Rise Of A Hotel Chain -- Using A Quiet, Conservative Strategy, Westcoast Becomes A Leading Operator Of Hotel Rooms In The Area

Some companies like to operate with fanfare, making big splashes to get attention. But not WestCoast Hotels.

In less than a decade, this Seattle-based company, headed by a former hotel busboy, has quietly and methodically become the Puget Sound area's leading operator of hotel rooms, with 1,663 rooms in 10 hotels from Everett to Olympia. Among downtown Seattle's 20 largest hotels, one of every nine rooms is owned or run by WestCoast.

The company's formula: build or buy a hotel only when the price is right, put investors and customers first, and don't be afraid to defy conventional wisdom.

A case in point arose this summer. Conventional wisdom is firm that just about everything in downtown Seattle is "on hold" until the future is determined for the former Frederick & Nelson building.

Once a plan is in place for that development, the thinking goes, new retailers, parking lots, restaurants and hotels should start springing up downtown.

But WestCoast didn't wait. In August, the company said it would build a still-unnamed 12-story hotel at Eighth Avenue and Pine Street, two blocks east of the vacant Frederick & Nelson building. The company said it would put 125 rooms in the new hotel.

Last week, WestCoast said it has acquired extra land and would build 148 rooms in the $11 million hotel, expected to open in 1996.

Similar in concept to the 145-room WestCoast Gateway Hotel near

Seattle-Tacoma International Airport, the new hotel would be only the 18th largest in downtown Seattle.

But it will add to the 20 hotels (with 4,044 rooms) that WestCoast either owns or manages in seven states and British Columbia.

Most of this chain was put together between 1986, when two Swedish companies, Skanska A.B. and Granten A.B., bought the former Vance Hotel Corp., and 1992, when Rod Olson, WestCoast president, and Michael Bashaw, chief operating officer and executive vice president, bought WestCoast from the Swedish owners.

Shortly after the Swedish owners acquired it, the three-hotel Vance chain - of which Olson had been president and Bashaw vice president - was renamed WestCoast Hotels, capitalizing on a joint marketing agreement with Coast Hotels in Vancouver, B.C.

"Our strategy was to become a small regional company," Olson said. He and Bashaw secured several contracts to manage hotels owned by others while they developed a formula for buying and building new hotels using outside investors and limited partnerships.

"We felt our growth had to come from owning, not just managing hotels for other people," Olson said.

In 1988, WestCoast took what it considered a big opportunity - and a big gamble - buying the swank, old-line Benson Hotel in Portland. Like Seattle's Four Seasons Olympic Hotel in the late 1970s (which was completely remodeled for $38 million in the early 1980s), the Benson had a grand history but needed a major renovation.

"This was a stretch for us," but WestCoast spent $22 million spiffing up the Benson, gaining in the process a new level of respectability in the hotel industry, said Matthew Murphy, WestCoast vice president of sales and marketing.

"That was probably the turning point for WestCoast," said Olson.

By 1992, WestCoast had 17 hotels. But its growth strategy had been put on hold when bank financing for hotels dried up and the recession soured the hotel business. The two Swedish owners of WestCoast wanted to put its 17 hotels on the market.

Olson, who began his career as a busboy at the Hanford House in Richland in 1970, and Bashaw, who had started as a night auditor at the Vance Seatac, put together a leveraged buyout and suddenly owned their own hotel company.

The two decided that the WestCoast Gateway at Sea-Tac, opened in 1990, was their prototype for future hotels.

"Our goal is to develop one of those a year, and if we are lucky, we will get three in two years," Olson said. "We would like to develop one more in downtown Seattle, and then our next logical step would be Portland."

Keeping costs down

With Gateway as its model, WestCoast emphasizes comfort for guests, gladly leaving ground-breaking architecture and expensive banquet and convention meeting rooms to the competition.

"Our main focal point is to build a product at the right price to give the best value to our guest," Olson said. "We do not try to build monuments. The cost per room when you build a hotel is the most important point because that relates to the dollar value you can give the guest."

The WestCoast Hotel at Eighth Avenue and Pine Street, including land purchase, will cost about $75,000 per room, Olson said. That will let WestCoast keep its average room rates under $100 and still provide a healthy return to its investors, even in bad times when occupancy rates are low, he said.

At the moment, Seattle has one of the highest hotel occupancy rates in the country, about 73 percent or 74 percent.

That's well above the national average, estimated at 66 percent, said Craig Schafer, executive vice president of Collier's International Hotel Realty, a Seattle-based real estate broker specializing in hotel properties.

The 66 percent figure is the highest in six or seven years, Schafer said, up from about 61 percent in 1991, the lowest point in over a decade.

The bottom resulted from an overbuilding boom in the late 1980s (Seattle's hotel building boom, by contrast, occurred in the early 1980s) and a travel recession that was made worse by the Persian Gulf War.

With no new large downtown hotels since the Stouffer Madison opened in 1983 and a relatively strong regional economy, Seattle maintained extraordinarily high occupancy rates, said Schafer.

Schafer said occupancy rates above 70 percent usually prompt new construction, and he believes Seattle will see two or three more downtown hotels in the next few years.

Most will be relatively small, but he predicts the city will gain a full-service, convention-oriented hotel by the end of the decade. Potential builders include Hyatt, Omni, Marriott, Red Lion, Doubletree and Wyndham - all companies that would like to be represented in Seattle.

One reason for fewer expensive hotels is the public's reluctance to pay high room rates.

"Much of the new demand, especially this year among leisure travelers, is being generated by low air fares," Schafer said. "People who are flying only because of low airline fares are not going to pay $200 for a room in downtown Seattle."

Finding their niche

Andy Olson of The Chambers Group, who does feasibility studies for hotel development, believes Seattle's popularity as a travel destination is strong enough to support new development here.

He does not think WestCoast is taking any particular risk by going ahead with its latest venture before the fate of the former F&N building is settled.

"The Frederick & Nelson block will add to the strength of the downtown core, but it is not pivotal to building a new hotel in downtown Seattle," Andy Olson said. "That project does not exist today, and the market is still strong."

Schafer also thinks WestCoast's downtown venture is on target. "They have found a niche where they can create an economically sound product, and they are a bit more market aware" than many competitors, he said.

"They are not building hotels from an ego standpoint. They are building what is supportable, what will give investors a good return, what can get financed and what the traveling public wants - generally affordable, clean properties that supply comfort and people's basic needs with no major frills," he said.

WestCoast's Olson said keeping costs down is a key to success. "We want a product that's good in the good times, and when the economy is not at its peak we would also be all right. We have the ability to lower the rates if we need to and return less to our investors if we have to do that. We try to build a product that will never get us in trouble."

So far, that strategy has succeeded, as WestCoast easily weathered a downturn a few years ago that led many hotel operators into bankruptcy.

WestCoast's King County hotels include Plaza Park Suites (with 194 rooms), WestCoast Bellevue Hotel (176), WestCoast Vance Hotel (165) and the Roosevelt Hotel (150). Other Washington properties are in Olympia, Everett, Silverdale, Spokane and Wenatchee. The company owns the 141-room WestCoast International Inn in Anchorage and is developing a 350-room convention hotel to open in downtown Boise in 1996.

"Our focus for the future is still Seattle, Portland and Alaska," Olson said. "We know those markets and we like those markets. Our goal is to grow at a very steady pace, but we will always be a small regional chain."