The Real Deal New York

André (Balazs) the giant

After last month’s blockbuster sale of the Standard High Line, hotelier debuts new hotel in London

March 01, 2014
By C.J. Hughes

André Balazs

André Balazs

Over the course of a long career, André Balazs has been known to keep a tight grip on his hotel portfolio, which is bedazzled with see-and-be-seen properties in Los Angeles, Miami and New York. But lately, his grip has been loosening a bit.

In the last year, the hotelier has whittled his portfolio in a pair of blockbuster moves.

The boldest of those deals came last month, when he sold the real estate behind his signature New York property — the 330-room Standard High Line — for more than $400 million, in what’s believed to be one of the highest prices ever paid for a hotel of its size in the city.

The buyer was the Standard International, the management company and creative force that he’s also an investor in, and which operates the Standard’s five properties — two in New York, two in Los Angeles and one in Miami.

Analysts say that Balazs, a pioneer on the boutique hotel scene, is likely to receive a windfall through the sale of the Standard High Line given that he was one of the owners of the real estate on the property. Sources say he’s likely entitled to between a 10 and 20 percent cut of the profits, but his ownership stake is unclear.

The sale comes on the heels of another related mega-deal.

In September, Balazs, 57, sold 80 percent of his management company, now known as Standard International.

Balazs said he thinks about more than making money when negotiating a deal.

“I’m not interested in cutting corners to build a hotel and then selling it to some other guy for a ton of money,” Balazs told TRD during a phone interview last month. “When I create these things, I think about what kind of experience I would have if I were sitting at a table in the restaurant on a Wednesday night a few years down the road.”

Still some are buzzing about his real estate conquests, noting that Balazs has historically owned more of his hotel real estate than other operators do.

“Everything he has ever touched has turned to gold,” said Bradley Burwell, a vice president at commercial brokerage CBRE Group, who specializes in hotel sales but has not been involved in any of Balazs deals. “And selling the Standard was perfect timing,” because the investment sales market is so strong right now.

Balazs’s moves undoubtedly free up critical capital at a time when the developer is in the midst of pursuing several other projects, including two in London, his first outside the U.S.

In the Standard sale, the hotelier and his institutional partners Dune Capital Management and Greenfield Partners collected about $1.2 million per room in a deal brokered by Eastdil Secured’s Doug Harmon on both sides. While Balazs’s equity position is unclear, Dune and Greenfield have far bigger stakes, possibly up to a combined 90 percent, sources said.

That makes it one of the priciest deals in New York since the W Union Square sold for $285 million, or more than $1 million a room at the peak of the last boom, in 2006, to Dubai World, a sovereign wealth fund.

At the Standard, Dune and Greenfield had invested $240 million over the years, sources said. Balazs told TRD that while Greenfield was his longtime partner, he brought Dune in halfway through the project to “spread the risk.”

According to sources close to the deal, Greenfield and Dune needed to sell now because they had deadlines looming to pay back investors in some of their funds.

Neither firm returned calls.

While most analysts call Balazs’s maneuvering shrewd, a source close to the deal took a more skeptical view of Balazs, saying his two recent sales were less about financial prowess and more about saving face.

The source said Balazs likely sold his stake in the Standard International as a way to distance himself from the operating company because he knew Dune and Greenfield were about to force a sale and he didn’t want to be left operating the hotel if another high-profile owner stepped in and planted a flag there.

Balazs vehemently denied that charge. “It’s silly. It makes no sense. If that were the case, I would have sold the whole stake and been done with it,” he said.

In fact, Balazs said despite his Standard Internation sale, he hopes to expand the management arm of his business into more markets without adding new real estate holdings. He said the move would bring the brand more in line with companies like Marriott and the W.

And if Balazs was desperately searching for an exit strategy in the Meatpacking District, other analysts added, he set himself up nicely with expansion plans already in the works, both in New York and in London. And he seems confident he hasn’t lost his touch.

“We are interested in going where people who we know — who are the types attracted to our hotels and made them such unique places — want to be,” Balazs said.

“There is such banal product in the hotel industry,” he added. “It used to be that the discount hotels were known for their sameness and lack of innovation. But now it’s the highest-end chains that have the same problem.”

The Balazs backstory

Born to Hungarian émigrés who fled their country during World War II, Balazs spent much of his childhood in Cambridge, Mass.

His father, Endre, was an ophthalmologist known for, among other things, extracting a natural Botox from rooster combs, according to news reports; his mother, Eva, was a psychologist.

After high school at the elite Buckingham Browne and Nichols, Balazs shipped off to Cornell University, where he got bitten by the writing bug and launched newspapers and magazines, he said. He then went to Columbia University’s Graduate School of Journalism, where “I was taught by some of the last greats of the Watergate era.”

But his first job, in the 1980s, was with Biomatrix, a New Jersey–based biotech company he founded with his father. Years later, in 2000, Genzyme bought the company from Balazs’s father for $700 million, according to news reports.

But back in the 1980s, when the Downtown clubbing scene was in full force, Balazs was living in Soho. In 1985, he married Katie Ford, whose family founded the Ford Modeling Agency. (The two divorced two decades later.)

Since splitting up with his wife, Balazs has been linked to a string of high-profile women, including Uma Thurman, Pippa Middleton and Chelsea Handler.

Balazs first began dabbling in the hospitality business in 1988, with MK, a club on Fifth Avenue, where he partnered with Eric Goode of the Bowery, Maritime and Jane hotels. “I was more of a passive investor,” Balazs said.

Then in the early 1990s, teaming up with architect Campion Platt, Balazs bought two properties that put him on the map: The Chateau Marmont, a rundown Hollywood property, and the Mercer Hotel, a six-story former warehouse near his Soho apartment.

He showed a deft financial touch with the Mercer, said Paul Stern, a managing director of Wharton Equity Partners who handles hotel investments for the firm.

The $33 million redevelopment of the Mercer required a large loan from a Japanese bank, which Balazs and Platt defaulted on when the economy turned, analysts say. But with the bank panicking, Balazs eventually bought back his loan for a mere $3 million.

Later, Richard Born, a principal of BD Hotels, stepped in to get the project across the finish line. The 75-room hotel opened in 1997, and the pair still own it today.

“It was not just staying with the project,” Stern said. “It was having the confidence to convince other people that they should stay in.”

Today, Balazs’s empire still includes those two properties, as well as the five Standard hotels, plus Sunset Beach, on Shelter Island, down the road from one of his many homes. However, he no longer owns the real estate in L.A. and Miami.

His hotels are not large — some have less than 100 rooms — but like Ian Schrager hotels, most of them have been hot trendsetters with coveted restaurants and bars like the so-called Boom Boom Room at the top of the Standard High Line.

But Balazs is not immune to market downturns.

A deal to build a hotel in the Meatpacking District with a group of investors that included hip-hop star Jay-Z and developer Abe Shnay flamed after the group defaulted on their loan, according to news reports.

It wasn’t the first Balazs hotel that failed to launch. The post-Sept. 11 downturn in 2001 forced him to abandon a hotel project at Kenmare Square in Soho, as well as at 40 Mercer. But Balazs reversed his fortunes by turning both into successful condos.

He wasn’t as lucky at the 47-story ground-up William Beaver House in the Financial District, which he and partner SDS Investments defaulted on, and lost, in the midst of the recession. The private equity firm CIM Group swooped in in 2010, refashioning the condo as rental in the process. The 300-unit building is now reportedly going condo again.

“I wish I still had it,” Balazs said.

Still in the mix

But the hotelier is not hurting for business.

And Balazs, whose soup-to-nuts, detail-oriented approach to his properties is industry legend, will not be disappearing from the Standard High Line, either.

He still owns a small stake in Standard International, and now serves as its chairman and creative director.

Balazs said that the investors who bought his Standard International stake last year include David Heller, a former Goldman Sachs trader.

Heller, who is an investor in the Philadelphia 76ers, according to his LinkedIn profile, also holds a stake in the Standard East Village, according to Balazs. Heller, Balazs and other investors bought the property, then known as the Cooper Square Hotel, in 2011 for $90 million.

Heller’s Goldman Sachs connection isn’t surprising. The bank was one of Balazs’s partners in the mid-2000s on his 40 Mercer Street condo. Likewise, Dune’s CEO, Daniel Neidich, founded Goldman’s first Whitehall Street real estate fund, a private equity fund that was at the forefront of real estate investment in the early 1990s.

And while Balazs and his partners have sold the Standard High Line, neither the name nor the hotel’s services are expected to change, Balazs told TRD.

In addition, since 2011, he’s ventured into a new business: seaplanes. His StndAIR airline whisks passengers from the heliport at East 23rd Street to posh destinations like East Hampton ($525 one way.)

And now Balazs is expanding his real estate empire overseas.

He told TRD he just won a bid to develop an historic government building in the Camden neighborhood of London, near Google’s new headquarters there. Likely to be called the Standard London, the property will have 280 rooms, said Balazs, who will be an operator and is partnering with London-based Crosstree Real Estate Partners.

In addition, last month, Balazs opened another hotel, a renovated 1886 former firehouse in the Marylebone section of London. The 28-room project is called Chiltern Firehouse. It was developed in partnership with Harry Handelsman, a British developer; Renzo Rosso, founder of the Diesel apparel company; and Eric Schmidt, executive chairman of Google. Balazs also has an ownership stake in the real estate there.

Meanwhile, in New York, Balazs also recently unveiled a redesign of the Standard East Village, which is on the Bowery. In addition to Balazs and Heller, Ironstate Development is also an owner. Fortress Investment Group is the lender.

Whatever the reason, changes are afoot at the property. The centerpiece, a tall curvaceous glassy tower, will no longer serve as the entrance. Guests will now enter through a former tenement building on the site in a bid to make the hotel better fit into its historic neighborhood.

Before, the property “looked like it belonged in Dubai,” Balazs said.

And that is not the only recent change.

In January, Narcissa, a farm-to-table restaurant, opened there. Some 40 percent of what ends up on the plates at the restaurant will come from Balazs’s 20-acre spread at Locusts-on-Hudson, his house/event space near Rhinebeck, N.Y.

Narcissa, he said, is named for his favorite cow there.

Analysts say asserting that much control over the supply chain is rare in the hotel industry. Even hotelier Ian Schrager, who is often considered the boutique hotel’s inventor, outsourced his food and beverage operations, sources note. Schrager was traveling and unavailable for comment, a spokesperson said.

“More control of the product gives you a larger share of the profits,” said hospitality consultant and hotel investor Steven Kamali. “He continues to control the quality, he controls the success, he maintains a flag on the brand.”

Kamali also noted that Balazs’s sale of the Standard to a company he’s still an investor in was the best of all possible outcomes.

“Nothing could be better for him, because he stays in the driver’s seat,” he said.

While Balazs is in the thick of his London projects, he’s also working on more projects stateside.

Though still years away from completion, he’s creating a spa at the so-called SuperPier, which is being pioneered by Young Woo in the Meatpacking District.

Part of a sweeping retail project, the spa will resemble Balazs’s Standard Spa Miami Beach, he said, but won’t bear the Standard name.

Other efforts to diversify Balazs’s business line, however, have not panned out.

In September, Balazs was tapped to redevelop the former TWA terminal at JFK Airport, a 1962 Jet Age landmark. Empty since 2001, the iconic Modernist structure is owned by the Port Authority of New York and New Jersey.

The Standard Flight Center was to have a restaurant, spa and museum inside, as well as two new hotel towers. But in late January, Balazs unexpectedly pulled out, citing bureaucratic hurdles.

“As much as that building is iconic, dealing with the Port Authority became too much and too slow-going for us,” he said.

Hotel developer Morris Moinian said Balazs’s decision to focus on his existing projects was a smart one.

Overseas, “he will be building a brand that will take some time to become a household name,” said Monian, principal of Fortuna Realty Group, a real estate investment firm focused on hospitality that has competed with Balazs for deals. “But he can put a box on dirt and make it the sexiest box anywhere.”

  • vinny

    you guys are killing it lately with the features. good stuff.

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