The owners of Boston’s Ames Hotel are hoping a new restaurant concept – one that does not bleed so much red ink – will help them sell the historic property to interested investors.
Real estate investment trusts (REITs) and other institutional investors are in the mix to potentially purchase the downtown hotel. Hospitality brokers and other industry insiders tell Banker & Tradesman the price tag for the 114-room boutique hotel will be around $40 million if it sells.
The hotel at One Court St. has 114 rooms, and averages 76 percent occupancy at a $226 average daily room rate – generally solid numbers, according to hotel brokers briefed on the marketing package for the hotel.
But while the hotel itself is posting strong room and occupancy rates, its operators can’t say the same thing about the onsite Woodward restaurant, multiple sources told Banker & Tradesman. They, along with retail insiders, asked for anonymity because of their dealings with investors eyeing the hotel deal or potential restaurants that could be courted for the space.
In fact, the restaurant is losing “millions of dollars every year,” one hospitality industry insider said. Industry insiders say the restaurant is very expensive to run, from food and beverage costs to cleaning and marketing the space.
Property owner Normandy Real Estate Partners declined to comment for this article, and minority owner Morgans Hotel Group did not return phone calls seeking comment.
“The place bleeds money,” said a real estate broker that works with restaurants and retail space. “The food and beverage service alone is a huge loss every year.”
Priced Out
But the owners have seemingly identified a new restaurant concept that should be attractive to a new buyer, especially institutional investors and REITs. Officials from CB Richard Ellis’ retail branch, which is marketing the space, declined to comment on the new concept – but did confirm no new lease has been signed.
This isn’t the first time the ownership group has looked for equity for the property. And the restaurant hasn’t been the only thing to give investors pause.
The Ames Building was constructed in 1899 as Boston’s first skyscraper, and is listed on the National Register of Historic Places. Normandy purchased the property from Dublin-based O’Callaghan Hotels for $17.7 million in 2007, after portions of it had sat vacant for eight years. At the time, the property was in need of a massive restoration.
Normandy secured a loan of up to $46.5 million from UBS. The total development budget for the project was reportedly $75 million, with Morgans committing $10 million for a 35 percent interest in the joint venture.
The final price tag is unclear. But if the owners actually spent $75 million on the project, that breaks down to about $658,000 per room.
“They spent way more money than they should have to build it,” said one area hotel industry insider. “The concept was to be a higher-end boutique hotel that people would pay high average rates for. Their room rates are above average for Boston, but it’s just not large enough to produce enough revenue to make any money after the debt for a return on the investment. You have to have twice as many rooms to actually produce enough. The Four Seasons can afford a bellman and three people working the front desk and other luxury services. But the Four Seasons has 350 or however many rooms, so they can afford that.”
Another industry executive that advises investors on hotel deals said that even if a client is interested, they shake their heads and say the financials just don’t make sense given the debt on the property.
“In New York City you can build a new hotel for $375,000 per room,” the source said. “If you’re above $400,000, then you’re above replacement costs. They have a nice restaurant and did a nice job, but they’re so invested it’s hard to understand how they’re going to make money in the long run there.”
