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The Case of the Disappearing Hotel
The Hong Kong Hilton was worth more dead than alive, even though it did well from day one. Here's why.
On January 22,1994, Hutchison Whampoa, the company that owned the Hong Kong Hilton Hotel, announced that it had bought out the remaining 20 years of the management contract with Hilton Hotels Group for US$125 million (about HK$965 million).1 The landmark hotel subsequently closed its doors on May 1,1995, to be torn down and rebuilt as a multi-story commercial office complex. The 26story, 750-room Hilton Hotel was the oldest "grand dame" hotel on the Hong Kong island. It opened its doors in 1961 and had since been the favorite hotel for tourists and dignitaries alike.2
The announcement also included plans of Cheung Kong Holdings (like Hutchison Whampoa, owned by Li Ka Sing) to jointly develop Hilton's neighboring sites-a private car park and the Beaconsfield House, a crown property belonging to the Hong Kong government.3
If any hotel deserves the title of institution, the Hong Kong Hilton was that hotel. Its staff of 850 was long-term and loyal. Hilton Hotel employees were given an average of nine months of salary as part of the "retirement fund." Moreover, Hutchison Whampoa was able to place over 60 percent of the Hilton's employees in the new Harbour Plaza Hotel, located in Hung Hom, Kowloon.
James Smith, the Hilton's last general manager, said the buyout was an unfortunate, but logical business decision: "As a hotel, it's worth $500 million; as an office block, it's [worth] $1 billion" Most hoteliers we contacted agreed that it is unlikely that another top hotel such as the Hilton will be built in central Hong Kong, because land values there are among the world's highest. Moreover, the Hilton was not the first hotel to be bulldozed in favor of commercial space. In October 1991 the 194-room Grand Hotel closed its doors in Tsimshatsui, Kowloon, in favor of a multistory office tower. In 1993 the 20-year-old Lee Gardens Hotel in Causeway Bay was also knocked down to make way for a commercial office project. The same fate took the Ambassador Hotel and the China Harbour View Hotel. Exhibit 1 shows which Hong Kong hotels have checked in and...