Morgans Hotel Group to Sell Its London Hotels

NEW YORK, October 10, 2011 -

- Company to Continue to Operate Hotels Under Long-term Management Agreements -

Morgans Hotel Group Co. (NASDAQ: MHGC) (”MHG” or the “Company”), the operator and 50% owner of the London joint venture that owns Sanderson and St Martins Lane, today announced that the joint venture partners have entered into a definitive agreement to sell the Sanderson and St Martins Lane hotels for 192 million pounds Sterling, or approximately $295 million, to Capital Hill Hotels Limited, a Middle Eastern investor with other global hotel holdings. The sales price for the two hotels represents a value of approximately 542,000 pounds, or $832,000, per room.

MHG will continue to operate the hotels under long-term management agreements. The terms of the management agreements, including extension options, have been extended to 2041 from 2027.

The joint venture partners will use the sales proceeds, along with cash in escrow, to retire the approximately 99.5 million pounds of outstanding mortgage debt, which is secured by the two hotels.  MHG’s 50% portion of the net proceeds, after the repayment of debt and closing costs, is expected to be approximately $70 million. The Company intends to use the net proceeds to provide capital for growth.

Michael Gross, Chief Executive Officer of MHG said, “Our continued management of these two great London assets and the proceeds from the sale will help provide the foundation for continued growth of our management business and brands around the world. We are pleased that our team will be able to continue to build on the value and financial performance of Sanderson and St Martins Lane as well as the additional capital the new owner plans to invest to enhance these assets. We are very excited about the extension to our existing management agreements and we look forward to a long-term relationship with our new partner.”

The transaction is expected to close in the fourth quarter and is subject to satisfaction of customary closing conditions. The joint venture partners received a 10 million pounds security deposit, which is non-refundable, except in the event of a default by the joint venture.

MHG is a 50% owner of the hotels through a joint venture with an affiliate of Walton Street Capital.  MHG’s share of property EBITDA was $10.1 million for the twelve months ended June 30, 2011.

About Morgans Hotel Group

Morgans Hotel Group Co. (NASDAQ: MHGC) is widely credited as the creator of the first “boutique” hotel and a continuing leader of the hotel industry’s boutique sector.  Morgans Hotel Group operates Morgans, Royalton and Hudson in New York, Delano and Shore Club in South Beach, Mondrian in Los Angeles, South Beach and New York, Clift in San Francisco, Ames in Boston, Sanderson and St Martins Lane in London, and a hotel in Playa del Carmen, Mexico.  Morgans also owns, or has ownership interests in, several of these hotels.  Morgans Hotel Group has other property transactions in various stages of completion including a Delano in Cabo San Lucas, Mexico, a Delano in Turkey, a Mondrian in Doha, Qatar, and a Mondrian in Nassau, The Bahamas, and a hotel in New York to be branded with one of MHG’s existing brands. For more information please visit www.morganshotelgroup.com.

Forward-Looking and Cautionary Statements

This press release may contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs and prediction of certain future other events. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate” “believe,” “project,” or other similar words or expressions. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results or other future events to differ materially from those expressed in any forward-looking statement. Important risks and factors that could cause our actual results to differ materially from those expressed in any forward-looking statements include, but are not limited to economic, business, competitive market and regulatory conditions such as: a sustained downturn in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; continued tightness in the global credit markets; general volatility of the capital markets and our ability to access the capital markets; our ability to refinance our current outstanding debt and to repay outstanding debt as such debt matures; our ability to protect the value of our name, image and brands and our intellectual property; risks related to natural disasters, such as earthquakes, volcanoes and hurricanes; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; and other risk factors discussed in Morgans’ Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and other documents filed by Morgans with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of the date hereof, based upon information known to management as of the date hereof, and Morgans assumes no obligations to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized.

Rich Szymanski, Morgans Hotel Group, +1-212-277-4188, richard.szymanski at morganshotelgroup.com