Take your partners

How does a hotel operator persuade a 900-year-old landlord and local planners to allow a four-star hotel to be built on prime greenbelt land fronting the River Thames?

This was the problem facing Brian Murtagh, chairman of Four Pillars Hotels, when he wanted to build a new hotel on 22 acres of Magdalen College's meadowland, three miles from Oxford. The site included a bankrupt country club, three semi-derelict listed buildings, 100 caravans and moorings for 50 boats.

Murtagh's ace was local builder Jonathan Ede, managing director of Ede Holdings Group. The pair met when Four Pillars leased its Witney hotel from Ede in 1986. Each liked the way the other ran his business and they felt the chemistry was strong enough to set up a 50-50 partnership to build the Oxford Thames Four Pillars hotel at Henley Road, Sandford.

The partnership involved each putting up £1m cash and the bank the remaining £2.2m for the total £4.2m necessary to build the 60-bedroom hotel. "We actually needed to put in only a third between us," says Murtagh, "but we had the money and decided to upgrade the quality to maximise the financial return."

Each partner owns 50% of the hotel and 50% of the business, a set-up that has helped ensure building work was completed on time and to budget. Because Ede had a vested interest, the sooner the hotel was functioning, the sooner his share of the business would grow.

"You have to have a particular kind of organisation to make this kind of partnership work," says Murtagh, who with director John Oldman founded Four Pillars in 1982. "It should preferably be with one man - no main boards because things have to be sorted out quickly and simply.

"The companies should be roughly the same size - big enough to be financially sound and small enough to control everything effectively. Neither of us has total control, but neither is controlled, so we have to sit down and discuss things. Nor can we be bought out unilaterally."

The infrastructures of the two companies complement each another: Ede has an in-house drawing and design department and Murtagh has a head office with finance, training and marketing departments. These cut out the expensive fees of outside parties.

"Jon has the skills to renovate listed buildings and make new buildings attractive," says Murtagh. "I have the skills to run a hotel and to know what would work as a design at the drawing stage. This is why the hotel cost us only £15 per square foot, including kitchen equipment, and £72 per square foot for the listed building conversion."

It was Murtagh who wanted easy storage and access to conference areas and he persuaded Ede to "waste" space on a snooker room which, as an attractive extra, helps sell conferences, even though it is under-used.

Ede came up with an ingenious method of filtering water in the indoor pool which reduced costs by 50%. He also avoided massive costs when it was discovered that the smallest listed barn was falling down and needed expensive metal props set into the walls. Murtagh claims Ede's skills saved him at least 20% against using an outside builder.

Neither man would have built the Oxford Thames hotel on his own. Ede would not have gambled money on an unknown tenant and Murtagh did not have had the skills to get planning permission.

It took four years to get the hotel built and the project tested the expertise of both parties. Magdalen College agreed, in 1993, to lease the site to Four Pillars for 125 years. Ede then set out to convince the South Oxfordshire District Planning Department that a new hotel on the site would ensure the future of the 15th-century listed buildings and would upgrade the area, which was often the focus of rave parties and New Age settlements.

"One of the big advantages of a partnership is that the planning committee is talking to the people who are going to build and run the hotel and can establish trust," says Ede.

Once it seemed that the planners might be willing to allow a small hotel to go ahead, Ede suggested the hotel should replace the caravan site and moorings to prevent an increase in headcount, which would go against planning policy. This appealed to both the planners and the landlord, who would now receive a regular rent from Murtagh and Ede instead of intermittent rent from the bankrupt business on site.

This swung the deal, and 12 months later they received final approval for a 60-bedroom hotel. Building started in March 1996 and 15 months later the hotel opened its doors - on time.

Operating break-even, including finance charges, was achieved within six months. Turnover in the hotel's first year was about £3.2m and the second year is forecast to reach £3.8m.

One year after opening, room occupancy is 80% with an average achieved room rate of £63, excluding VAT, which Murtagh hopes to push to £70 by the end of the year. Bedrooms account for 40% of the total revenue, with 60% coming from food, beverages and leisure.

Conference bookings "have gone through the roof", accounting for 55% of the total occupancy, and membership of Jeromes, the leisure club sited in one of the 15th-century barns, is full with a waiting list.

Partners they may be, but their attitude towards money differs - Murtaghis "paranoiac" about debt and Ede wants money to earn interest. Both end up with their own form of security. Ede receives income from safe rents of properties he owns, such as banks and offices. Murtagh plans to open one new hotel a year so that the revenue from one roll on to support the next in the form of a deposit.

Four Pillars Hotels will have a turnover of £11.5m in 1998. Murtagh is planning three more hotels with Ede, and one in Cambridge with another partner.