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01.02.2008 Hong Kong Ritz-Carlton Shuts After 14 Years

Hong Kong's Ritz-Carlton hotel closes today, another victim of the city's insatiable demand for office space. It's just 14 years old.

Majority owner Lai Sun Development Co. will raze the 216-room hotel and convert the site in the center of the business district as office rental rates rise to records. On Feb. 16, the hotel will auction about 250 items, including antique ballroom chandeliers from HK$3,000 ($384) each, an 18th-century gilt-framed mirror for HK$9,000, and a century-old, stained-glass screen for HK$100,000.

"It's a sign of the times that a building this young has to go,'' said Mark Lettenbichler, Asia general manager of The Ritz Carlton Hotel Co. "This hotel has shared so much of Hong Kong's recent history. It's almost sad to see it close.''

The hotel was packed during the 1997 British return of Hong Kong to China and occupancy fell to 3 percent six years later during the outbreak of the SARS respiratory disease, he said.

A mark of Hong Kong's constant evolution is that a 14-year- old building can elicit such nostalgia. Elsewhere, conservationists are struggling to save older structures as the effects of China's economic expansion flow over into the city, driving up wealth and land prices.

To help land reclamation in the business district, the government in April closed Queen's Pier, landing site for British governors during colonial rule and Queen Elizabeth II in 1975. The colonial-era Central Police Station, closed in 2006, may be saved by demolishing part of the rambling complex to transform the buildings into an arts hub, under a controversial HK$1.8 billion proposal from the Hong Kong Jockey Club.

Wrecking Ball

The Ritz-Carlton isn't the city's first downtown hotel to meet the wrecking ball. One traffic-snarled concrete piazza away, Li Ka-shing's office building Cheung Kong Center replaced the old Hilton Hotel, demolished in 1994. Former neighbor Furama Kempinski was torn down in 2001 to make way for the AIG Tower.

The Ritz-Carlton sits on one of Hong Kong's most valuable business sites, hence its fate, said Simon Lo, a director at Collier International (Hong Kong) Ltd. Hong Kong has the world's second-most-expensive prime business district rentals, behind London's West End, according to Collier.

Monthly rentals of so-called Grade-A, or prime office space in Hong Kong averaged a record HK$107 per square foot in December, a fivefold gain since the third quarter of 2003, said Lo. Rentals may rise as much as 15 percent this year as banks such as Lehman Brothers Holdings Inc. add staff in Hong Kong.

Desirable Plot

"If you have a 216-room hotel sitting on a very nice piece of land, one has to look at how to unlock its value,'' said Ambrose Cheung, a director at Lai Sun. Unlike a hotel, an office building doesn't need a labor-intensive team to maintain it and generate income, he said. An office block will be on the 15,000 square foot site as early as 2010, said Cheung.

Opened in 1993, the hotel was the chain's first in Asia, said Lettenbichler. Dark woods accent the black-marble interior. In the doorways, crochet chords hold apart ceiling-to-floor curtains, while the windowless lobby is ringed with brocaded sofas and antique, curve-legged bureaus. Rooms on the highest floors of the 25-story building have views of Victoria harbor.

Competition from newer, larger hotels has also taken its toll. The Ritz-Carlton has about half as many rooms as five-star rivals such as the Four Seasons, opened in 2005, making it less viable to run, said Cheung. Lai Sun paid about HK$1.3 billion for the building and site more than a decade ago. In November, China Construction Bank paid HK$1.37 billion for a 40 percent stake. Today, the property's worth HK$5 billion, Lo said.

Higher Yield

"In the current environment, office buildings just yield better returns than hotels, even the packed ones,'' said Lo.

Occupancy rates at the Ritz-Carlton have averaged 86 percent since it opened on August 1993. The hotel, rated the best business hotel in Hong Kong by Travel and Leisure Magazine in 2003, has a staff of 340, including Chef Umberto Bombana. Many will work at the chain's other hotels, said Lettenbichler.

In Hong Kong, the Ritz-Carlton will reopen in 2009 in West Kowloon, across the harbor, taking the top 15 floors of the International Commerce Center. The 118-story building is being built by Sun Hung Kai Properties Ltd., the city's largest developer. The new Ritz-Carlton will assume the modern style of the host building, said Lettenbichler.

"Quite a few guests will come to the auction just to buy a piece of this hotel to remember it by,'' he said.

Source: Bloomberg

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ImpressMedia is an established British publishing house which over the past four years has created a series of real estate magazines in Russia. The most famous of these is Commercial Real Estate, which has become a strong brand in the Russian market, and serves as an important means of communication between suppliers and providers; as well as between real estate professionals seeking to widen their horizons. In 2003, ImpressMedia also started a yearly commercial real estate Awards ceremony, which has now become an integral part of the real estate world in Russia. John Harrison helped create 'Commercial Real Estate' magazine in Russia, and was its first editor, from November 2002 to August 2005. He has written about real estate for over a decade.
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