Sonesta International Hotels Corporation

views updated

Sonesta International Hotels Corporation

200 Clarendon Street
41st Floor
Boston, Massachusetts 02116
U.S.A.
Telephone: (617) 421-5400
Fax: (617) 421-5402
Web site: http://www.sonesta.com

Public Company Incorporated: 1946
Employees: 3,000
Sales: $184 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: SNSTA
NAIC: 72111 Hotels (Except Casino Hotels) and Motels; 483112 Deep Sea Passenger Transportation

Sonesta International Hotels Corporation owns or operates 25 hotel, resort, and cruise properties in Bermuda, the Caribbean, Egypt, Italy, Peru, and the United States. It caters to upscale business and leisure travelers and distinguishes itself by showcasing the culture and history of each locale. There is no “Sonesta look.” Among Sonesta’s properties are a tenth-century castle in Tuscany, Italy, and three cruise ships on the Nile. Although relatively unknown in the United States, Sonesta is one of the larger hotel chains in Egypt and the largest international hotel chain in Peru.

Company Founded After “Sonny” Sonnabend Rejected Retirement

Joseph Sonnabend, the father of A.M. (Sonny) Sonnabend, emigrated from Austria to the United States when he was a boy. By age 18, Joseph owned a Boston jewelry store, later adding a pawnshop and another jewelry store. However, he taught his two sons that business was not the most important thing. Joseph told his sons that businesses come and go, but what people always need is houses, stores, and land. Joseph focused on real estate and built up his holdings, turning them over to Sonny in 1918.

Sonny increased the apartment and store holdings to $350,000 by 1927. By World War II, he probably was the leading apartment-house owner in Boston, with some 2,500 apartments. He had also worked his way to millionaire status. At age 49 he told his brother Leopold that he was going to retire.

Then a Boston real estate broker contacted Sonny about an enticing listing. The broker offered Sonnabend the Biltmore and Whitehall hotels, the Palm Beach Country Club, and three Palm Beach, Florida, properties in 1943 for $2.40 million. Sonny said owning hotels would put him in the “Big League.” With seven partners he bought the three properties.

His decision proved profitable almost immediately. Conrad Hilton bought the Biltmore from him about a year later for nearly as much as he had paid for all three hotels. Noting that Hilton and Sheraton were both beginning to build chains, Sonny founded Sonnabend Operated Hotels in 1946. A year later he bought the Somerset Hotel on Boston’s Commonwealth Avenue. Sonny bought the Edgewater Beach Hotel in Chicago in 1948. Later, rival Conrad Hilton beat him to the punch by adding the Waldorf-Astoria in New York to his holdings. In 1950, Sonny got revenge by buying the Van Sweringen properties in Cleveland with a partner, Royal Little, for $8 million. These properties included the 52 story Terminal Tower, three large office buildings, and the 1,000 room Hotel Cleveland. Three years later he added New York’s Plaza Hotel to his properties.

Industry-wide hotel profits climbed in the early 1950s, creating a problem that got Sonnabend’s attention—a large taxable income. John Bergen and Irving Felt, partners who controlled the Childs Restaurant Company, presented a solution. In 1956, Sonny sold several hotels to Bergen and Felt in exchange for stock in their money-losing restaurants. The $6 million tax loss helped offset Sonny’s hotel profits. He leased the remainder of his hotels to a new entity, the Hotel Corporation of America, which became one of the country’s first major hotel companies.

Throughout his career, A.M. Sonnabend benefited from good timing, business acumen, and some luck. In 1930, during the Great Depression, he had protected his apartment holdings by lowering rents for anyone who would sign a long-term lease. His move impressed Boston bankers (who then controlled a large percentage of the city’s commercial real estate) enough that they began offering foreclosed properties to him. After the 1950 Van Sweringen purchase, Sonny recovered the entire down payment because the seller had not looked in the treasuries of the corporation and had left $1 million in surplus cash. However, A.M. Sonnabend earned much of his business reputation on a business move often called the Botany formula.

The Botany Formula Developed in 1954

In 1958, Fortune magazine said the Botany formula baffled a lot of people. It was a tax technique Sonny used to buy many profitable companies by using their own excess working capital and future earnings. He then would fold the companies into a corporation with such high losses that it acquired a substantial tax credit. Few businessmen exploited this tax-credit device with greater aplomb than A.M. Sonnabend. He bought more than a hundred companies while supplying no supervision and rarely paying cash.

Sonny devised the Botany formula in the fall of 1954 after purchasing a quarter of the common stock of Botany Mills in Passaic, New Jersey. Credit for the Botany formula belongs at least in part to Bernard Wolfman, a young lawyer who combed the revenue code and discovered an old Treasury regulation. The regulation said a company with subsidiaries that filed consolidated tax returns during a period when it lost money could include newly acquired subsidiaries in its consolidated return. The formula provided Sonny with the advantage of strong incentive for the seller to stay on as manager. Sonny could also offer a generous price since he was guaranteed not to lose money. If the subsidiary showed a loss it was the seller who took on the burden.

Botany Mills was losing money when Sonny came on the scene, but by 1957 it had the highest profit on net worth of any company in the Fortune 500. On a net worth of $14 million Botany made an $8 million profit that year. Success came from an diverse and long list of subsidiaries, including a New York City doll company, an oil-well supply firm in Oklahoma, and a manufacturer of lint-cleaning machinery in Texas. At the height of his business holdings, Sonny controlled Botany, the Hotel Corporation of America, Consolidated Retail Stores, and Artistic Foundations.

1964: Three Sons Take Over

When A.M. Sonnabend’s three sons reached adulthood, each joined the business. Sonny started each son high up in the company at young ages. He began devoting much of his time to teaching them the hotel business. The eldest son, Roger, took the helm of the Nautilus Hotel and Beach Club in Atlantic Beach, Long Island, when he was a 21-year-old MIT graduate. Paul Sonnabend became general manager of Boston’s Hotel Shelton after graduating from Cornell’s hotel administration school in 1950. The youngest son, Stephen, took an executive position with Childs Restaurants.

When Roger took the reins of the Nautilus he was also about to enter Harvard Business School. He arrived at the hotel, took one look at the less than ideal conditions, and called his father. “What do you want me to do with this relic?” Roger asked. “I want you to manage it!” came Sonny’s sharp reply. “She’s yours and with her you sink or swim as a hotel man.” Sinking seemed a distinct possibility as Roger poured money into the property, raising the eyebrows of his brothers who claimed he spent money “like a drunken sailor.” Between his Harvard classes Roger commuted to Atlantic Beach, shopped for chefs, trained staff in courtesy, and interviewed waitresses. He hired painters, electricians, carpenters, and landscape crews. At the end of Roger’s first year the Nautilus showed a profit. Roger’s brother, Paul also turned red ink to black after a year at Hotel Shelton.

After Sonny’s death in 1964, the three sons decided to sell their unprofitable properties and keep the company small. They enjoyed the hotel business, but not the real estate management business. Their decision allowed them to create a hotel management company and maintain personal control over the hotel operation.

The Sonesta Art Collection

One of the first corporate hotel programs dedicated to original art, the Sonesta Art Collection was initiated in the early 1960s. Forty years later the collection included more than 6,000 contemporary paintings, sculptures, original prints, and tapestries by world-renowned artists like Sol Lewitt, Andy Warhol, Frank Stella, and Robert Mapplethorpe. The Sonesta commissioned some works to accentuate the architecture and design of a particular hotel space.

Redefining the Company in the 1970s

The early 1970s proved to be a time of economic recession. The Sonnabends decided to redefine the company as a small, upscale chain. Properties that did not fit into the new, high-end image, or that were not turning a profit (such as the Plaza Hotel New York), were sold. About 30 Charter House motor lodges in Maine, Massachusetts, Ohio, Virginia, Maryland, California, and New York were sold in the mid-1970s. That left Sonesta with three U.S. hotels and three in the Caribbean. In 1979, the brothers renamed the company “Sonesta” after a cattle farm A.M. and his wife owned in New England. The word combined the parents’ first names, “Sonny” and “Esther.”

Company Perspectives:

The Mission of Sonesta International Hotels, Resorts & Nile Cruises is to operate outstanding hotels in unique locations in a manner that achieves the following four goals: practice the highest standards of integrity and ethics in the way we conduct our business; value our employees as individuals; exceed customers’ expectations; deliver service with passion.

Unlike other hotel chains, Sonesta did not stamp its properties with a consistent design or style. For example, in 1995 when it bought the former Casablanca Hotel on Anguilla, it left the North African-inspired architecture with its arches, fountains, and hand-crafted mosaics intact. The company frowned on what it called “cookie cutter” hotel architecture. Instead, Sonesta evaluated the outstanding characteristics of its properties and their locales and emphasized them.

This may be one reason Americans did not have a clear image of Sonesta. “What sets us apart from the competition,” President Stephanie Sonnabend said, “is we try to give our guests a true destination experience, not a chain experience. When people think of a Sonesta hotel we want them to think of something a bit unusual or different.” Corporate headquarters gave local property managers wide latitude to try new ideas and make their own decisions. Another reason for the public’s lack of familiarity with Sonesta was the company’s inability to match marketing resources with larger chains like the Marriott and Hyatt. Sonesta marketed only through travel partners like meeting planners and travel agents while some of the competition marketed directly to the consumer. The company also promoted an extended family culture with employees. For example, at its Anguilla resort, Sonesta went as far as buying a van to transport resort employees to and from their homes.

Sonesta Grows a Property Per Year in 1980s

Through the 1980s and much of the 1990s, Sonesta grew at the rate of one property per year. In the 1980s the company opened hotels in Orlando, Florida; Ft. Myers, Florida; and Curacao, Dutch Caribbean. In 1984, the company doubled the size of its flagship property, Royal Sonesta Hotel Boston.

But, most the growth during this time period occurred outside the United States. In 1984, after Sonesta took over a 200-room hotel in Heliopolis, Egypt, the property became the most popular gathering place in town. The improvements made other Egyptian hotel owners take notice and several approached the company about running their properties. By 1997, Sonesta was opening its fifth Egyptian hotel, the Sonesta St. George Hotel Luxor and also had three Nile cruise ships. By 1999, the company had become one of Egypt’s largest chains and earned revenues of $101 million in U.S. dollars according to Hotels magazine.

Sonesta became much better known overseas than in the United States. Barely 17 percent of its portfolio of properties in 2000 were in the United States. Sonesta failed to grow in the United States less out of neglect than out of a lack of opportunity, according to President Stephanie Sonnabend. She said the company lacked capital, did not pursue capital, and did not need to grow.

It did well financially without U.S. growth. The U.S. hotels performed well. They were not all market leaders, but the Royal Sonesta Hotel in Boston led that city in occupancy rate in 2000. The Royal Sonesta in New Orleans had an 87 percent occupancy rate in 2000. The company as a whole was profitable through most of the 1990s and into the 21st century. In 1986, the stock traded at $13 per share. Fifteen years later it traded at $9.75 after a stock split in 1999. Stockholder equity increased from $19.69 million in 1992 to $29.93 million in 2000.

Family Ownership Continues into 2001

In 2001, Sonesta operated under the leadership of Roger P. Sonnabend, who served as chairman of the Board of Directors, and other members of the Sonnabend family. A.M.’s three sons, Roger, Paul, and Stephen, all had children in executive positions within the company, making them the third generation of the family to operate the hotels. Roger’s daughter, Stephanie Sonnabend was president; another daughter, Jacquelyn Sonnabend served as executive vice-president; and his son, Alan Sonnabend, was vice-president and general manager, Sonesta Beach Resort in Key Biscayne, Florida. Stephanie had prepared for her leadership role by earning degrees from Harvard University and MIT’s Sloan School of Management.

By early in the 21st century the company announced it was ready to expand in its home country. Sonesta planned to use the success of four U.S. hotels (Royal Sonesta Hotel, Boston; Sonesta Beach Resort, Key Biscayne; Sonesta Hotel & Suites, Coconut Grove (due to open in 2002); and Chateau Sonesta Hotel, New Orleans) to propel its expansion. With an industry consultant, Stephanie sought financial partners and began looking for acquisitions. The plan was to grow around the spoke of Boston with 10 to 12 properties in key cities like New York, Chicago, Toronto, and Washington, D.C. Rather than build, Sonesta sought to purchase existing properties.

Expansion was also planned outside the United States. In 2001, Sonesta signed a master franchise agreement to open as many as 10 hotels in Brazil by 2007. Eventually Sonesta hoped to grow to about 40 properties—still small enough to maintain its individual, personal approach to hotel management.

The company also merged two Aruba properties into one, the Aruba Sonesta Beach Resort in 2000. It began constructing a new property in the Coconut Grove area of Miami that year (to open by 2002) and finalized agreements for the Sonesta Ocean Grande Beach Resort Sunny Isles in North Miami Beach.

Principal Competitors

Accor SA; Four Seasons Hotels Inc.; Starwood Hotels & Resorts Worldwide Inc.; Marriott International Inc.; Hyatt Corporation.

Key Dates:

1946:: The company is founded by A.M. Sonnabend
1956:: The company merges with Childs Restaurant Company to become Hotel Corporation of America.
1964:: A.M. Sonnabend dies, and his three sons take over the business.
1970s:: The company closes approximately 30 Charter House motor lodges in the United States.
1979:: The name of the company is changed to Sonesta.
1984:: Sonesta opens first of its six Egyptian hotels.
1996:: Stephanie Sonnabend assumes the presidency of the company from her uncle, Paul Sonnabend.