Ian Schrager, host to the stars, left reeling by $400m hotel bill

Give this much to Ian Schrager, the owner of trend-setting hotels such as the Sanderson in London and the Royalton in New York - he knows how to make a big noise in the media on behalf of his properties. But nowadays, there is a new buzz about his business and it is hardly a glamorous one. He is on the financial ropes.

The word on Mr Schrager has for years been about excitement and celebrity. Who was there to help launch his other London hotel, St Martins Lane, back in 1999? Jade Jagger and Kate Moss, no less. Which rock star attended the opening of the Sanderson, near Oxford Circus, the following year? Madonna.

With the designer Philippe Starck exclusively tied to his group, Mr Schrager has been recognised as the pioneer of the anti-chain style of hotel. Call them boutique hotels, if you like. Nothing is standard, not the Daliesque sofas in his lobbies nor the public bathrooms in black stone and steel. The doormen are from central casting. A door-handle at the Royalton begs to be considered a work of art.

Yet recent disclosures reveal that while the façade is all chic, there are serious problems behind it. Mr Schrager, who co-owns his group with a New York investment firm, Northstar Capital, may have spent a little too much to please his style-conscious clientele. His financial elastic band is in danger of snapping.

Only recently, Mr Schrager barely escaped disaster. This month, he faced a $355m debt payment on four of his properties - the Royalton and Morgans in New York, as well as the all-white Delano in Miami and the Mondrian in Los Angeles - that he could not meet. At the last moment, the banks gave him a two-year extension. Lucky for him. Otherwise all four properties might have been lost.

Currently on holiday, Mr Schrager, 57, still remembered as the co-founder of the legendary Studio 54 club in Manhattan more than 25 years ago, was unavailable for comment last week. But just before leaving his troubles behind, he presented his bravest face to The New York Times. "We're dealing with it," he said. "I'm not concerned about it."

But with debts totalling about $400m owed to various lenders, including Barclays Bank, his troubles seem deeper than he cares to admit. This month's reprieve gives him some breathing space, but no more. Already, plans to use the London hotels as a base for expansion into Europe are on hold. The development of a property in Santa Barbara, California, hyped as a future Schrager resort, has been abandoned.

In part, Mr Schrager is the victim of an industry-wide decline that set in after the 11 September attacks on New York and Washington. As occupancy rates slumped, he was forced to lower rates everywhere. His hotels have even begun to show up on discount hotel websites. In short, the room rates he needed to cover his debt and continuing costs are no longer available to him. And there is no sign of the slump ending soon.

And then there is all the competition. No longer do Schrager and Starck hold a monopoly on hotels that put design over old-style amenities. Manhattan is replete with choices for guests hoping to rub shoulders with the great and gorgeous. There is the fast-expanding chain of W Hotels owned by the Sheraton Group, with its funky lobby spaces and trays of wheat grass in every room. Other smaller entrepreneurs have followed the Schrager-Starck model.

And it is possible that his brand is beginning to tire. "My belief is if it is a compelling design, it will continue to be compelling. Just because it is on the edge, it doesn't mean it is going to go out of date," Mr Schraeger boasted in a 1999 interview. But there are signs that the celebrities and the wannabes are moving on. They want a fresh experience. Or maybe they want just old-style hospitality all over again.

Some have accused Mr Schrager of being simply a poor businessman. Until recently, for instance, he had no model for centralised purchasing and training for nine different properties. Alan Reay, president of the Atlas Hospitality Group, said: "Schrager is great at getting buzz, but he's never been considered a hotelier."

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