.

Alot of people may ridicule the W brand because of their attempt to be trendy and as well as their “commercialization” of the boutique hotel concept, but no matter what anyone says – they are very successful at it. Unlike some hotel brands that attempt to open hundreds of hotels a year, W sticks to opening just enough hotels that its still able to capture the feeling and the essence of W.

Some boutique hotel companies may do the boutique feel a little better – Thompson Hotels is the first that comes to mind, but their individual hotels are not part of one name-brand. Indigo Hotels is another brand that claims it’s a boutique and tries to give the boutique look and feel – but the segment the brand is in, and the acceptable standards that the hotel has would never reflect a true boutique brand. Not to say that Hotel Indigo is not a quality brand – it is, but it doesnt have the amenities that W would have.

For the majors, Starwood, Marriott, Hilton, Choice, Intercontinental, Wyndham - Starwood is still the only hotel company that has a real boutique hotel product in the market today. Hilton’s Denizen seems DOA, Marriott’s Edition is taking so long to get off the ground I’m wondering if it’s going through some major modifications, Wyndham & Choice don’t even look to be interested in a high-end brand, and Intercontinental has Hotel Indigo.

It’s going to take a lot of catching up to do for any new or existing hotel brand to eclipse the W as hotel brand that’s easy to replicate (relatively speaking of course) and has so many tie ins and marketing kicks that one-up W in the marketplace. The experience and the knowledge that Starwood has on W is tremendous – and a perfect example of that is the value placed on it in the pending Starwood/Hilton lawsuit.

andrew@alconic-inc.com

“Family Value.
Without the
Family Drama

We all have issues.. But with the Hilton Family’s network of support, the only drama will be on daytime television…..”

I wonder if the proposed Denizen/Prestige Portfolio developers would still agree on that today..

(Click Image to Enlarge)

andrew@alconic-inc.com

Ever since the beginning of 2008 anything that could happen to the Cosmo seems to have happened, and whenever it looks like there is a light at the end of the tunnel, something else seems to pop up and cause more problems for the project and those who have placed deposits on it.

Now the latest screw in the cog is related to Starwood & Hilton’s lawsuit over the Denizen brand. Since the Denizen brand seems to be the hotel that is going into the Cosmopolitan, and according to the court order from earlier today all development on the Denizen brand and properties are to suspended for at least 90 days. Bad news for the developers, bad news for the deposit holders and just bad news for Las Vegas as well – another Strip property whose future is in doubt.

What really interests me though is the connection between Ross Klein, Amar Lavlani and the sudden switch from the Cosmopolitan being a W/St Regis to a Hilton property:

Last year there was a WSJ article which said that a deal between was essentially completed between W Hotels/Starwood & the developers of the Cosmopolitan which called for one of the Cosmo towers to be a St Regis, and one of the towers to be a W Hotel. A deal like this made complete sense – Starwood was looking for a way to get their W hotel brand launched in Las Vegas, and it was a great way to also bring the St Regis brand to Las Vegas since the Cosmopolitan was going to be made up of two towers – one which could be branded as one hotel, one branded as the other.

A few months after that story came out, Ross Klein & Amar Lavlani resigned from Starwood and took new positions at Hilton; from that point on any word of W/St Regis going into the Cosmopolitan all but stopped.

Earlier this year there was a surprise announcement that Hilton, and not Starwood would be taking over the management and branding of the Cosmopolitan Resort, including a complete redesign of the interiors, shortly afterwards Hilton announced their Denizen brand, and it was assumed and reported that the Cosmopolitan was going to be one of the first Denizens, although nothing official was reported by either Hilton or the Cosmo’s developers.

In the lawsuit Starwood filed against Hilton, Starwood alleges that Hilton/Klein/Lavlani took confidential documents which had information on how Starwood structured new property deals and used that to go to Starwood’s developers to “steal” the property so that it could be opened as a Hilton branded property..

Hmm.. Are you thinking what I’m thinking? Who knows what will happen to the property now – will it have to go through another complete design process? Will W Hotels end up opening there anyway?

andrew@alconic-inc.com

This is a significant turn of events because it now becomes a federal case, involving the US Attorney’s Office and not just a lawsuit between two competitors.

Because of this move, Hilton on Friday suspended all development of their Denizen brand, put Ross Klein, Amar Lalvani and also the majority of Hilton’s Luxury and Lifestyle Division on paid administrative leave pending the the outcome of “Hilton’s investigation”.

This could very well become the beginning of the end of the Denizen brand, as well as the careers of Ross Klein & Amar Lavlani in the hotel industry. It’s ashame that it had to come to this – Amar was very good in the development end and Ross – while exactly what he brought to the table can be disputed – is definitely one who is able to create hype in the marketing world.

This could also set back Hilton;s playbook significantly over the next few years as they will have a huge bruise on their face from both developers, as well as the public for playing unfairly.

I’ve spoke to Ross & Amar personally in the past and always envied their positions in the Hotel Industry – in a way I looked up to both of them because they were where I wanted to be: leading the development and creation of some great hotel brands (W, St Regis, Luxury Collection – and then Hilton’s Prestige Porfolio).

I’m still reserving final judgment on their actions, but it leaves a bad taste in my mouth that they’d be involved in hurting their previous company for their own personal gain. If there is one thing I’ve always learned in the business world is don’t burn your bridges and always be honest and truthful about things, because it always comes back to bite you in the end. Two items that they seemed to forgotten about, which is a shame.

andrew@alconic-inc.com

When I first saw news of this – I thought it was a desperate attempt by Starwood to try to get some “revenge” from Hilton in taking two of their top lieutenants and launching a boutique hotel brand which stands in direct competition with W, but after reading the news release that Starwood released today – I stand corrected. (And I’d like to point out – it’s not very often that a company releases a news release when they are filing a lawsuit.)

Whenever an executive quickly jumps ship from one company to another – especially when the two companies are major competitors and essentially have the same core business, you somewhat expect a lawsuit. Company A – the company the executive worked at originally, will be worried that the executive will take competitive information to their new employer, Company B – but there is a limit on how much recourse Company A has. Usually that’s why there are non-compete clauses put into employment contracts, but it’s not clear if Ross or Amar had that in their contract – or if there were – did they ignore it.

Additionally, you can prevent (and somewhat easily discover/track) an employee from taking documents and information directly from Company A to Company B – but you can’t prevent the employee from simply utilizing the knowledge they have learned or experienced while working in Company A, and utilizing that knowledge in Company B.

A few years ago I was working at a boutique commercial real estate firm and when I left to focus back on my school work I remember a conversation I had with the President of the company who warned me (in a polite, gentle way) that I cannot use the information I learned while at his company wherever I end up working. I remember asking – “That’s essentially like asking me not to work in real estate”, whereas his response was – “Well, no – you can’t contact my clients, you can’t use my procedures, and you cant use my forms, documents, etc. Obviously, I can’t prevent you from using the knowledge of the real estate industry or how to make a deal work in a new company.”

Ross & Amar seem to have gone the step further and actually taken – both physically and electronically over 100,000 documents, some of which they apparently openly used in their offices and other departments within Hilton. Normally you’d expect to have a small number of documents that were purposely taken – or perhaps forgotten about – then discovered, landing in Company B’s hands – but its not so often that it includes 100′s of thousands of documents as this lawsuit mentions.

The kicker is the only reason they were caught was when 8 boxes of that material was sent to Starwood from Hilton’s legal team after finding them while preparing for arbitration on another lawsuit that Starwood filed against Hilton.

Some examples which made it clear that Hilton stole Starwood’s ideas is the Denizen’s brand “den of zen” which apparently is VERY closely modeled after W Hotel’s “Zen Den” – a product that hasn’t even been rolled out in the W Hotel brand yet.

Starwood is asking that Hilton to certify that all documents have been destroyed, scrap development of the Denizen brand, and to start over in creating a boutique brand and prevent any more Starwood employees from jumping ship over to Hilton’s corporate offices to work on their luxury brands and products.

Since Hilton’s own lawyers found these documents and physically sent them back to Starwood, Hilton doesn’t seem to have any way out of this sticky situation, unless of course all those documents were nothing more than PR material that’s found in any hotel, website or PR persons desk in the hotel industry. Hilton is going to have to prove somehow that a lot of the concepts which went into the Denizen brand were created prior to Ross & Amar joining the Hilton team, or were concepts that are really unique to Hilton and Denizen.

Who knows what’s going to happen in this case, as it has far reaching implications for Hilton – primarily the future of their boutique hotel brand, which has made a lot of headway in a very short amount of time, and also the jobs of Ross, Amar, and certain other employees who they recruited from Starwood. It’s possible that Hilton may be legally forced to let them go – or may fire them anyway because of the illegalities they have committed and the precarious position that they have put Hilton in.

Looking back at all of this – things sort of make sense.. Prior to Ross & Amar joining Hilton, Hilton really was not any major competition to Starwood in the luxury/boutique market. They had no boutique product, and the Waldorf Astoria Collection was slowly starting up, but didn’t seem to be anything more than high end, individual hotels being part of this “Collection” which gave the customer suggestions that it was going to be super luxury because of its namesake.

Once they joined, it’s obvious that a lot of the changes which occurred at Starwood over the past 10 years or so – creation of the Luxury Brands Group, extensive branding/expansion of the W Hotels name, is being rapidly reproduced at Hilton – their creation of the Prestige Portfolio (encompassing the Waldorf Astoria, Denizen, Conrad and Waldorf Astoria Collection) and creation of Denizen which looks like it’s going to go through a branding/marketing machine that parallels W’s.

That brings up the question – is it really those two individuals which set the course for Starwood’s changes over the past few years, and then are making those same changes at Hilton, or is it the institutional knowledge that Starwood has created, with the help of hundreds of employees, developers, marketing consultants, etc – which Hilton became aware of via these stolen documents?

That’s the question.

I’m going to be following this closely. Because with the launch of Denizen & the creation of the Prestige Portfolio, things were really starting to turn around at Hilton – it was starting to look a lot like Starwood, which as we all know – I admire and respect and feel is at the forefront of the lodging industry. It’s possible that in one fell swoop – Starwood will look like Starwood again, and Hilton will have to start from scratch.

Or – and this has happened to other firms in the past – Hilton may end up purchasing Starwood (or vice versa – if they are able to find the capital) to put this lawsuit to rest, merge all the operations and create one super hotel brand.

andrew@alconic-inc.com

ALIS is coming up in two weeks where Hilton is expected to be announcing their Extended Stay brand, and then in March, they will announce their “global lifestyle brand” codenamed Project Global 21. The news that really piqued my interest and told me that Hilton was finally on its way and Blackstone’s money wasn’t wasted was an email I received which advertised the “Hilton Prestige Portfolio” which is what Ross Klein is in charge of.

From the current indications – hes been quite a busy person since he resigned at Starwood and moved to Hilton’s Beverly Hills headquarters earlier in 2008. 

(Click To Enlarge)

There has been alot of talk about the repositioning of the Conrad brand and the breaking out of the Waldorf=Astoria brand, and it looks like 2009 will be the year it happens.

It looks like Conrad will come out to be the global luxury brand of Hilton – focusing on the luxury business traveler, vs families or vacationers.

Its interesting that Hilton is putting its luxury brands into their own “group” very similar to how Starwood put their luxury brands into the “Luxury Brand Group” and Starwood even went so far as to put the headquarters for that division in New York City – rather than Starwood’s headquarter complex in White Plains, NY.

I also found it interesting how much Hilton is differentiating the Waldorf Astoria in New York City with the rest of the Waldorf Astoria collection. It’s obvious that Hilton took the idea that Starwood & Barry Sternlicht had when he took the St Regis in New York and built an entire hotel brand around it – St Regis Resorts. Hilton differs from Starwood by continuing to set the original Waldorf Astoria  apart from the other hotels in the Waldorf Astoria Collection, which continues to respect and elevate the original brands namesake from the rest, I think most would agree that original St Regis in NYC has lost a bit of its luster when it was joined, yet not really differentiated from in a marketing standpoint from the other St Regis’s around the world.

Another change that I’ve noticed recently is the look of the Waldorf Astoria Collection’s website. It looks strikingly similar to the LXR Resorts website – same font, same layout, same search options, I know the reason behind it (I’ll explain in a minute) but it just makes you chuckle a little. LXR’s layout and design is so clean, and smooth it exudes luxury – without making you think Victorian or 19th century. That is the same image that Hilton seems to want to give Waldorf Astoria Collection.

Waldorf=Astoria Collection Website

LXR Resorts Website (Click to Enlarge)

Without a doubt the most exciting thing to come from Hilton is their Boutique brand. Project Global 21 has been in the works since 2007 – and I’m sure its been much longer than that. Out of the major international brands, Hilton is the last entrant in to the boutique hotel field and they realize they have alot of catching up to do. After they were purchased by Blackstone the whole Hilton empire was questioned, but I think now its clear as to the direction where the Hilton brands are going and that Blackstone will not hold them back.

It will be interesting to see what the Project Global 21 announcement in March is, I’ll be keeping my eyes open and ears close to the ground, because what I’ve been hearing about the brand sounds great.. A brand that specializes in conversions, yet manages to still keep its identity. A brand for “the soccer mom” who wants to be in a modern/trendy hotel, but feels overpowered by the W, or Andaz concept which can be a little overwhelming for a family of 4 from suburban America. I’ve also heard that the brand will launch with “products” which makes me wonder what they are going to be selling… The whole idea of calling it a “lifestyle” brand rather than a boutique brand – it’s either marketing speak or really is a different concept, we’ll have to find out.

andrew@alconic-inc.com