Case Study: Astor Park Hotel
The Astor Park Hotel is one of the hotel facilities that has undergone gradual development since its construction as a university hostel. The property was acquired by Andrew Pimentel in 1979 and gave it its current name. The hotel, positioned at the Northwest Pacific, has grown to an executive level and one of the most precious in the region. Goldman had previously worked with Starwood Hotel as the Executive Vice President of Acquisitions and Development and made it reach its current status. He took the responsibility of convincing the current CEO and President of Starwood Hotels to buy Astor Park hotel, make it better and save it from bankruptcy. This paper analyzes the Astor Park Hotel Case Study. Firstly, the paper looks into the case facts and identifies the central issue. Secondly, the paper discusses alternative solutions to resolve the problem and, finally, it identifies the preferred solution and explains how it solves the problem.
Brief Overview of Key Case Facts
The primary key case facts at the Astor Park Hotel are the location, the property, the competition and the current operation. For instance, the park is centrally located and borders the exclusives of the Pacific neighborhoods; the Bay View Hills, De Pere and the Emerald. The location was advantageous since it offered the guests with the best supply of the first class office spaces. However, it was not premier, compared to other hotels like the Bay View Hills which are located at the beach.
Nevertheless, the property at Astor Park comprised of the 257 all-suite that had 39 two bedroom suites, 177 one bedroom suites, 39 penthouses and two one bedroom suites (Poorvu, Segel, & Lieb, 2001). On the same note, the park hotel had some standard amenities that included fax and modem lines, 27-inch remote controlled televisions, as well as voice mail systems. Similarly, other properties included deluxe accessories of the bathroom and the mulch line speakerphones. Moreover, the hotel offered beverages and foods in different varieties. The most common were the three meal Bay view Terrace, elegant dining Denmark room, and the Astor launch. Additionally, the meeting space of the hotel was maintained at a minimum of about five rooms that were separate and consisted of meeting rooms that could accommodate an approximate of 150 guests at a moment. Furthermore, the hotel had an outside swimming pool, an underground parking facility, as well as restaurants.
Looking at competition as the last fact case, the hotel had the primary competitive, as well as the secondary font of competition. For instance, the competitive set operated about 1672 rooms (Poorvu, Segel, & Lieb, 2001). Hence, the business was suffering from the inefficiency and ineffectiveness of the management. Similarly, the business was undervalued and, thus, it was not attended to as required. For that case, the major strength of the hotel was considered to be levels of occupation.
Identification of the Case Problem or Central Issue
The main problem of the case was a result of the management inefficiencies and the positioning of the market of Astor Park Hotel. For instance, Goldman was convinced that the average daily rates, as well as the levels of occupancy, were the key measures of general strengths. Therefore, the levels of occupancy were necessary for both measuring the company’s position in the local competitive market and for reflecting the industry patterns (Binder, 2002). On the contrary, the worst problem was the low rate of property’s occupancy. While Astor Hotel was 65%, the rest of the hotels were operating at over 70%. According to Goldman, the undisciplined management had let the park hotel away from the top tier. To defend his argument, he cited a deteriorating, as well as the inconsistent mix of the guest room on the turnover of the management and the floors of the park hotel.
Furthermore, Goldman believed that there were certain situations and conditions in which the management of Starwood would not generate the performance that was of dramatic improvements from the Astor Park. It is seen that the costs that naturally overran were the beverage operations and the operations of food. More so, the above two lost over $320,000 in the year 1998 (Poorvu, Segel, & Lieb, 2001). Similarly, the primary force that catapulted that loss was the money-losing weekend brunch and the generous staffing. On the same note, there was also the issue of discounted rooms in the analysis. In his arguments, Goldman calculated that 6% of all room nights were committed to the ownership related guests in the year1998 (Poorvu, Segel, & Lieb, 2001).
Although Goldman knew that the Starwood would finally enable the Astor Park to improve, he understood that not everything would be a bed of roses. Furthermore, he knew that the hotels were the riskiest ventures that required a very high amount of capital. Likewise, hotels were also characterized by complicated construction and design, as compared to other business ventures, such as office and retail projects. They had high uncertainties of occupancy levels, and the operation cost prices were not friendly either. In addition, its occupancy significantly depended on economic changes.
Discussion of the Alternative Solutions to Resolving the Problem
The first reliable solution to the Astor Park Hotel was to acquire the facility, the second and paramount solution that may otherwise act as an alternative was to reposition it. While in search for the solution, Goldman met Pimentel for negotiations (Wood & Verginis, 1999). As a result, after two weeks they agreed to enter into a partnership. For that case, the organization included sharing of responsibilities, including those of management, as well as those of ownership interests. For instance, the distribution of preferred returns would be in the ratio of Starwood to Pimentel 9:1 and Pimentel would commit up to 20% of capital of equity (Poorvu, Segel, & Lieb, 2001). The deal was very attractive to both parties. As a result, the underperforming hotel was to be offered to Starwood at a relatively cheap price. However, the accruing taxes were still being paid by Pimentel. Therefore, the success of the hotel from bankruptcy depended on the actions of both of them.
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Repositioning would be critical because the capital requirements, as well as the rate of returns and the levels of occupancy. Therefore, it would be imperative to consider the type of customers who would be profitable. Similarly, the hotel management needed to segregate and segment the market by customers to enable repositioning to be done through offering catering services to a particular clique of customers in the area of Pacifico. In that case, the assets of Starwood would be of great help in terms of repositioning the Astor Park Hotel since the powerful assets were the portfolio of the brands that were well recognized. As a result, each Starwood’s brand served a distinct hotel market segments.
The Preferred Solution and Explanation of How it Solves the Problem
The selected and preferred solution would be repositioning the hotel. Furthermore, the proper location of Pacific Northwest for the hotel would prove successful. Here, the brand is very new and exciting and, thus, would be a very attractive market. The repositioning would, however, improve the cash flow of the hotel. Similarly, it would include the setting and implementing distinct strategies that will be useful for hotel improvement. Repositioning a property of $33 million will do no harm as well. However, the only limiting factor with repositioning is property downscaling. Hence, repositioning will mean that the management fetches the rooms that are less expensive in the area and do a lot of renovations (O’Fallon & Rutherford, 2011). If done properly, the market would support upscaling the property to cater for customers properly. On the other hand, the advantage of repositioning is that the level of occupancy will increase up to 70% with an average of about 68% (Poorvu, Segel, & Lieb, 2001).
As a result, Goldman took a pen and paper and started jotting the outstanding issues concerning the structure, repositioning and financing. The list was to highlight all the necessary issues that he would address at the meeting that was ahead of him. Still, the primary concerns were how the hotel could be repositioned given the market structure that he had proposed was to be attractive both to the equity partner and Starwood. However, the greatest issue was pulling the property out of bankruptcy the price that was reasonable, and be able to generate a return that was to be attractive for the shareholders (O’Fallon & Rutherford, 2011).
Even with the current burden on Astor Park Hotel, Goldman is still convinced that the situation can be revived by various ways. For instance, one of the ways that he suggests and is bold about is selling the property for about $33 million to improve cash flow and increase its value. He also sees an advantage in positioning the property at a downscale as this will not give the pressure of renovating the asset. This, he says, will minimize overspending on the repositioning of the property. Selling the property to a private investor and received an 11% preferred return and a 90% share of the profit is also an option that Goldman suggests.
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