(FORTUNE Magazine) – Ultra-hip hotel (and former Studio 54) impresario Ian Schrager has arrived in London with his first European hotel, which must mean that London, too, has finally arrived. Called St Martins Lane, the hotel sits on--you guessed it!--St. Martin's Lane in the middle of the theater district off Trafalgar Square.

St Martins may not seem like a new idea to travelers who have sampled London's first designer hotels, the Metropolitan and the Halkin, both created by the reclusive Singaporean designer-clothes retailer Christina Ong. But after watching other such trendy minimalist offerings open in London, Schrager--who takes credit for inspiring Ong's Metropolitan--has come up with a property that he claims is the real thing. Just what does that mean? He says St Martins will appeal to the Information Age's jet set, who travel constantly, "treasure humor and irony, and define true luxury in terms of having access to new experiences."

Given the buzz that surrounded the hotel's opening on Sept. 7, Schrager seems to have scaled London's "in" list--at least for now. "We can't consider ourselves to be the cutting-edge, ultra-hip hotel, because time has gone on," admits Rupert Sellers, marketing director of the Metropolitan, whose members-only Met bar was the place when it opened 2 1/2 years ago. "Schrager can have that honor for now."

What's most remarkable about St Martins is how Schrager and his design director, Frenchman Philippe Starck, have taken an ugly, boxy, concrete '60s office building and turned it into a place where you might actually like to hang out. Entering the lobby through 20-foot-high yellow-tinted revolving doors, you find a spacious white piazza dotted with tooth-shaped gold stools, garden gnomes, an oversized aluminum flower pot, and a couple of Louis XVI armchairs. Opposite the entrance is a dark-gray wall with glass doors that open into the Light Bar, with its series of double-height rooms, each bathed in a different color of light; the cumulative effect is akin to going from a sunny day into a modernistic cave. The Light Bar is the hotel's real scene magnet, but unfortunately, if you're not a guest or on the heavily guarded guest list, you'll be denied entry. Schrager says he's had to resort to such '70s-style door policies because too many people wanted to get in. Yet it seems more like a tired marketing ploy: On the night FORTUNE attempted entry, the bar was nearly empty.

Flanking the Light Bar are three of St Martins' other restaurants, an unremarkable brasserie named Saint M (skip it); the Sea Bar, a stunning, all-white marble and padded-leather sushi bar (eat here); and Asia de Cuba, an Asian-Latino eatery that's a repeat of outposts in other Schrager hotels--Morgans in New York City and the Mondrian in Los Angeles. (London reviewers have recently panned Asia de Cuba, but Schrager says the public loves it.) And there's an outdoor cafe that runs nearly the length of the building--except for the corner space still occupied by a gay bar called Brief Encounter, which Schrager says he couldn't buy out. Needless to say, all this works together as a vast entertainment space with great people watching.

Unfortunately, some of the first floor's magic diminishes upstairs. In spite of their witty design tricks, Starck and Schrager haven't been able to erase that cheap '60s feeling. Okay, they've done a great job using the floor-to-ceiling windows to give each room good views and great light. And every room is equipped with multicolored bulbs that let you wash your surroundings in shades from yellow to violet, according to your mood. That's cool. But the long, dark hallways exude a sort of Motel 6 feeling. The day FORTUNE visited, a sleeping security guard was silhouetted at the end of the hall--a very Hitchcockian scene. Apparently no one else is bothered: Schrager says he's fully booked and probably will remain so as long as he underprices the market, with rates beginning at $200 a night (rooms at the Metropolitan and the Halkin start at $328 and $408, respectively).

St Martins is only the first of Schrager's forays outside the U.S. He'll open his second London hotel, Sanderson--an even more upscale version of St Martins--in February, and then move on to Milan, Berlin, and Paris. "We'd like to have as many as six to eight hotels just in London," he says, all in different price brackets. He's already expanding in the U.S. and expects to grow from four to 15 hotels in three years. In development are the St. Moritz, Henry Hudson, Empire, Barbizon, and Astor Place in New York; the Clift in San Francisco; the Miramar in Santa Barbara; and the Ritz Plaza in Miami Beach.

Whatever you may think of white floors studded with gold teeth--some in London are calling it gimmicky--it's good to have an alternative to the overstuffed ornateness of most upmarket European hotels.

45 St. Martin's Lane, London; phone: 011-44-171-300-5500; fax: 011-44-171-300-5501. Room rates begin at $200 a night and go up to $630 for corner suites.