Grace Bay, Shinola, Chesapeake Hospitality and La Reserve executives discussed why uncelebrated markets, local vibe and special service touches are key for boutique hotel developers at the recent Stay Boutique Live Investment Conference.
NEW YORK—Boutique and lifestyle hotel developers need to be willing to spend more than branded-hotel developers do on amenities, design touches and labor in order to build and sustain successful independent hotels, even if growth in room demand tapers off as expected, according to executives who spoke at the recent Stay Boutique Live Investment Conference.
In addition to those touchpoints, hotel executives emphasized the importance of opening properties in areas that are less established when it comes to tourism in order to differentiate themselves.
Grace Bay Resorts co-founder and CEO Mark Durliat, who founded his company when he acquired Turks and Caicos’ 20-room Grace Bay Club in 2001, referred to the Atlantic Ocean group of islands as a veritable “Siberia” when he first visited there. He estimates he and his partners have raised about $150 million in debt and equity for the continued expansion of operations ever since.
“I swam out a half mile and I thought, ‘This is it,’” Durliat said, recalling his first visit to the islands. “All I had was a towel and a cellphone. I called my capital partners and said, ‘Give me a few weeks.’”
Shinola CEO Tom Lewand, whose luxury goods brand was founded in 2011 and opened its first branded hotel in January, said the combination of Shinola’s “analog brand in a digital age” reputation and the opportunity to build a property in its home base of Detroit was too good to pass up.
“We wanted to become Detroit’s living room,” he said, adding that part of the goal is to appeal to “people who’d left for the suburbs and bring them back.”
Such hotel builders and operators continue to take those risks in an environment where room demand, specifically in the U.S., is expected to taper off after a decade of consistent advances. Through April, U.S. revenue per available room rose 1.4% from the year prior, according to STR, parent company of HNN, which downgraded its 2019 RevPAR forecast in June to 2% from 2.3%. U.S. RevPAR increased 2.9% in 2018.
Both La Reserve Hotels and Spas CEO Jean-Luc Naret and Chesapeake Hospitality Chief Commercial Officer Chris Green spoke of spending more money to ensure that hotels are visually distinctive and truly representative of their geographic locales while providing exemplary face-to-face service, even in an age where more travelers are using technology to procure services. Naret added that boutique hotels face the additional challenge of having to provide all of the amenities of a larger upscale hotel within a smaller space.
“In a place like Savannah, (Georgia), you have to attach yourself to the history,” Green said, referencing his company’s The DeSoto Savannah. “If you’re a true hotelier, you want to deliver things you can’t deliver elsewhere, like that mint julep on the porch. And you can monetize that. People are willing to not only pay, but pay more if those services are well-done.”
“Service with an attitude is over. People love to be called by name, they love to be recognized,” Naret added. “Trust me, it’s going to cost you a fortune. Your investment will be higher, but you’re building a statement, and your investment will be seen.”
Hoteliers will be tasked with keeping a closer eye on their bottom line, Green said. And with such obligations to spend more on amenities and services comes more financial flexibility than what owners of branded hotels have.
“What’s different is control of the assets,” Green said. “You don’t want to be told how often you need to replace your treadmills. You can allocate capital where your guests are telling you where they want it.”
While “service is king” in boutique hotels, there are opportunities to use technology to complement the staff’s efforts to take care of guests, Green added.
“The most fascinating thing we’re doing is investing in AI (artificial intelligence),” Green said. “The independent traveler has a very unique digital footprint. We can align with our best guests, and use AI to market to those independent guests.”
Regardless, even as travelers may slow their spending on lodging, the speakers all vowed that hotels with a unique design and point of view would continue to fetch a premium room rate compared to their branded counterparts.
“The authenticity in the space is so important,” Lewand said, noting that his company’s 129-room hotel consists of five interconnected buildings, one of which was a former Singer Sewing Machine factory. “We don’t make anything anybody needs. So you have to give them the value proposition by starting with a quality product.”