• Taking the boutique to the high street

Ian Schrager's name is synonymous with the boutique hotel, the face that launched a thousand feature walls.

He has not been associated with the concept of value before, with design often seen as taking priority, however, Public, his latest venture, was described by Schrager as offering "tremendous value". He will continue to work with Marriott International on Edition, with his exposure to the financial rigours of working for the global operator a possible influence on his more frugal outlook.

The first Public, in Chicago, will open in October at the Ambassador East, a hotel he acquired with Morgan Stanley two year ago. Schrager is reported to have two hotels in New York City, one in London and one in Los Angeles in the pipeline for the brand.

Exactly what Schrager's concept of "tremendous value" is remains to be seen, but the hotel is, he says, designed to be inclusive, rather than exclusive, combining elements of luxury and boutique properties with the best of the "limited service" model. Money is expected to be saved through getting rid of "superfluous services", focusing instead on the essentials, although they are not specified.

Schrager said that luxury "was no longer about spending the most money," but was "about getting the best value and being made to feel special".

Public is one of two brands which Schrager Hotels will launch, the other being as yet unnamed, where presumably luxury will be about spending money. The brands mark a return to ownership for the hotelier, with the group looking to his previous lenders and partners, predominantly Morgan Stanley. The company plans to develop 10 to 15 locations at a cost of $250m in the next five years, before taking the group public or selling the sites.

Schrager left Morgans Hotel Group in 2005, with the group dogged by financial issues arising from its rapid expansion. This week saw it complete the sale of the Royalton and Morgans hotels for $140m to Felcor Lodging Trust. Morgans will continue to operate the hotels under 15-year management agreements with one 10-year extension option. Net proceeds were approximately $93m, which the group will use to refinance debt and for growth capital.

Earlier in May Morgans announced it had sold Mondrian Los Angeles resulting in net proceeds, after repayment of debt and closing costs, of approximately $40m, as part of ongoing efforts to cut debt and reposition itself as an operator, rather than owner.

At Edition, despite the combination of Marriott's operational expertise and Schrager's design abilities, it has not been an entirely smooth road. This week saw Marriott executives comment on contracts to open in Bangkok, Mexico City and Barcelona, however there were also reports that the owner of the Waikiki Edition  – one of only two hotels open under the brand – was suing both Marriott and Schrager, claiming that the two had done nothing to grow the Edition name or brand and were ultimately responsible for making their hotel "a virtual ghost town," according to the Wall Street Journal.

The owner said that Marriott was responsible for construction overruns, as well as cost overruns after the hotel began operating, with the hotel having lost $6m since opening last October and recording occupancy of around 30% in the fourth quarter of 2010, below the 62% occupancy Marriott predicted in August 2009. Marriott said that it was "surprised and perplexed" and would defend the action "vigorously".

Marriott has suffered in the small pool that is the boutique world, having lost two of its executives at Edition to Morgans, but had since replaced Dan Flannery with Tim Miller, who includes Morgans on his CV.

The operator has, however, seemed to appreciate the importance of getting behind Edition, after a slow start it spent its own money on the Berners Hotels in London to create a site in one of the key gateway destinations. If the three contracts COO Arne Sorenson flagged-up come to fruition, that will help the brand establish itself. He also said that the group was in "advanced discussions" on another three, although those have not yet reached the contract stage, adding that the brand "could easily have 100 hotels".

Schrager is no stranger to the legal system and has maintained that he is fully involved with Edition. Looking forward, the creator of the boutique sector is eager to prove that he can meet the harder challenge of the boutique experience at a lower price point. If he can pull it off, he is destined to spawn as many copyists as he did with the Royalton.

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