How to get big impact from hotels with small room count
 
How to get big impact from hotels with small room count
10 JANUARY 2020 9:03 AM

Owners and operators in some of the U.S.’s most popular markets are finding their segment with hotels that have smaller room counts.

REPORT OF THE U.S.—The newest batch of small hotels are serving niches in some of the most visited U.S. cities.

Bereft of items such as loyalty programs, brand recognition and economies of scale, operators of new, smaller hotels are taking the boutique-hotel concept to the extreme. In addition to offering individually designed rooms and a more personal touch with guests, operators are leveraging unique locations and backstories as selling points to guests looking to depart from larger, often branded hotels.

East Nashville’s Vandyke Bed & Beverage, which opened in March, suggests that all of its guests be at least 21, and has named all of its eight rooms after alcoholic categories such as Rum, Gin and Beer.

“In England, ‘vandyke’ is a verb. It means to stumble home after too many beverages,” said property manager Tinsley Anne Dempsey. “The cocktail bar is definitely a focal point and, after hours, the music can get loud.”

The newest small hotels in New York, San Francisco and Chicago are being positioned to attract visitors who want to be near some of those cities’ most iconic attractions.

Opened with 42 rooms in June, the Lodge at the Presidio, which was redeveloped from a 122-year-old barracks building in a former military base, has the distinction of being San Francisco’s closest hotel to the Golden Gate Bridge. The 142-room Cavallo Point Lodge is slightly closer to that landmark, but it’s located across the San Francisco Bay in Sausalito.

The Lodge is a sister resort to the Inn at the Presidio, which opened as the Presidio’s first hotel in 2012 and has 26 rooms. Terry Haney, managing director of Presidio Lodging, said The Lodge has been attracting guests looking for a departure from downtown San Francisco, Union Square or Fisherman’s Wharf.

“The park has really caught on as a destination,” Haney said, referring to the Presidio’s maze of hiking trails offering bay and city vistas. “We’re not sharing the clientele with downtown hotel guests looking for the best rate.”

Meanwhile, New York’s Merrion Row Hotel and Public House opened this past January with just 28 rooms, and offers what it calls the “Dublin Townhome” experience a half of a block from Times Square. Opening in 1920 as the Hotel Normandy and most recently known as the Big Apple Hostel, the property was redesigned and restored with the help of New York-based design firm Meyer Davis, whose credits also include Chicago’s W Hotel Lakeshore and Costa Rica’s Four Seasons Papagayo. Named for a Dublin thoroughfare known for its pubs, the hotel features photos of the Irish countryside and portraits of Irish authors, while its all-day Public House eatery includes a communal table.

Chicago’s Wheelhouse Hotel, which opened in September with just 21 rooms, looks to attract revelers of both sports and music with its location just a block south of Wrigley Field—longtime home to baseball’s Chicago Cubs—and five blocks north of the city’s Vic Theatre. Rebuilt from an old Greystone apartment building, the hotel features design touches such as a vintage high school scoreboard and a Louisville Slugger baseball sculpture in its lobby.

“We try to cater to why people are traveling,” said Robert Baum, principal of Bedderman Lodging, which owns and operates the hotel. “We’re selling inspiration a little bit.”

Nowhere is this mini-trend more evident than in Los Angeles, which boasts 634 hotels with fewer than 75 rooms, making it the country’s small-hotel capital.

Local bar and hotel operator An Eastside Establishment redeveloped the nine-room Firehouse Hotel from a 92-year-old former fire station and is banking on the burgeoning popularity of the city’s Arts District just east of downtown as a draw for the hotel. The property opened last April, though is closing for February and much of March as its on-site restaurant gets renovated for a new concept and brings on a new chef.* Previously, An Eastside Establishment opened the five-room Hotel Covell in the city’s Los Feliz district in 2015.

Local hotelier Palisociety has been even more aggressive with its smaller hotels. The company opened a 49-room Culver City property in a former single-room-occupancy building in January and reopened Westwood Village’s former 55-room Claremont Hotel as the Palihotel Westwood Village in May after an extensive renovation. In November, the company debuted the 54-room Silver Lake Pool & Inn in L.A.’s Silver Lake district.

“We want to be a really well-done neighborhood inn with design chops,” said Avi Brosh, founder and CEO of Paligroup. “There’s a whole demographic who really prefers to stay in neighborhood-centric properties. That’s a proven trend.”

Operators of smaller hotels often are challenged by the lack of economies of scale that can reduce per-room expenses. This year, there were about 4,700 hotels with fewer than 75 rooms within the 25 largest U.S. hotel markets, according to Hotel News Now parent company STR. That number is down from almost 5,000 sub-75-room hotels a decade ago and from almost 5,300 small hotels in 1999.

Without the ability to spread operating costs across a larger number of rooms, opening such hotels isn’t cheap.

Though San Francisco’s Presidio Trust already owned the land, the Lodge at the Presidio cost about $25 million, or almost $600,000 per room, to redevelop, according to Haney.

Baum estimated the Wheelhouse’s development costs at “north of $10 million” for its 21 rooms; and Dustin Lancaster, president of An Eastside Establishment, said it cost about $3 million to redevelop the Firehouse Hotel.

Still, operators say the hotels command high-end room rates because of their individual approach and limited room supply. With late-December rates starting at more than $400 a night for mid-week reservations, the Firehouse can afford to offer enough staff to provide the type of personal service that’s difficult to attain in larger hotels, Lancaster said.

“Learning what certain guests like is so much easier (than at larger hotels),” Lancaster said. “Some of the nicer hotels do these crazy integrated (in-room) iPads, but I find that much more complicated. Maybe I’m more analog.”

Haney said The Lodge at the Presidio’s weekday room rates in mid-December averaged between $275 and $400 per night.

“We maintain our (average room rates) through consistency of quality and reputation,” Haney said. “We’re not on Expedia or Hotels.com, and we don’t do big discounting.”

Operators said they have come up with other methods to run smaller hotels while containing per-room expenses.

Haney said the Lodge at the Presidio’s service offering is more akin to a bed-and-breakfast, and staff is cross-trained to fill positions at both the Lodge and the nearby Inn at the Presidio.

With 10 hotels, Palisociety’s Brosh points to his three-decade experience running both residential and lodging properties and his growing brand presence as ways to bring down per-room development, operating and marketing costs.

“I started in small hotels because nobody else really wanted to do it,” he said. “My premise is that if I could do several smaller properties and run them as a collection, I could get to the same economies of scale.”

*Correction, 17 January 2020: This story has been updated to include a revised opening schedule for Firehouse Hotel.

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