The £100m question: is the world's hippest hotelier checking out of London?

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The Independent Online

When four years ago Ian Schrager opened the Sanderson, his latest venture in ultra-hip hotels with chic interiors, eye-watering prices and a clientele to match, he declared: "London is hot right now. That's why my strategy is to come here and saturate London with multiple properties - maybe as many as seven hotels."

When four years ago Ian Schrager opened the Sanderson, his latest venture in ultra-hip hotels with chic interiors, eye-watering prices and a clientele to match, he declared: "London is hot right now. That's why my strategy is to come here and saturate London with multiple properties - maybe as many as seven hotels."

From a man whose legendary 1970s Manhattan nightclub Studio 54 was so select that the ballet star Rudolf Nureyev was once found half-naked on the dance floor and whose hotel empire was valued at nearly £200m, such a statement was to be taken seriously.

Over two decades, Mr Schrager had built a portfolio of eight hotels in his native America favoured by the next generation of Beautiful People.

London was to be his "springboard" for a money-spinning assault on Europe, in the shape of the £220-a-night Sanderson and the St Martins Lane, the glass-fronted celebrity hangout favoured by celebrities from David Beckham to Britney Spears, where a suite can cost £2,000.

Yesterday, however, Mr Schrager's dream appeared to falter. The Brooklyn-born entrepreneur credited with inventing the "boutique hotel" while serving time for tax fraud said he was in talks to sell both the London hotels with a price tag "far in excess of £100m".

After announcing from New York negotiations with two bidders, the hotelier denied that the sale had been forced upon him because of financial difficulties. He said: "Given today's market and the prices we believe we can obtain for these properties, we felt obligated to explore this possibility. These hotels are doing extremely well. They are significantly outperforming the market."

The negotiations, under which Mr Schrager's company intends to remain as the manager of the hotels, come after a difficult 12 months for the 58-year-old magnate. Faced with the hotel industry's dipping occupancy rates after the 11 September attacks and a growing opinion that the gloss has come off the boutique format, Mr Schrager has undertaken a restructuring of his empire.

If the sale of the London hotels is completed, his portfolio of wholly owned hotels will have shrunk from 11 to eight in the space of little more than 12 months. Last August Mr Schrager was forced to seek bankruptcy protection for part of his empire, the Clift Hotel in San Francisco, as investors wrangled over $57m (£32m) of debt. That problem was resolved last month with an agreement to sell the 1930s hotel and then lease it back.

His holding company, Ian Schrager Hotels, confirmed last year that it was unable to meet its obligations on debts of $355m. Last month, the company, since renamed Morgan's Hotel Group, said it had secured its finances by completing a refinancing deal and the $128m sale of its Paramount Hotel in New York, once so trendy that it was described as the staff canteen of Vogue magazine, to the Hard Rock Café.

The disposal of one of the jewels in his minimalist crown to a company famed for selling burgers surrounded by pop memorabilia will have been a bitter pill to swallow for Mr Schrager, whoemployed the design doyen Philippe Starckto decorate his portfolio.

The hotelier was credited with upsetting the conventions of the industry in the late 1980s, when he started his empire after serving a year-long prison sentence for evading $70,000 of tax following a raid on Studio 54 in 1978 which uncovered rubbish bags full of cash, drugs and duplicate accounts.

The concept was simple - to create small, cutting-edge hotels furnished with contemporary designer furniture and oozing exclusivity. Out went the plush carpets and leather settees. In came the clinical white of St Martins Lane and the toilet cubicles in New York's Royalton, where the doors are transparent from the inside, allowing users to people-watch from the toilet bowl. It was a concept that worked. Just as Studio 54 attracted a cast including Bianca Jagger, Truman Capote and Andy Warhol, so the hotels, decorated with art from Daliesque "red lips" sofas to Vermeer prints, became famous as the hangouts for the likes of Kylie Minogue, Gwyneth Paltrow and Leonardo Di Caprio.

When asked to describe his hotel philosophy, Mr Schrager said: "What I'm really looking for is to get a rise out people; I look to provoke. I want them to take notice. I want to stimulate their senses. I'm looking for some visceral response."

But after a crop of copy-cat hotels around the globe, critics claim that the only visceral aspect of a Schrager hotel now is the stomach-churning prices.

One London-based hotels consultant said: "Schrager has become too cool for his own good. The celebrities are off looking for somewhere new and the tourists don't want to stay there because they can get more bang for their buck at a revamped chain hotel."

Morgans Hotel Group rejected the criticism, saying that the two London hotels, which made a loss of £1m in 2001, were in rude health. A spokesman said: "We are not in a position where we have to sell."

Meanwhile, rooms at the Sanderson were available yesterday on discount websites with prices starting at £120.

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