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Heir today, gone tomorrow: family-run hotels and the question of succession

17 March 2017 by
Heir today, gone tomorrow: family-run hotels and the question of succession

To sell or not to sell, that is the question facing many owners of family-run businesses as they head towards retirement and look at passing on their business to their children. David Harris looks at how hoteliers cope with losing control

Sadness over the sale of a family-owned hotel affects both staff and guests, but it is most keenly felt by those doing the selling. This year has already seen two outstanding, personally-owned luxury hotels change hands: the Capital in London and the Isle of Eriska on the west coast of Scotland.

The 25-bedroom Isle of Eriska (and it is the whole island, not just the hotel buildings), was sold by Beppo Buchanan-Smith last summer, although a confidentiality agreement applied until the new Chinese owners, the family-owned business Creation Gem, decided to announce the sale in January. Buchanan-Smith had been retained to help the takeover go smoothly for a couple of years, but in fact, that arrangement lasted just a few months, after which he was asked to leave completely. His family had owned the island since 1973. However, he is now once again consulting for the hotel.

Beppo Buchanan-Smith
Beppo Buchanan-Smith
That aside, the reasons Buchanan-Smith decided to sell were similar to those many business owners give: he was offered the right money at the right time. He says: "We originally had a plan to sell five years from now, but the buyers came to me with a price that met what we wanted, so it made sense to consider it now."

In fact, the path to the sale was not straightforward. The original price offered was not what appeared on the initial legal paperwork Buchanan-Smith saw, so the deal stalled, only to re-emerge more than a year later at the original price. Again, the buyer tried to negotiate the price downwards, but Buchanan-Smith stuck to his guns and the final price (not revealed so far) was the same as the original offer. In short, Buchanan-Smith got what he wanted.

Isle of Eriska hotel
Isle of Eriska hotel

Money on the mind But why did he want to sell at all? The reasons were understandable, not least because the Buchanan-Smiths had no pension. Now they do. Selling now rather than in five years' time also had a logic to it that went beyond the fact that they were offered "exactly the price we had in mind".

Buchanan-Smith says: "We had taken advice on what the selling price should be and it was apparent that we were at a good point to sell already. Last year, turnover was 50% up and occupancy was 20% up and we had retained our Michelin star. No matter how well the hotel continues to do, it seemed unlikely that those things would be as impressive in five years' time. We were always going to struggle to maintain that."

Certainly not without more investment, which is one of the things the new owners can bring. Work already undertaken includes four new self-catering lodges, renovating a chunk of the bathrooms and relaunching the piano lounge and drawing room. "They have capital," says Buchanan-Smith.

But it's not just about the money. Despite his premature departure from the hotel, Buchanan-Smith says he likes the new owner, even though the company was built on food manufacturing and distribution, not hospitality. He says: "The new owner loves the island and the trees and the son is American- educated and speaks excellent English."

None of this means that the old owner is without fears for what the new one might do. He already has his doubts, including questioning whether an increase in the size of the management team at Eriska is entirely wise if it results in fewer staff to serve the guests.

More broadly, his residual love for the island and the hotel means he betrays some anxiety about the place retaining its distinctiveness. He says: "I worry that something will be lost if it becomes too commercial. It's about the atmosphere, and I'm not sure that the new management really appreciate that."

Family affair The sale of a family hotel is often sensitive. It was equally so this year when the five-red-AA-star, 49-bedroom Capital hotel was sold by owner David Levin, who founded it in 1970 and presided over its consistently distinguished history for nearly half a century. He was named Hotelier of the Year by The Caterer in 1994.

For Levin, the successful sale was a highly personal matter, so personal that he does not want to comment much on it for now. The deal leaves Levin's daughter, Kate, as general manager of the Capital, and it is being run by Warwick Hotels and Resorts with Levin himself consultant to Richard Chiu, Warwick's chief executive and president.

David and Kate Levin
David and Kate Levin

f course, not all family hotel sales are as high-profile as the Capital or the Isle of Eriska. Many that are essential to the continuing health of the UK hotel industry are less likely to make headlines, but just as important to their owners and the hospitality business more widely. Recent examples include the £7m sale of the privately owned Caring hotel, a 25-bedroom property in London's Bayswater. It had been run by the same couple for the past 30 years and they wanted to sell because they were retiring. It was bought by the Arianya Group, which already owns the nearby Garden Court hotel.

The Capital hotel
The Capital hotel

y Frisby, divisional director at Fleurets, which handled the sale, says the aim of the owners was uncomplicated: they wanted to achieve the best price possible in the current market. This might seem like a statement of the obvious, but a quick, lucrative sale is not always the only or even the main aim of a seller. The Isle of Eriska would probably still be run by the Buchanan-Smiths if the right offer had not come at the right time; and David Levin's insistence on the personal nature of the sale of the Capital suggests that how and to whom the hotel was sold mattered as much as when and for how much.

Frisby says: "You need to look at the reasons for a hotel sale. Is it retirement? Lifestyle change? Health issues? And then there is the timescale. To get the best price quickly, it is sensible to have as much noise as possible. A slower sale might be better done privately because you can protect your ongoing business better that way and probably avoid worrying your staff about their futures."

The location of a hotel can also affect whether a discreet sale is a more sensible option, adds Frisby. In London, he says, "selling sites privately is common practice, while in the regions, higher exposure might be necessary to secure a buyer." In other words, a busier market makes a private sale a more realistic possibility.

And what about after the sale? Should a hotelier care about what happens to the hotel that was once theirs? There is no doubt that they sometimes do. Buchanan-Smith still cares about the Isle of Eriska, even if his involvement has been cut short; and Levin still manages the Capital. Yet, the brutal truth is that once you have sold something, you lose control of it. Frisby says: "Once you sell, you sell. You have moved on. It's natural that former owners have an interest, but they no longer have control and they have to accept that."

Not the right job for everyone The emotional investment in family-owned hotels is clear, wherever you look, but one of the major issues when it comes to keeping a hotel in the family is whether there is someone suitable to leave it to. Even if there is, those in line have to want to inherit. Owning a hotel is something that needs to be taken seriously and passing them on is a major part of that.

The George
The George

kins' view is that selling is illogical. "Why do you sell? You get a lot of money and what do you do? You invest it, probably. And what do you invest in? If you know hotels you probably buy a hotel. So what's the point of selling it?"

He adds that the advantages to the hotel of being a family business are obvious every day. "I wander around and ask people if they are enjoying their stay and when they find out I am the owner, they are delighted. You can't find anyone who isn't pleased to meet the owner of a private hotel," he says.

Pragmatic approach Tim Hart, the owner of the four-red-AA-star, 17-bedroom Hambleton Hall in Oakham, Rutland, has three sons - two of whom are the founders of the Barrafina group of restaurants. His daughter-in-law is Kate Levin of the Capital hotel in London. He points out pragmatically that passing on a business is much more tax-efficient than passing on money, but he has other reasons for questioning whether he should leave Hambleton to his sons.

"My sons are in the restaurant business, but they have a slightly better business than mine, so one of the issues with Hambleton is that I might not want to lumber them with it," he says.

However, you sense that he would like to leave Hambleton to the next generation because he is a great fan of the privately run hotel. He says: "England is rather weak in family ownership compared to, say, Germany or Italy. There, you get a lot of dynastic ownership, with hotels being passed down through the generations. There is more of the sense that the current owner is merely the caretaker of a family estate."

Hambleton Hall
Hambleton Hall

re are business advantages of not selling too, points out Hart. He argues that where corporate hotels are driven by profits in any given year, private owners have more of an ability to keep standards up in the hard times.

"This business is cyclical," he says. You need to maximise both your profit and your reputation. Long-term owners know that the most important of those two is your reputation, while corporates are quicker to cut costs in tough times, which means their hotels can deteriorate quickly."

Nick Fletcher-Brewer, owner of the three-AA-star, 17-bedroom Porth Tocyn hotel, near Abersoch, Gwynedd, has two sons, Richard and Henry, that he could pass the hotel on to. On the other hand, he has also been approached by several developers suggesting that he could sell. However, he is concerned what might happen to the hotel if he sold it.

He says: "The boys are working away, but they have what the Welsh call hiraeth [homesickness] to return. Some of the plans for the site the developers have suggested have left me thinking I would not like that to happen. We will still be living down the road, after all."

Porth Tocyn
Porth Tocyn

ordingly, Fletcher-Brewer, who is 63 in May, says he intends to keep all his options open. That includes a plan to leave the hotel to his sons initially, as an operating company, while he holds on to the ownership of the property until he is sure his sons are up to the job.

While there is a continuing move away from individual, private hotel ownership to corporate control, it is interesting to note that the sales of the Capital and the Isle of Eriska seem to have landed in the laps of families rather than anonymous companies. The Capital may have been sold to the Warwick Group, but that is very much under the control of its Hong Kong-born and Cambridge University-educated founder Richard Chiu. And while the Isle of Eriska is also now under Oriental control, it too can claim to be family owned. There seems to be something about hotels that remains defiantly personal, even in a more international and corporate age.

The Castle at Taunton The 44-bedroom Castle at Taunton in Somerset has been run since the middle of the last century by the Chapman family, but it came close to being sold nearly 30 years ago.

Current owner Kit Chapman says the family considered selling in the late 1980s, but that he refused, "much to their fury".

He says: "The Castle nearly went bankrupt and I had to choose between family harmony and the business. I chose the business."

The Castle at Taunton
The Castle at Taunton

w retired, Chapman is still immersed in the Castle, but his two sons, Nicholas and Dominic, are also both involved and have told Chapman not to sell - "under pain of death".

Nicholas, says Chapman, is the best chairman the hotel has ever had, while Dominic sits on the board as a director and is the owner of a successful business in his own right (at the Beehive in White Waltham, Berkshire).

There seems little doubt that, in the end, the Castle is one of those happy places that will find it is in the Chapman family for at least another generation and probably many more.

The Goring The sale of the Capital leaves the 69-bedroom Goring as the only family-owned, family-run, five-red-AA-star hotel in London.

The Gorings have been very much hands-on in the hotel since it opened in 1910, with the proud boast that it was the first hotel in the world where every room had an en suite bathroom.

Today, Jeremy Goring represents the fourth generation to be in charge of the hotel, which has prided itself on a history of tradition and innovation.

The Goring hotel
The Goring hotel
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