By Nadja Brandt

Feb. 23 (Bloomberg) — Starwood Hotels & Resorts Worldwide Inc. is trying to burnish its W brand, after lenders took back two properties last year, with a $350 million hotel whose future may hinge on Hollywood’s revival as an entertainment hub.

The W at Hollywood Boulevard and Vine Street, which opened Jan. 15, is designed to draw tourists and movie-industry customers at a time room demand is falling and the area is struggling with fewer visitors. The hotel, co-owned by Gatehouse Capital Corp. and run by Starwood, is the W’s “flagship,” said Carlos Becil, a North American vice president for the chain.

“When we come out of this down cycle we’ll own the upswing with all these newer hotels,” Becil said in an interview.

Revenue per available room at U.S. luxury hotels plunged 24 percent in 2009, the most of any industry segment, as travelers pared spending, according to Smith Travel Research Inc. in Hendersonville, Tennessee. In California, the number of hotel foreclosures more than quadrupled last year to 62, Atlas Hospitality Group said last month. Defaults jumped sixfold, said Atlas, an Irvine, California-based company that specializes in selling hotels.

Starwood, based in White Plains, New York, has been letting go of assets to cut long-term debt of $2.96 billion as of Dec. 31. It agreed in July to sell the W San Francisco for $90 million to Keck Seng Investments (Hong Kong) Ltd.

Two Setbacks

Lenders took over the W San Diego in June after owner Sunstone Hotel Investors Inc. was unable to modify the terms of its $65 million securitized mortgage. The W New York Union Square, bought by Dubai World in 2006, was auctioned in December to a mezzanine lender after the state-run holding company missed a loan payment.

A $65 million senior loan and $5 million junior loan backed by Dubai World’s W Washington D.C. were 30 days delinquent this month and a debt servicer was working with the borrower, according to Steve Kuritz, a senior vice president at Realpoint LLC, a Horsham, Pennsylvania, credit-rating company.

Dubai World, through a spokesman, declined to comment.

“I don’t think brands are as important as they used to be,” said Lewis Wolff, co-chairman of San Clemente, California- based Sunstone. “Price is the biggest factor, and although the W is a good solid brand, it is expensive to build and maintain.”

Still, the W chain was Starwood’s best performer in the fourth quarter as revenue per available room fell 2.3 percent, compared with a 7.2 percent decline systemwide. Starwood, the third-largest U.S. lodging company, aims to expand the brand to more than 50 hotels by next year from 36.

Profit Beats Estimates

Starwood Hotels earlier this month reported profit before one-time items that was double analysts’ estimates and raised its revenue forecast. The company, which has been cutting costs to counter a slump in travel spending, said demand improved in the quarter as bookings for groups and business travelers rose.

Its shares have more than tripled in the past year, closing today at $37.78, giving the company a market value of $7.07 billion. That compares with a 99 percent increase by Bethesda, Maryland-based Marriott International Inc., the largest U.S. hotel chain, and a sixfold jump at Wyndham Worldwide Corp. of Parsippany, New Jersey.

Starwood owned, managed or franchised 992 hotels as of Feb. 16. The company’s management fees from operating properties, which also include the Sheraton, Westin and St. Regis brands, fell 12 percent in the quarter from a year earlier to $104 million.

It owns 10 of the Ws, a chain that began with one location in Manhattan in 1998 under then-chairman Barry Sternlicht. Sternlicht, who left the company in 2005, is chief executive officer of closely held investment firm Starwood Capital Group LLC, which he founded in 1991. He’s also chairman and CEO of Starwood Property Trust Inc. Both companies are based in Greenwich, Connecticut.

1940s Hollywood

The company is counting on glamorous touches to attract visitors to the 305-room W Hollywood, where a red carpet to the front desk and a round marble staircase to the sunken lobby evoke visions of the movie capital in the 1940s and stars such as Rita Hayworth and Clark Gable.

The W Hollywood will stage live music, film screenings and Oscar-themed parties, and its top two floors are equipped for the media junkets studios use to promote movies, said general manager Jim McPartlin.

Standard rooms at the hotel, part of a $600 million retail and residential complex above a subway station, average $250 a night. Suites start at $400.

The W Hollywood was developed by Gatehouse Capital, a Dallas real estate investment firm. Gatehouse owns it in a venture with Norwalk, Connecticut-based HEI Hotels & Resorts, in affiliation with the Los Angeles County Metropolitan Transportation Authority.

‘Long-Term’ View

Buyers signed up to purchase about a third of the property’s 143 apartments, Russ Filice, sales director at Sotheby’s International Realty representing the residences at W Hollywood, said last month while giving a tour of the one-, two- and three-bedroom units, some with direct views of the internationally recognized Hollywood sign. Occupancy at the hotel runs 50 percent, compared with about 62 percent for Starwood brands overall in the fourth quarter.

The development “is a very long-term project,” Marty Collins, chief executive officer of Gatehouse, said in an interview. “Ten years from now, will this be an iconic project or was it a flash in the pan?” Gatehouse has developed four Ws, and now is an owner of the W Dallas along with the W Hollywood.

The area, located seven miles (11 kilometers) northwest of downtown Los Angeles, is undergoing a makeover after becoming known more in the 1980s and ‘90s for crime and homelessness than for its roots in the early days of the movie business.

“Our challenge is to expose customers to the revival of Hollywood and the new attractions and restaurants,” said Bruce Gorelick, general manager at the Renaissance Hollywood Hotel & Spa, which opened at the end of 2001 as part of the Hollywood & Highland complex about 10 blocks away.

Hollywood Makeover

Los Angeles enacted the Hollywood Redevelopment Plan in 1986 to encourage building in the district that is home to Grauman’s Chinese Theatre, the Walk of Fame and the Kodak Theatre, where the Academy Awards will be handed out March 7.

Business has perked up from the days when women in his office wouldn’t step outside for lunch, said Jack Kyser, founder of the Kyser Center for Economic Research at the Los Angeles Economic Development Corp.

Crime in Hollywood declined 16 percent this year through Jan. 30, according to the Los Angeles Police Department. The crime rate of 27 offenses per 10,000 residents remained above the citywide average of 22, the data show, and an economy with unemployment near a 26-year high has hampered tourism, Kyser said.

“The revitalization is going to take awhile,” he said.

The 632-room Renaissance hotel, a Marriott International brand, saw occupancy slide 10 percent and group bookings decrease 30 percent last year, Gorelick said.

People Watching

The owners of the W Hollywood anticipate features such as its Drai’s Hollywood rooftop lounge and pool bar, and a 30-foot screen that can play music videos to accompany concerts, will lift occupancy to about 70 percent this year.

Attracting people for a night on the town may not help the hotel fill its rooms, said Sunstone’s Wolff.

“You may want to hang out at a busy bar to people-watch,” Wolff said.

Even so, the Hollywood mystique may help the W foster its own, according to Gorelick.

“Hollywood history — nobody can replicate it,” he said. “Everybody wants a piece of that action.”

–With assistance from Zainab Fattah in Dubai. Editors: Josh Friedman, Larry Edelman

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

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