Tech magnates turning attention toward ultraluxury hotels

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Four Seasons Punta MitaSilicon Valley billionaires Bill Gates, Larry Ellison and Michael Dell, who made their vast fortunes as founders of Microsoft, Oracle and Dell, respectively, have all turned their attention to the upper-upscale end of the hospitality industry in the last year.

All three have been buying up or making plans to acquire ultra-luxury properties that attract some of the industry's highest room rates — the market segment that suffered the least impact from the most recent downturn, comprising hotels that are the most expensive to replace.

The most recent luxury buying spree was undertaken by Microsoft chairman and co-founder Gates, whose Cascade Investment firm has reached hotel-acquisition agreements totaling $400 million since September.

Specifically, Gates in December agreed to buy the 173-room Four Seasons Punta Mita and an adjacent 48-acre property in Mexico's Vallarta Nayarit region for $200 million.

That followed his November agreement to buy the 244-room Four Seasons Hotel Atlanta as well as the property's office-space component from Host Hotels & Resorts for $62 million.

And in September, Gates agreed to acquire the 404-room Four Seasons Hotel Houston from Maritz, Wolff & Co. While that purchase price was not disclosed, Bloomberg News, citing people familiar with the transaction, pegged it at about $140 million.

Recession-proof segment

Four Seasons Resort, Lodge At KoeleGates, whose wealth Forbes last year tabbed at $67 billion, was following close on the heels of Oracle co-founder and CEO Ellison and Dell CEO Michael Dell investing in hotels serving an upscale clientele that was largely buffered from the economic fluctuations that have shaken the rest of the travel industry during the past decade.

In 2012, Ellison, who is worth $43 billion according to Forbes, acquired 98% of the Hawaiian island of Lanai, paying as much as $500 million, according to reports. The island, which at 140 square miles of surface area is about three times the size of San Francisco, includes the Four Seasons Resort the Lodge at Koele and the Four Seasons Resort at Manele Bay, both of which completed upgrades early last year.

Ellison followed up the island purchase with the 2013 acquisition of interisland carrier Island Air for an undisclosed price.

Ellison said in a 2012 interview with CNBC that he was looking to "turn Lanai into a model for sustainable enterprise," expanding the use of solar energy and increasing production from the island's organic farms.

Meanwhile Dell, whose wealth Forbes pegged at $15.3 billion, is preparing to put his own mark on the 296-room Fairmont Miramar in Santa Monica, Calif., which his MSD Capital acquired in 2006 for about $210 million, which came out to almost $700,000 a room.

Late last year, MSD said it tapped renowned architect Cesar Pelli for the planned redesign of the 90-year-old hotel, whose renovation costs have been estimated at about $250 million. Pelli designed Malaysia's Petronas Towers, which were the world's tallest structures when built in 1998.

Four Seasons HoustonThese tech billionaires are stepping up their investments in a luxury-hotel sector that many came to see as all but recession-proof; of all travel niches, it most quickly recovered from the economic downturn, and growth in room demand continues to outpace the rest of the industry.

With travel spending on the rebound generally, STR Analytics said last month that U.S. hotel transactions surged 30% last year, to $16.9 billion. Meanwhile, U.S. revenue per available room advanced 5.4% last year, while the luxury sector's room-demand growth was about 2 percentage points higher, according to STR.

"These are very smart people, and they can afford to be longer-term holders," said Adam Weissenberg, who heads the travel, hospitality and leisure practice at Deloitte. "Everything you see on the luxury end of the market has rebounded so quickly. The demand for luxury goods seems to have no end."

Decade in the making

The recent investments appear to be the culmination of a strategy that tech billionaires embraced in earnest about a decade ago, at a time when the travel market remained in its post-9/11 doldrums.

Dell's MSD Capital acquired the Four Seasons Maui in 2004, the Four Seasons Hualalai in 2006 and Four Seasons Kona Village in 2007.

Gates took an ownership stake in Four Seasons when that company was taken private in 2007, joining Four Seasons founder Isadore Sharpe and Saudi Prince Alwaleed Bin Talal's Kingdom Holding Co.

Fairmont Miramar in Santa Monica, Calif.Ellison's real estate acquisitions, while more varied, have also focused on the high-end sector. The Los Angeles Times reported in 2013 that in recent years, he has spent more than $200 million buying about 20 primarily residential coastline properties in Malibu, Calif. One of those acquisitions was the 21-room Casa Malibu hotel in 2007 for $20 million. That property, which was built in 1949, was shut down for renovations in September.

Representatives for Gates and Ellison declined to comment for this report. Dell's representatives declined to talk about his overall investment strategy. The company made public comments only about the hiring of Pelli's architecture firm for the project in Santa Monica, a city that is notoriously difficult for real-estate project approvals.

"We look forward to introducing Pelli Clarke Pelli Architects' stunning design to the community in the months ahead," MSD spokesman Alan Epstein said in a statement. "Our goal has long been to return the Miramar to its rightful place as one of the greatest luxury hotels in Southern California."

Follow Danny King on Twitter @dktravelweekly. 

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