Jan. 3, 2005 - The moment the new year arrived, the Lancaster Hotel found itself under new management.

The historic boutique hotel in downtown's Theater District is now operated by Houston-based Valencia Group, a company that also runs Hotel Valencia Riverwalk in San Antonio and Hotel Valencia Santana Row in San Jose, Calif. Valencia also has plans to operate a hotel in Telluride, Colo.

The Lancaster will keep its name and culture while getting an upgrade, said Matthew Nuss, Valencia's executive vice president and principal.

William Sharman Jr., the chairman and CEO of Bayou Equities, the company that operated the Lancaster since its inception, said he was unable to reach agreement on a lease renewal with the landlords. The old lease expired at midnight Dec. 31.

Sharman said that current market conditions -- a steep rise in the number of downtown hotel rooms in a few short years and the fallout from changes in downtown's corporate client base, including the bankruptcy of Enron -- warranted a modification on the lease, but the landlords were against it.

Valencia Group's arrangement with the owners of the Lancaster is different from Sharman's: Sharman leased the hotel from the owners and operated it, while Valencia will simply operate it, Nuss said.

"We wanted to take control of the operation and invest dollars in the renovation we think is necessary," said Charlie Lusk, who manages the assets for his relatives, who own the property.

Located at Louisiana and Texas in the heart of the Theater District, the 93-room hotel has an Old English ambiance.

The hotel is owned by sisters Lenora Smith, Ursala Lusk and Michelene Toomey. In 1926, their grandfather Michele DeGeorge built the Auditorium Hotel on the property.

In 1982, the Joseph Finger-designed building was reborn as the Lancaster. When it opened, the downtown hotel landscape was far different.

From 2000 to 2004 alone, the number of downtown hotels more than doubled, including the addition of several high-end hotels for the Lancaster to compete with.

Downtown has seen a dramatic rise in the number of hotel rooms, and guests are often drawn to the newest one, noted Ray Hankamer, president of Southwest Hotel Management, a Houston-based hotel developer and broker.

The Valencia's renovations to the Lancaster could work in its favor by "creating newness," he said.

Ryan Gullion, the new general manager of the Lancaster, said Valencia hotels have a "hip but classic" feel and its Vbars in San Antonio and San Jose are magnets for night life. He said he wants the Lancaster to become a big evening draw for the Theater District.

Most of the Lancaster employees have stayed on, he said.

Sharman's group, Bayou Equities, also manages four hotels in San Antonio, Pennsylvania, Central America and the Caribbean.

The Lancaster is Valencia Group's first Houston venture, but the company's president, Doyle Graham Jr., is familiar with hotel life in the Gulf Coast area.

His father, Doyle Graham Sr., was managing director of the Galvez Hotel in Galveston in the late 1950s and early 1960s.

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