Walter “Ed” Scheetz might be one of the biggest New York City hotel players that you’ve never heard of — but that could soon change.
Having cut his teeth at Apollo Real Estate Advisors and then working with famed hotelier Ian Schrager, Scheetz disappeared from the city’s hotel-and-nightlife scene for several years. Now, in what could be a storied second act, he’s quietly reemerged and is partnering with the head of a major real estate family: Joseph Chetrit.
Until 2007, Scheetz, a 48-year-old financial whiz, was CEO of Morgans Hotel Group, the firm founded by Schrager. But in a headline-grabbing scandal, the married father of two resigned when his 24-year-old girlfriend was found dead of a drug overdose in his Las Vegas penthouse.
Scheetz was cleared of any criminal wrongdoing, but settled a civil case with the girl’s family in 2010.
Now, after lying low for several years, Scheetz has resurfaced at the helm of the startup King & Grove, which has recently been making waves in some of the hottest hotel markets in the country.
Indeed, the company has embarked on an ambitious growth strategy, acquiring more than a dozen boutique hotels, development sites and other properties with the financial backing of Chetrit.
The partners currently have 14 sites in New York, Miami and other cities, with plans to develop 3,000 hotel rooms over the next 36 months, Scheetz told The Real Deal.
Building a brand
Simon Ziff, president of Manhattan-based real estate finance firm Ackman-Ziff, said Scheetz has a knack for trend-spotting. “Ed has always been on the cutting edge of what’s next,” said Ziff, who’s worked with Scheetz on financing hotel deals in the past.
And, what seems to be next is building a boutique hotel brand from the ground up.
Scheetz confirmed that King & Grove will be working with Chetrit on a number of high-profile projects, including the Bossert Hotel in Brooklyn Heights, which Chetrit and investor David Bistricer bought from the Jehovah’s Witnesses late last year for $81 million and are converting back into its original use as a hotel.
Chetrit did not return calls, but King & Grove is also working with him on 500 Metropolitan Avenue in Williamsburg, a 200-plus unit apartment building, which will also have a hotel and retail space, and the Versailles in Miami. The firm also has properties in Chicago and Los Angeles (according to news reports, it’s taking over Downtown LA’s Hotel Clark) — and Scheetz confirmed plans to expand to London and other European cities.
Scheetz has known both Schrager and Chetrit for years — in 1993 he helped Schrager arrange financing for the Delano in Miami Beach and, in early 2004, while he was at NorthStar Capital Investment Group he arranged the sale of the Empire Hotel on the Upper West Side to Chetrit.
But it’s only been in the past couple of years that his relationship with Chetrit has developed into a business partnership.
The King & Grove partners extended the brand into Manhattan in 2012, when they bought the Hotel Thirty Thirty from Manhattan-based Property Markets Group for $116 million and converted it into a flagship property: King & Grove New York at 29 East 29th Street. Despite undergoing a $13.7 million renovation in 2011, the 276-room landmarked hotel — originally a women’s residence known as the Martha Washington Hotel — was considered a challenging property to reposition.
Jeffrey Davis, managing director at Jones Lang LaSalle and the broker on the sale, noted that the hotel needed “somebody to bring some vision to it.”
“They were able to see value where other people looked at it as a plain-vanilla box,” said Davis.
Currently, Scheetz and Chetrit are developing a 35,000-square-foot residential-and-retail project at 10 Bond Street with Manhattan-based SK Development and Ironstate Development.
The 11-unit cond-op, scheduled for completion by 2014, has won approval from the landmarks commission, and the units, expected to sell for millions, will be designed by starchitect Annabelle Selldorf.
Morris Sachs, chief risk officer at Greenwich, Conn.–based 5:15 Capital and an original investor in King & Grove, said Scheetz and Chetrit are putting together a series of complicated deals in an effort to make King & Grove a major hotel company.
“It takes a while to get a hotel business off the ground,” said Sachs, who is also teammates with Scheetz on the competitive cycling circuit. “The hotel business is very complicated. There’s a lot of stuff happening behind the scenes.”
Rehabbing a reputation
According to some news reports, Scheetz had developed a reputation as a heavy partier while at Morgans. And although he was cleared in his girlfriend’s death, the incident threatened to overshadow his accomplished career.
The 66-year-old Schrager, who himself went to jail after pleading guilty to income tax evasion in connection with Studio 54, said “of course it set him back.”
“It was a terrible thing that happened to him,” he told TRD. “I went through a similar thing with Studio 54. Everybody makes mistakes, some are bigger than others. You have to pick yourself up and dust yourself off.”
While publicly fighting for his reputation, Scheetz was quietly working on a comeback in the hotel business, but this time from the ground up.
In 2008, he launched a Greenwich, Conn.-based firm called the Scheetz Group, a hotel investment firm that bought a 15 percent stake in the trendy Surf Lodge Lounge in Montauk. He later co-founded King & Grove as an affiliated hotel management and development company. Then in May 2011, he entered into a deal for the firm to manage the Surf Lodge. His King & Grove cofounders were Ben Pundole, his former vice president of entertainment at Morgans, and Rob McKinley, a Manhattan-based designer and partner in Manhattan nightclubs Cain Luxe and GoldBar.
The Surf Lodge — whose majority owners included McKinley’s GoldBar partners Jayma Cardoso, Jamie Mulholland and Manhattan-based broker Steven Kamali — altered the nightlife scene in Montauk.
But while stiletto-wearing patrons crowded the bar at night, behind the scenes the deal was souring.
Indeed, Scheetz filed suit against the Surf Lodge owners last year, alleging that they diverted funds to their nightclub properties and tried to sell the hotel to another inside investor and dilute his interest. (A judge, however, allowed the sale to proceed.)
In December, the majority owners of the Surf Lodge filed a separate $4.8 million suit against King & Grove, alleging that it mismanaged the hotel and stole the concept to launch a rival hotel-restaurant called Ruschmeyer’s, right down the street.
They say King & Grove funneled nearly all hotel and restaurant business to Ruschmeyer’s, costing them hundreds of thousands of dollars and prompting them to sell the Surf Lodge. Scheetz declined to comment on the pending case, as did lawyers for the former owners.
Meanwhile, Scheetz and Pundole had their own highly publicized split.
Last year, the New York Post reported that Pundole resigned from King & Grove by email after Chetrit and Scheetz reneged on a deal to give him an ownership stake in the hotel company.
Pundole declined to comment on the resignation.
But Scheetz confirmed that Pundole was “very involved” with Ruschmeyer’s and said he has a “great appreciation” for his former partner.
Schrager — who is now working with Pundole again at Edition (a collaboration with Marriott) — said he doesn’t know exactly what happened between the two, but noted that he remains friends with both.
“I don’t think it was a Cain and Abel story,” Schrager said. “Sometimes business strategies and business expectations kind of differ.”
Not just a finance whiz
Long before Scheetz began making a name for himself in the hotel world, he established himself in finance.
After graduating from Princeton, Scheetz made his first impression at Trammel Crow Realty Advisors in Dallas from 1988 to 1993.
By age 28, he had caught the eye of Stephen Ross, the head of the Manhattan-based development firm Related Companies, who recommended him to Bill Mack of the development company Mack Cos. It was 1992, and Mack had just launched a $500 million real estate fund with Leon Black of the megafirm Apollo Real Estate Advisors. Mack contacted Scheetz and asked him to come to New York for a meeting.
Reflecting back on those days, Scheetz said, “I owe a lot to Steve for thinking highly enough [of me] to recommend me, and to Bill for giving me the opportunity to work with him running the Apollo Real Estate Funds.”
Among the many deals arranged by Scheetz during his time at Apollo were two notables in 1994: a $15 million investment in Andrew Farkas’s Insignia Financial Group and the deal to restructure bankrupt real estate and energy conglomerate Olympia & York.
Scheetz left Apollo in 1997 to launch NorthStar along with David Hamomoto, who at the time was managing the $1.1 billion Goldman Sachs Whitehall Fund, a real estate fund.
NorthStar quickly established itself as a major player when it acquired 84 percent of Schrager’s eponymous hotel company — which ultimately became Morgans — for $255 million. (The deal allowed Schrager to maintain complete control over hotel operations.)
The venture also expanded Schrager’s holdings, acquiring the Hotel St. Mortiz on Central Park South, the Empire Hotel on the Upper West Side and the famed Barbizon Hotel. The expansion made Schrager the largest privately owned hotel firm in New York, with 4,200 rooms by 1998.
“I learned that Ed was more than a brilliant financial guy and a brilliant deal guy, but could execute a growth strategy,” said Schrager, who put Scheetz in charge of Morgans when he stepped down as CEO of Morgans in 2005 to launch Ian Schrager Co. (Schrager’s new firm developed luxury residential projects, including 40 Bond and 50 Gramercy Park North.)
For his part, Scheetz said there was a learning curve to transition from structuring financial deals to growing a boutique hotel company.
“I knew I wasn’t another Ian, so it was challenging to rebuild the company so that it wasn’t reliant on its founder,” he said. “I’m proud of initiating the strategy of using what I felt were Morgans’ iconic brands to expand the company.”
Today, the test for Scheetz may be to prove that he can grow a boutique hospitality company all over again — but sources say with King & Grove he seems to be off to a good start.