Will Boutiques Survive Downturn?

NEW YORK— The romance of the boutique-style hotel is ebbing, and many of the small, hip hotels that were just recently riding the wave of a nouveau-riche, dot-com crowd are suffering, and may even be facing demise. The post-Sept. 11 economic environment may even spur the sale of many boutique hotels to larger, successful companies, anxious to expand their portfolios. Both Kimpton Hotel Group and Starwood, which owns the W brand, say this is an opportune time for real estate deals that would grow their distribution, and both companies readily admit they’re on the look-out for deals. A recent interview with Tom LaTour, president, Kimpton Hotels, found the San Francisco-based executive in New York, preparing to attend meetings “with potential opportunities,” he told HOTEL BUSINESS®. “During the period of a down cycle or a period in which demand is down, opportunities tend to be more plentiful than periods when demand or occupancies are very high,” said LaTour, “so we hope to take advantage of this cycle in the real estate or the hotel sector to try to make attractive deals for the long term.” Kimpton has long sought a location for a hotel in New York, and LaTour in the past has noted that the competition in finding an available site to be extremely difficult. Now, after the terrorist attacks on this city, and the subsequent downturn it spurred, the Kimpton executive still finds the city an attractive buy, and it’s possible he may have his pick of several opportunities. “New York is still a great market. The pain here is temporary in our minds,” he said. Starwood is similarly eyeing potential opportunities to scoop up available properties for its highly successful W brand, albeit carefully. Ted Darnall, president/North America hotel operations at Starwood, told HOTEL BUSINESS® that “should acquisition pricing become attractive, we are very interested in taking advantage of that for W because W has been an extremely successful return on capital for us. We are not going to make bad purchases, but we’re certainly watching it very closely, and if the pricing opportunities are there, we feel there could be an opportunity to keep growing.” Why would boutique hotels become an especially vulnerable target of acquisition at this time? It’s no secret the entire industry is suffering, but boutiques seem to be taking it on the chin harder, since many of them are newer properties with less penetration in the market. Many of them are also unbranded properties that stake their identity on not flying a franchise flag; that strategy also forces them typically to give up the benefit of services such as national toll-free reservations numbers and other corporate-supplied services. Sean Hennessey, financial advisory services, PricewaterhouseCoopers, has long been a boutique hotel market watcher, and he sees trouble brewing for the sector, giving credence to the fact that W and Kimpton may indeed be in luck in their hunt for properties. “There are going to be a number of boutiques that will not survive,” he said. “They certainly as a group generally have been impacted, more than their traditionally oriented peers.” Aside from not flying a flag and having a toll-free number, boutiques typically don’t have meeting-space facilities, which larger hotels in a downturn will use to stimulate demand, he said. “So that puts them at a disadvantage.” Another issue ailing boutiques, particularly in New York, which Hennessey calls a “higher risk, higher reward market,” is that newer properties that have come on line have been designed to be at the very high end of the spectrum. “That high level of investment gives them less cushion to withstand a downturn in properties that are renovations of older facilities,” he said, noting that the original concept of a boutique hotel, created by Ian Shrager and Bill Kimpton was to take older properties off the beaten path, give them flash, but basically doing a low cost renovation that had style.” Hennessey se