On July 15, PUBLIC West Hollywood opened at 8300 Sunset Boulevard in Los Angeles. It has 137 rooms, from $495 a night. The hotel that stood here closed in 2021 because it could not absorb a rent increase, and the new owners did not lease the building. They bought it.
1.The man behind it is Ian Schrager, who opened Morgans in New York in 1984, often cited as the first boutique hotel. With real estate investor Ed Scheetz he bought the land and building in early 2023 for $112.5 million. It is the third PUBLIC, after Chicago and New York.
2.The building went up in 1962 as a motel and later served for years as a retirement home. André Balazs remodeled it and opened The Standard in 1999, the hotel known for its upside-down sign and a person lying in a glass case behind the front desk. That hotel closed in January 2021. Its notice said it had been unable to prevent a significant lease increase, which made operating the property impossible.
3.The new owners kept the old motel's wave-shaped balcony line, cleaned the exterior up in white and put planters on every railing. John Pawson handled the architecture with Alan Bell. The room count dropped by two, to 137, and a new park of 1,490㎡ (16,000 sq ft) went onto the roof. Fire pits, a running track, an outdoor gym, mini golf and a movie screen all fit up there.
4.There is no TV in the rooms. Instead, an 11-foot screen hangs on one wall with a laser projector and a Bluetooth soundbar, so every room becomes a small screening room. The smallest room is 26㎡ and the largest penthouse 139㎡, a mix that includes two- and three-bedroom units and some with kitchenettes. There is no front desk either, so guests take a mobile key straight up to the room.
5.Draw the blackout drapes and the only light left in the room is a wall-sized picture. Ash wood furniture and white bedding pick up whatever color is on the screen, while the lights of Sunset Boulevard fall back behind the fabric. Downstairs, the lobby sets three pink sculptures against a pink-washed wall, with cream sofas and a white marble table kept low. The tourism board describes it as part living room, part gallery, part social club. A lobby without a check-in line gives people a reason to sit for a long time, and what they order while sitting there shows up as revenue.
6.Revenue has not been disclosed. Put the stabilized ADR at $500, close to the starting rate, and occupancy at 70%, and the 137 rooms bring in about $17.5 million a year (estimate). That rate is more than double the Los Angeles hotel average and well above the Hollywood and Beverly Hills submarket.
7.Between the purchase and the opening, the owners took out three loans (chart below). The last came this month, two months after opening: a $116.5 million bridge loan from Driftwood Capital and Benefit Street Partners, short in term, with the rate undisclosed. At 8%, interest alone runs $9.3 million a year, more than half the estimated room revenue.
8.The rest has to come from outside the rooms. There are three food and drink venues: Louis, an all-day diner and market; the Pool Bar beside the pool; and Studio, a members-club-style lounge done in black velvet and black marble. Indoor and outdoor event space adds up to 3,716㎡ (40,000 sq ft), which works out to 27㎡ per room, the size of another guest room attached to each key. At a conventional full-service hotel this money would come from a ballroom under chandeliers. Here the rooftop park and the nightclub do the ballroom's job.
9.How much must the hotel earn outside the rooms to pay the interest? If net operating income after operating costs, fees and taxes is a quarter of revenue, the revenue needed just to cover interest is $37 million a year (estimate). More than half of that has to come from food, drink and event rentals.
10.West Hollywood's minimum wage for hotel workers has been $20.87 an hour since July. In his opening interviews, the first thing Schrager listed was what the hotel does not have: no front desk, no spa, no celebrity chef. He described it as getting maximum effect in the most minimal way. Take staff away from posts that earn nothing, and that payroll can go to the bar and the event floor.
11.Bookings are steered toward the hotel's own channel. Rates booked on the website carry up to 20% off, and if a guest finds a lower rate elsewhere, the hotel matches it and takes off another 10%. The commission that would have gone to an OTA goes to the guest instead. From here on, PUBLIC hotels will be operated by Highgate, which formed a joint venture with Schrager this year and runs more than 80,000 rooms.
12.The Sunset Strip is a stretch of about 2.4km known for clubs like the Whisky a Go Go and billboards the size of buildings. On this street, a hotel has always been a place to sleep and a stage at once. The Standard's early investors included Leonardo DiCaprio and Cameron Diaz. Putting a screen in every room fits a city that lives on film. For guests who work in the business, the room doubles as a screening room.
13.PUBLIC started out as a hotel with cheap rooms. When PUBLIC New York opened, rates started at $150, and Schrager called it luxury for all. On Sunset Boulevard the same name starts at $495. The name has not changed, and land cost accounts for much of the more than threefold jump in price. The purchase price alone came to $809,000 per room.
14.This is the second time Schrager has opened a hotel on this street. In 1996 he bought a 12-story residential building a few blocks west and spent $17 million with Philippe Starck turning it into the Mondrian. Pebblebrook Hotel Trust later bought that hotel for $137 million, and this spring the Mondrian sign came down and it became The Valorian. In the year the old name he gave it left the street, his new name went up on the same street.
15.Rent is what closed The Standard. By buying the land Schrager got rid of the landlord, but in exchange took on short-term debt. A bridge loan is money lent so that a hotel can move to a long-term loan once it stabilizes, which means occupancy and revenue have to prove themselves first. Where a landlord's rent notice used to sit, there is now a loan maturity date.
The Standard on Sunset Boulevard closed because it could not carry its rent, and Ian Schrager bought the building for $112.5 million and reopened it with 137 rooms without TVs, a rooftop park and a nightclub. By estimate, room revenue alone leaves little after interest, so food, drink and events have to fill more than half of revenue to make it work. An operator in Korea leasing an entire hotel building would run into the same problem. Korea's Commercial Building Lease Protection Act gives tenants a 10-year renewal right even when the converted deposit exceeds KRW 900 million in Seoul, but above that threshold the 5% cap on rent increases at renewal does not apply. Almost any lease on a whole hotel building is above KRW 900 million.