What's Behind Awkward Delays in Virgin's Hotel Plans

Sir Richard Branson Announces Virgin Hotel Opening In South Africa
Foto24/Gallo Images/Getty ImagesSir Richard Branson at a 2011 press conference in Johannesburg, South Africa, discussing plans to open hotels worldwide under his Virgin brand.
At the time it sounded promising. In September 2010, edgy conglomerate Virgin Group said it was venturing into the hospitality business. Its subsidiary Virgin Hotels was to develop and manage up to 25 four-star boutique properties in seven years.

Fast-forward three-plus years to now, and the physical presence of Virgin Hotels amounts to a single construction site in Chicago. Virgin is known for its splashy, close-eyes-and-jump ventures into many businesses. What's taking it so long with hotels?

Budget Accommodations

The 2010 launch coincided with a slump in commercial real estate prices; the plan was to grab distressed properties owned by banks. That was a fine idea, but it didn't work. According to the unit's former CEO, Anthony Marino, the banks decided to hold on to their assets instead of selling at fire-sale rates.

Virgin Hotels then decided to shift its ambition to managing existing properties. Again, this was a good thought, but Virgin as a company has little experience in the sector. According to Marino, few were willing to take a chance with its hospitality division in spite of the presence of industry veterans in its executive ranks.

Dearborn Deal

As of this writing, the only concrete physical location for a company hotels is in Chicago. The division bought the 27-story Art Deco Old Dearborn Bank Building in the city's busy Loop district in late 2011, announcing that the former office building would be converted into a hotel in late 2013. The latest on the property is that it will open this fall, a year behind schedule.

Meanwhile, last month the division announced that it would open and operate a hotel in Nashville. Note the latter verb. The facility, Virgin Hotels Nashville, will be managed by the company but developed by local concern D.F. Chase. According to Virgin Hotels, it will have 240 rooms and open for business in 2016.

The only other project announced to be in development is a 500-room edifice in Manhattan's NoMad district. When it announced the project last June, the division said it too would open in 2016.

In last month's news release on the Nashville deal, the unit said it "continues to explore properties in cities such as Boston, Dallas, Los Angeles, Miami, San Francisco, Washington D.C., and London."

No Vacancy? But "exploring properties" isn't the same as developing and opening them. And at this point, Virgin Hotels isn't moving into a virgin market.

%VIRTUAL-article-sponsoredlinks%Some of the largest and most extensive hospitality companies on the globe are well established in the boutique segment. Wyndham Worldwide's (WYN) ever-so-cool TRYP brand hosts well-heeled travelers in many European cities, and it has a toehold on this continent with a facility in midtown Manhattan.

Another assertive boutique operator is Starwood Hotels & Resorts Worldwide (HOT), which owns the W brand. That single initial graces or will grace the facades of 71 hotels on five continents -- buildings currently in operation or within several years of opening their doors.

Longtime operator Hyatt (H) is a bit more selective, with seven Andaz hotels planted in lively American locations such as the Sunset Strip in West Hollywood, California, plus another five hotels abroad.

A Broad Brand

Since founding his conglomerate in 1970, Richard Branson has been at the inception of something around 300-plus businesses associated with the Virgin moniker.

At least a few of them have been clunkers. Remember when the cheeky entrepreneur drove a tank through Times Square to "battle" Coca-Cola (KO) and Pepsi (PEP) in a funny publicity stunt announcing the U.S. launch of Virgin Cola? If so, the memory is probably sharper than that of seeing the product on shelves, as it faded away very quickly after that debut.

Branson is an energetic entrepreneur with a gift for promotion. The Virgin brand is instantly recognizable by many consumers around the world. That doesn't necessarily confer success, however, as evidenced by the group's lumbering entrance into the world of boutique hotels.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Hyatt Hotels and PepsiCo. The Motley Fool owns shares of Coca-Cola and PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola.

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What's Behind Awkward Delays in Virgin's Hotel Plans
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