The luxury hotel that Travel + Leisure magazine calls “the epitome of Boston sophistication” is back on the market. But luxury and sophistication, it appears, don’t necessarily guarantee big profits.
The owner of the Taj Boston put the classic hotel overlooking the Public Garden up for sale this week, saying it wants at least $125 million, about one-fourth less than it paid for the property a decade ago.
In documents filed with securities regulators in India, Mumbai-based Indian Hotels Co. said it plans to sell the Taj to shed debt and focus on faster-growing markets overseas. But it also disclosed that the establishment, with Tiffany & Co. in the lobby and its much-loved tea service, is a money-loser and has been for years.
It’s a sign of the times in Boston’s luxury hotel market, where high-flying newcomers such as the Mandarin Oriental have surpassed — if only by a degree — classic stalwarts like the Taj, which for most of its nearly century of history was a Ritz-Carlton and the city’s finest hotel.
The Taj, at the corner of Arlington and Newbury streets, still ranks among Boston’s nicest places to spend the night — the presidential suite can run $6,000 a night — and the staff includes a fireplace butler to start a nice winter blaze in your room.
But the top of the city’s hotel market is a more crowded place these days, and that competition is a bit more freshly updated.
“The location of the Taj, bar none, is fantastic,” said Alan Suzuki, who specializes in hotel sales at the real estate brokerage HFF. “But the product level is just not quite on par with, say, the Mandarin.”
The Mandarin is a marker in more ways than one. The Boylston Street five-star hotel was itself recently sold, fetching $140 million in a US Bankruptcy Court auction when Hong Kong-based Mandarin Oriental Hotel Group matched an offer by Hilton Worldwide in order to keep its flag in Boston. That price equated to nearly $950,000 a room, smashing records in the Boston hotel market.
At its initial asking price, the Taj would be valued at about $458,000 a room, though industry experts said the sale is likely to draw enough interest to bid that price up.
“Generally speaking, there are a lot of hotel investors looking to enter the Boston market,” said Sebastian Colella, vice president at Pinnacle Advisory Group, a Boston hotel consulting firm. “And this is a distinct property. Its location and history alone make it attractive.”
Still, hotel experts said that interest could be dampened by two factors.
One is the Taj’s financial performance. Revenue fell slightly last year, to $34.1 million, according to Indian Hotels’ filings, with an operating loss of $600,000. That deficit ballooned to $7.3 million once interest, depreciation, and other costs were factored in. The hotel reported similar losses in the two years prior, as well.
Any new owner would want to improve those numbers, said Daniel Lesser, president of the hotel consulting firm LW Hospitality Advisors in New York.
“The hotel business is an optimistic bunch,” he said. “I’ve never met a hotel operator who didn’t think he could do better than the previous owner.”
But that could be complicated by another factor in the sale.
Taj wants to keep its name on the property, and presumably keep running it, in order to serve globe-trotting customers who travel to Boston. Keeping the Taj flag would be a condition of the sale, Indian Hotels said; the Taj would probaly sell to a real estate investment firm, as opposed to a competing hotel operator.
“That’s going to create a challenge,” Lesser said. “It would be a much easier proposition if it was sold unencumbered of any brand identity or management. You’d have a larger pool of buyers.”
Still, in a market where foreign capital is pouring in to buy trophy real estate and where good hotel rooms remain a scarce investment asset, both Lesser and Suzuki said they were confident the Taj would find a buyer.
And that buyer, Suzuki predicted, would invest in the property to compete with the high-flying newcomers, and get right to work making one of Boston’s finest hotels just a little bit finer once again.