The successful businessman behind the capital’s newest five-star hotel visits Budapest to talk about the accommodation industry and his latest venture.
The capital’s newest five star establishment, the Aria Hotel Budapest, is a music themed composition, offering luxury while also promising a family-friendly atmosphere. Still in its “soft opening” stage according to a company official, the Aria is already getting top rankings from TripAdvisor, and is drawing the attention of media from around the world.
The hotel’s owner is Henry Kallan, who founded the unique boutique Library Hotel in New York City, and also owns three other NYC hotels, one in Toronto and the Aria Hotel Prague. After leaving Czech Republic in 1968, and playing professional soccer in Austria, Kallan made his way to New York where he became the general manager of the old Gotham Hotel at the age of 27 – making him the city’s youngest hotel GM at the time.
Following the press opening of his hotel on July 13, Kallan took some time to talk to the Budapest Business Journal about the hotel business, and the latest addition to his “Library Hotel Collection”.
Why did you choose Budapest as the location for your next hotel, and why this exact place.
First of all I have always been fond of Budapest. I came here a lot as a young boy. But as you may know, I own four hotels in New York, one of which is the Library Hotel, where the concept is all about books. What I have learned is that all of us can relate to books, sports, music and fashion – so I believe that creating a concept is a good idea, as it sort of sells itself. Every magazine, every newspaper and every television channel is looking for some type of material connected to these themes. Therefore you mostly get free advertising. In Budapest we have the music concept, as there are four major types of music here: opera, classical, contemporary and jazz. The way I arrived at this is that, after the library concept, I came up with the idea to do something with music in Prague, because it has a rich history in music. So I think it is very appropriate to do it not only in Prague, but also in Budapest. As for the location, it was just a coincidence. I met someone who asked if I was interested in Budapest, since they knew I had a hotel in Prague. So I said let’s take a look at it. I came here and I recognized that this location is probably one of the best, if not the best. This building used to be a bank, and it was just sitting here completely non-functioning, and the group that owned the building did not know what to do with it. So it required some imagination, some hard work and a little bit of money, which finally ended up being $50 million – with very little financing. Most of it was equity money.
Do you consider this a long-term investment? How long do you think it will take for you to get back what you put in?
Hopefully not more than ten years. But there are many ways to recoup the investment. It depends on what the capital structure is. One way, as always, is to sell the hotel; another way is if the hotel does really well, as we expect, you can refinance. The way we look at it is this: What is the return on my cash investment on the equity portion of the deal. If you spend $50 mln, of which you put in $20 mln and finance $30 mln, then obviously the $30 mln that is financed is something you are just paying over a period of time, and this is a certain value against depreciation and you amortize the value. The $20 mln in equity is what you are really interested in recouping. So it can be done either by refinancing or selling the hotel. We certainly have no plans to sell.
How much does Airbnb cut into the hotel business?
I think very much. Not necessarily at this level. But I believe that it cuts into the typical tourist type of travelers, who look up Airbnb and try to get a reasonable deal with someone who is willing to share their place. So if you own an apartment in New York, Budapest, Prague, or London, it is an economic way to travel. If you end up staying at a nice place with nice people, it obviously is a good thing. Is it good for the hotel business? Absolutely not. From a legal point of view it is also not a good thing. There is a certain liability when you stay in somebody’s apartment. If they carry no liability insurance and there is a fire, for example, who is responsible? There are all kinds of issues like safety, liability and the lack of regulations. That is not good. Is it good for people who do not have a big budget to travel? Absolutely. Does it undermine the hotel business? Absolutely. Not at this level, but the ‘economy-class’ accommodations are suffering.
How hard is it to attract people to Hungary who can afford luxury services?
We are very fortunate as we opened our hotel four months ago and we are doing quite well. Our average rate is probably double that of a typical five-star hotel. We are running around €300. The only competition we have is the Four Seasons, and for the last two weeks we took over the number one spot on TripAdvisor, so we go back and forth, depending on how many reviews we have. What I find very encouraging here is that we were able to bring in very high quality young people for our staff. I always say that staff is the biggest asset when running any business. You can have the greatest project with the most creative ideas, but what makes it a success is having the ability to finance it, and once you open the business there is nothing more important than the people you work with. It seems that Hungarians have the education and talent within the service and hospitality industry to do what needs to be done, and to attract visitors.
Obviously one of the reasons I am here is because, although I have lived in the States for more than 47 years, there is a certain sentimental value for me to come here, and I like to give back to Budapest. The city is close to my heart, as I speak the language, and I like to be in a position to give young people opportunities. I think this allows me to do so.