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Secondary markets see interest from boutiques
April 29 2013

The next wave of boutique hotel development could be in the U.S. heartland, executives said during the Bisnow Lodging Investment Summit.

  • Secondary markets represent a great opportunity for boutique hotel development.
  • “The institutional acceptance of boutique hotels has improved dramatically over the past 10 years,” said Denihan’s David Duncan.
  • Boutique hotels are defined by style and service, Kimpton’s Tom Riley said.

WASHINGTON, D.C.—The boutique hotel segment might have been born in cosmopolitan gateway markets such as San Francisco and New York, but the future could well be in the U.S. heartland.

“We think secondary cities are one of the places that smaller guys like us should probably go,” said Richard Millard, chairman and CEO of Trust Hospitality, last week during a session titled “Boutique Hotels: New Product, New Concepts” at the Bisnow Lodging Investment Summit.

Let the Ian Shragers of the world have the Big Apple, Millard said. That leaves untapped market share in secondary cities throughout the country. “We’ll be the only guys in town.”

Plus, “the barriers to entry are a lot less,” he added.

Fellow panelist Tom Riley, VP of acquisitions and development in the South and Southeast for Kimpton Hotels & Restaurant Group LLC, said there’s a dearth of boutique properties in markets such as Cleveland and Pittsburgh.

“When you look at some of those markets where you have every full-service brand there, but what’s really missing is a boutique hotel to play off of that,” he said.

When asked whether boutique chains such as Hotel Indigo and Aloft—which fall under the umbrellas of InterContinental Hotels Group and Starwood Hotels & Resorts Worldwide, respectively—were a threat, the panelists expressed little concern.

“It certainly doesn’t keep us up at night,” Millard said. 

The difference is math, said David Duncan, president of Denihan Hospitality Group. Independent boutique owners and operators do not have to pay fees to a parent company or chain he said.

“The flow through, the margins—if we can stay with the (revenue-per-available-room) index, which we have consistently done, we’ll compete every day and the real estate owner will be better off,” he said.

“We’re not paying 20% in fees these days to do these things,” Millard said.

And unlike past decades where many hoteliers lived or died by a brand’s central reservations system, e-commerce today has leveled the play field, Kimpton’s Riley said.

Lenders, for one, are putting more faith in independent boutique hotels, panelists agreed. While there’s still a bit more scrutiny in the underwriting process, “the institutional acceptance of boutique hotels has improved dramatically over the past 10 years,” Duncan said.

Defining boutique
But what makes a true boutique?

Millard, for one, dismissed any rigid definition. “We found out that nobody really cares. They call it lifestyle. They call it boutique,” he said.

Trust has 14 hotels in its portfolio, which range in size and location and design, Millard said.

But if there ever were a consistent thread, it’s service and style, Riley said. “It’s something that’s different than what they experience with a typical branded hotel,” he said.

A boutique hotel is always one-of-a-kind, Riley said.

Kimpton, a company recognized as one of the first entrants in the boutique space, now counts nearly 60 hotels in its portfolio.

“We sort of get to reinvent ourselves every property we do,” Riley said. “Really tapping into social media and hearing what the customers say is a big part of it.”

Duncan said each of Denihan’s 15 hotels draws inspiration for the surrounding neighborhood.

“We try to make it a very local hotel,” he said. “The Benjamin is remarkably different from the James in SoHo.”

Just as important are the people who work in those properties, Duncan added.

“Hiring nice people is really important and treating them with the utmost respect is really important. ... That translates into proper guest service.”

Millard agreed. “Culture is a very important part of what we do,” he said.

Finding the right associate often trumps finding the right-looking associate, he added. Just as a true boutique is not cookie cutter, nor should employees be.

“If Bill Marriott had a hotel where you had a kid behind the desk with an earring, two days growth of beard and a tattoo, he would take the sign off the building,” Millard said. “(But) we have that.”

Econolodge Quantico VA
4/30/2013 11:28:00 AM
Very Hospitable article and it is true to its content
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