The Arts Property and Hotel

The Arts Property and Hotel

Case Study

Hotel/Resort Market Analysis

Kexin Li

03/08/2016

1.    Executive Summary. 

    In 2001, Xavier Faus and his investors became the new owners of the Arts Property. As president, Faus’s responsibility was to increase the value of both the Arts Hotel and the vacant land within the property. This case focused on the background of Arts Property, the hotel market of Barcelona, the management contract between Arts Hotel and Real Cortez, trying to find approaches to help Faus make his decisions.

2.       Overview of Key Case Facts.

In 1986, in order to develop Barcelona’s beachfront for 1992 Summer Olympic Games, the construction of the Olympic Village and the office tower had been launched by the mayor. In 1989, Charlie Croker, a U.S. developer, with his investor---Sogo, became the owner and investor of the Arts Property. Croker also arranged the Real Cortez to serve as the hotel operator. However, although construction started in 1990, it has not been finished until 1994, which failed to meet the Olympic deadline. In 1994, after being sent into bankruptcy, the Arts Property was owned by Sogo. In July 2000, however, the parent company of Sogo filed for bankruptcy in Japan. But the Arts Property itself began to stabilize.

After three bankruptcies, one suicide, several lawsuits, and cost overruns, the Arts Property has been acquired by Xavier Faus and his investors including Deutsche Bank, Patron Capital, and several wealthy Spanish investors in 2001 for €275.9 million. Faus and his investors improved the ownership structure to make it more complex in order to preserve the tax losses and optimize future dividends and sale of the assets or the companies. Due to the increased tourism after Olympics in Barcelona, the demand for hotel rooms has induced. Therefore, a number of new projects were under construction as of 2001. Barcelona would have 243 hotels with 24,764 rooms by the end of 2004.

The Arts Property was comprised of a 455-room hotel, 30 luxury duplex apartments, a separate office building, a retail and casino, a piece of vacant land, and a garage for 500 cars. The Arts Hotel, which was operated by Real Cortez under a 20-year contract, is the biggest part among the Arts Property.

Faus’s objective is increasing the value of both Arts Hotel and the vacant land. He is going to make some decisions with his investors in London.

3.      Central Issue Identification.

As I have mentioned in the former part, Faus has two main goals to achieve---increasing the value of both the Arts Hotel, the largest component of the property, and the vacant land in order to generate a profitable sale in the short-term.