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Boutique Hotel Firm NYLO Ready For Big Cities

Atlanta Business Chronicle - by J. Scott Trubey Staff Writer

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NYLO Hotels CEO John Russell knows his company could have been seriously wounded by the collapse of Wall Street, but it wasn't.

When Lehman Brothers Holdings Inc. - NYLO's equity partner - filed Chapter 11 last September, it could have stopped the hot hotel concept in its tracks. But it didn't.

Now NYLO, which has thus far concentrated on secondary markets, is getting ready for prime time.

Last month, Atlanta-based NYLO inked three deals for new hotel franchises in New York City, Chicago and Frisco, Texas. It also won a commitment giving its hotel project outside Dallas the financing it needs to be completed in June.

In mid-January, the startup, trendy boutique hotel developer convinced Alvarez & Marsal Holdings LLC, the stewards of Lehman Brothers' assets, to replace debt and finish construction on its Las Colinas, Texas, hotel.

"The fact that we sold these three franchises [including] Manhattan and Chicago, they'll be billboard properties for us and will help us sell more franchises," said Russell from his office at 260 Peachtree St.

W Developments LLC is NYLO's partner in Chicago, Sentry Hospitality Ltd. will build the project in New York, and Behringer Harvard of Dallas will build the brand's first XP select-service concept in Frisco, Texas.

NYLO competes directly with InterContinental Hotels Group Plc's Hotel Indigo and Starwood Hotels & Resorts Worldwide Inc.'s aloft brands, said Paul Breslin, the managing partner of hotel consulting firm Panther Hospitality Holdings LLC.

"I think they have done a remarkable job with brand awareness and brand recognition in a very short time of existence," Breslin said, but getting into the New York market is critical to its success.

NYLO, short for New York Lofts, was founded in Atlanta four years ago with the idea of creating a mid-priced "lifestyle" brand of full-service hotels with the feel of urban loft living. Think W, but at half the cost per night, and a half of the cost to develop.

NYLO President and former Starwood veteran Michael Muller founded the company and brought in Russell, a former executive with Cendant Corp., Days Inn and a former president of the American Hotel & Lodging Association, as its CEO.

NYLO's first hotel opened in Plano, Texas, in 2007 and a second followed in Providence, R.I., last year. The brand has developed its own cosmopolitan culture, clothing line for staff, furnishings and even a standardized construction platform.

A full-service NYLO can be built for around $23 million, and the company's XP select-service hotel is about $11.5 million. Still, Russell is a realist when it comes to future development.

The recession and meltdown of capital markets have changed the game of hotel development, but it hasn't stopped it, Russell said. "We've got about 42 in the pipeline," he said. "Will all of those come to fruition? No, because it depends on financing."

Hotel loans based on 5 percent to 10 percent equity are a thing of the past. Russell said deals today can still happen in NYLO's price range provided the franchisee has 30 percent to 40 percent equity. "The likelihood of these hotels being financed is a lot higher than a full-service Marriott, full-service W, or Loews," Russell said.

The company is sticking to its plan to develop its first three projects and franchise the rest, Russell said. NYLO brought in Hyatt Hotels veteran Charles "Chick" Armstrong as its senior vice president of franchise development.

Armstrong said though expansion won't occur as rapidly as originally planned, when the economy turns around, "we will have so many sold, we'll be good to go."

The chain has received strong interest, Russell said, from developers in Europe, Asia and the Middle East. The company also wants to bring a project to Atlanta, though likely through a franchise agreement.

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