Trophy Hotel Becomes
A Fabulous Fixer-Upper

BEVERLY HILLS, Calif. -- When Hollywood's Golden Globe awards aired recently from the Beverly Hilton hotel, certain details of the star-studded event went unseen on camera. Among them: the hotel's stained carpeting, chipped paint and decidedly outmoded decor.

Despite its glitzy reputation, the Beverly Hilton has been decaying for years while its owner, 78-year-old former talk-show host Merv Griffin, bypassed maintenance and sought a buyer. It's a fate that often befalls so-called trophy hotels -- famed lodgings that are the jewel in an owner's crown -- when said owners tire of lavishing them with time and money.

The result can be a pricey labor of love for the next owner. Beanie Baby creator Ty Warner is pouring millions of dollars into refurbishing the Four Seasons Biltmore hotel in Santa Barbara, Calif., and the nearby San Ysidro Ranch, where Jack and Jackie Kennedy honeymooned. The royal family of Brunei has twice renovated the Hotel Bel-Air in Los Angeles after paying roughly $600,000 per room to buy it a number of years ago. The effort helped restore the hotel's five-star rating this year by Mobil Travel Guides.

Buyers with oodles of money and patience are rare. For two years, Starwood Hotels & Resorts Worldwide Inc. has been trying to sell several European trophies such as Venice's Gritti Palace. Spokesman Dan Gibson describes the ideal buyer as one who says, "I've gotta have it for my kids."

The Beverly Hilton's state of disrepair has been a headache for its manager, Hilton Hotels Corp., for which it serves as a flagship. As Hilton executives crossed their fingers for a sale, Mr. Griffin negotiated with nearly a dozen potential buyers over the past year. In December, Beny Alagem, a 50-year-old former Israeli tank driver who in 1986 founded Packard Bell Electronics Inc., now part of Packard Bell NEC Inc., paid at least $130 million to buy it, according to people familiar with the transaction. (Mr. Griffin insists the price is "more," but won't get any more exact.) Mr. Alagem is set to spend an additional $60 million restoring the place. "We're thrilled," says Ernie Wooden, Hilton Hotels' senior vice president of operations.

Design teams are drawing up plans to install plasma TVs and private gardens and patios. They will redo the 1950s-era bathrooms. There are plans for a spa, a snazzy business center -- and far higher room rates.

When the makeover is complete next year, Mr. Alagem's hotel bill will tally $329,000 per room -- easily twice the cost to build a similarly sized new hotel on cheaper property.

Some hotel professionals say a Motel 6 might provide better financial returns. Still, trophy hotels are by their nature irreplaceable and tend to hold their value, says Michael Mahoney, a Los Angeles consultant with PricewaterhouseCoopers, making them attractive investments for passing along wealth. The bragging rights can be priceless.

The Beverly Hilton was built to be a trophy. Conrad Hilton constructed the 582-room hotel in 1955 at the busy Beverly Hills intersection of Wilshire and Santa Monica boulevards within walking distance of his home. He put Hilton's then-headquarters in an adjacent low-rise and quickly made the property a Hollywood fixture. The Golden Globes were first held there in 1961, and have returned annually since 1974. Other regular events include the annual Academy Awards nominees' luncheon and the Carousel of Hope ball.

In 1987, as many hotel companies sold assets to raise cash and lighten balance sheets, Hilton sold the hotel to Mr. Griffin, creator of the game shows "Jeopardy!" and "Wheel of Fortune," for about $100 million. Mr. Griffin moved into a three-bedroom suite on the hotel's top floor.

He quickly expelled the ghost of Mr. Hilton. He turned a poolside restaurant called Mr. H's into a safari-theme bistro called Griff's -- and lunched there every day, gregariously greeting guests. He lined halls with photographs from his talk show. He consulted Eva Gabor on renovating a ladies' room, personally designed the ballroom's rose-patterned carpet, and imported stone for the lobby by air from Europe. Then he threw himself a huge party in the ballroom. "I invited everyone in Hollywood," recalls Mr. Griffin, who estimates he has spent $60 million on the hotel's renovations.

By the late 1990s, though, the hotel was looking tattered, in need of the sort of cosmetic rehabs that are typically done every five or so years. Hilton Hotels, with its headquarters down the street, sometimes housed corporate guests elsewhere, people there say. Then the property's occupancy plummeted in 2001 after the 9/11 terrorist attacks kept many travelers at home. "In lieu of doing renovations, we decided to hold on to the employees," Mr. Griffin says.

These days, the property has been filling rooms with low-paying airline crews and even lower paying government employees who make do on taxpayer-funded per diems, according to Hilton's Mr. Wooden.

Mr. Griffin says he had little interest in another redo. "Been there. Did that," he says. "It was time to move on." He says he began entertaining offers for the hotel more than a year ago. Marriott International Inc., InterContinental Hotels Group PLC and others looked it over. The hotel needed "too much work," says Richard North, London-based InterContinental's chief executive.

Then Mr. Griffin and Mr. Alagem met last fall for lunch at a poolside table at Griff's restaurant and worked out a deal. "There was no nickel and diming," Mr. Griffin says.

Tom Corcoran, chief executive of FelCor Lodging Trust Inc., Irving, Texas, dubs Mr. Alagem's deal an "ego buy." Mr. Alagem, through his assistant, says: "When I learned that Merv Griffin might be interested in selling the Beverly Hilton, I knew it was the right hotel and the right time."

Ted Kahan, who is overseeing the hotel and pursuing other real-estate acquisitions on behalf of Mr. Alagem, says, "We understand the price. We have a plan."

Mr. Alagem is already arranging to expel the ghost of Mr. Griffin, renovating and renaming everything from Griff's restaurant to the Merv Griffin Way lane that leads to the entrance, says Mr. Kahan. Mr. Griffin's colorful former apartment, vacated in December, is destined to become a presidential suite.

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