Articles from recapping the

2012 Lifestyle/Boutique Hotel Development Conference

Booming Boutique Business Meets in Miami

Beach

Oct 19, 2012 7:06 AM, By Ed Watkins

South Florida Leads the Way Back in Boutique/Lifestyle Segment

Jason Pomeranc of Commune Hotels believes in some cases branding can be a negative in

obtaining financing.

It‟s no surprise to anyone that the boutique and lifestyle segments of the hotel industry are doing

well. And based on strong operating performance in the sector, interest in the product has gained

a lot of ground in recent years from developers, operators, lenders and even traditional brand

companies. And nowhere is that trend more evident than in Miami, and in its Miami Beach

submarket, one of two epicenters (Manhattan is the other) of the boutique and lifestyle hotel

industry.

As Jay Coldren, vice president of lifestyle brands at Marriott, said during an opening panel at this

week‟s Lifestyle/Boutique Hotel Development Conference, “If you‟re serious about this

segment, you must be in Miami.”

Lodging Hospitality, in conjunction with HVS Hotel Management, sponsors LBHDC, which is

being held at the Fontainebleau Hotel in Miami Beach. The School of Hospitality Management

at Michigan State University is the conference‟s academic sponsor.

New data from STR shows the strength of the Miami area markets. Year-to-date through August

occupancy for Miami was 77.7%, while RevPAR increased a whopping 8.2%. And perhaps most

promising is the news that ADR has almost fully recovered to pre-recession levels, a process that

took 48 months.

The success of the lifestyle/boutique segment is having an effect throughout the industry. All

hotels, but especially lifestyle and boutique properties, need to become “more experiential and

sensory, said Marriott‟s Coldren. “The alternative is to perish.”

An example of how this segment has grown is seen in the financing arena. While many believe

it‟s difficult for non-branded hotels to attract debt or equity financing, Jason Pomeranc of

Commune Hotels said a brand can actually be a negative for a boutique hotel seeking financing,

particularly in some high-rate markets like New York City.

“With some products and in some markets it‟s warranted [to affiliate with a brand], but lenders

and institutions are starting to see in certain sectors you can do without brands and be better off,”

said Pomeranc. Commune includes a JdV Collection and the Thompson-brand hotels. He said

the company is also developing a new value-oriented, design-driven chain that will compete with

boutiques in lower price segments.

Marriott‟s Jay Coldren says all hotels need to take on some of the

characteristics of boutique hotels.

Nor surprisingly, Coldren of Marriott had a different opinion. In explaining the rationale for

Marriott‟s soft-brand Autograph Collection, he said, “People are looking for the ability to

function independently in the lifestyle segment but also to have a floor to their risk. By plugging

into our [reservations system] but maintaining the independent integrity of these hotels gives

lenders a lot more comfort and the financing comes a lot easier.”

The boutique segment is a beneficiary to what Denihan Hospitality President David Duncan

called a “raindrop recovery. Recovery very specifically depends on where you are,” he said,

adding that while nationwide about 35% of jobs lost in the downturn have returned, in New York

City 135% of jobs have returned. Denihan has 16 hotels under two brands (Affinia and James)

and a collection of independent properties. “That‟s why we focus on the top five to 10 markets

and in the center cities of those markets.”

Every industry conference panel focused on the boutique segment seems obligated to define the

word boutique, and this one was no different. While terms like “luxury finishes,” and

“individualized experiences” were cited by some panelists, Trust Hospitality President & COO

Patrick Goddard may have had the most insightful take on the topic.

“In many ways, a consumer‟s lodging decision is a form of self-expression,” he said. “That‟s the

way consumers buy certain brands of cars, clothing or shoes. The ways they choose a restaurant

or a hotel are reflections of themselves. So when we‟re creating a brand identity or voice, we

look at the target demographic and think about what they want in their experience.”

“Lifestyle” may be an even harder term to pin down. As Coldren said, “Every consumer product

on the market seems to have a „lifestyle‟ bent to it, right down to „lifestyle tires.‟” And as

moderator Jeff Higley of Smith Travel Research noted, the notion of a lifestyle product is really

not new in the hotel industry. “Even Knights Inn was developed decades ago as a lifestyle hotel

because it catered to the lifestyle of truckers,” he said.

Independent and Boutique Hotels Gain

Mainstream Acceptance

by Eric Stoessel October 19th, 2012

What Ian Schrager and Bill Kimpton started 25 years ago on opposite ends of the country in

gateway cities like San Francisco and New York has now met in the middle. Independent

boutique hotels can work — and thrive — in cities like Milwaukee, and developers at the fourth

annual Lifestyle/Boutique Hotel Development Conference in Miami this week talked about

projects in faraway places like Montana, Kentucky and Tennessee.

The segment has reached mainstream acceptance by consumers, investors and even the hotel

franchise companies.

Jay Coldren, vice president of lifestyle brands for Marriott International, said it‟s because of a

generational — and transformational — shift happening as Gen Y consumers and their

preference for lifestyle hotels take over buying power from the Baby Boomers in the next five

years.

Coldren heads Marriott‟s fast-growing Autograph Collection, a pseudo-brand allowing owners

more independence, yet a connection to the powerful Marriott system. Other hotel franchise

companies have similar offerings, like Choice‟s Ascend Collection, and more will follow in the

next five years, said Jeff Low, CEO and founder of Stash Hotel Rewards.

Investors and lenders are also taking notice. Neil Shah, president and chief operating officer of

Hersha Hospitality Trust, said in some markets independents have recovered faster than their

branded-counterparts and are trading at similar or even premium levels, in part because they are

unencumbered of a franchise or management contract. He also added that during the last cycle

there were many lenders who were only interested in branded properties. “Not anymore,” he said

during a general session at the Fontainebleau Thursday. “That‟s changing. More investors are

interested in independents.”

The general acceptance of the segment and success stories like the Iron Horse in Milwaukee

have helped open the door to new development in secondary markets. Patrick Goddard, president

of Trust Hospitality, said his company even targets some of those non-gateway cities. “There are

different prices, investments and it may be harder to get financing, but it can be done,” he said.

When this conference began three years ago we talked about the “burgeoning” lifestyle and

boutique segments. They‟re now booming.

Related Topics: General |

Independent Hoteliers Share Best Practices

Oct 23, 2012 9:03 AM, By Eric Stoessel

Jeff Low, founder and CEO of Stash Hotel Rewards, said one of the biggest challenges facing

independent hotel owners and operators is their “isolation.” They have no “idea bank” to draw

from.

At last week‟s Lifestyle/Boutique Hotel Development Conference at the Fontainebleau in Miami,

a panel of independent hoteliers traded best practices and shared similar stories of the challenges

they face competing in a branded world. The panel — titled, „Independents‟ Day‟ — was

moderated by Paramount Lodging Advisors Associate Michael Kitchen, and also included

Stash‟s Low, Clarendon Hotel Owner and General Manager Ben Bethel, Gemstone Resorts

Principal Jeff McIntyre and Cambean Hospitality President Brian Scheinblum.

“What‟s cool about being an independent is the customer tells us what we should be doing, not

the brand,” said McIntyre. “We‟re in the business of making memories.”

Being nimble and capable of reacting quickly to problems and market situations was the

consensus advantage independents have. “We can do what we want when we want,” said

Scheinblum, whose Cambean Hospitality owns and operates four small boutique hotels in South

Beach.

Online travel agencies were the biggest challenge facing independents, the panel agreed.

“Independents have twice the bookings from OTAs,” said Low. “Think about that, there‟s so

much money going out. Meanwhile you‟re calking your window to save money and you‟ve got

an entire wall missing. A lot independent players just aren‟t aware …

“If OTAs are like crack, then flash sales are like meth. Either way, your teeth fall out.”

Stash Rewards has approximately 200 hotel partners taking advantage of its loyalty program for

independents that helps offset franchised chains‟ hugely successful rewards programs.

During the downturn, Scheinblum said, there were many hotels probably “borderline losing

money on every single room they sold through OTAs” because of the reduced rates and high

commissions.

“Capture and keep,” said McIntyre of the strategy after bringing in a customer through an OTA

booking. “We don‟t just look at the 24% (cost), but (OTAs) are also a search engine to us. Many

customers look at pricing and product offerings and then book at the hotel‟s website. There is a

billboard effect.”

He also said OTAs could be a “great tool” for distressed properties, which Gemstone often is

brought on to manage. “As independents, those channels can‟t be ignored.”

Like the OTAs, where franchise partners often get better margins through brand-negotiated rates,

procurement was another area of concern for the independent hotelier. Low said he‟s heard from

his hotel partners that margins they‟re paying for purchasing products can be 25%, while the rate

is as low as 17% for at least one of the large franchise companies.

Bethel, the owner and general manager of the Clarendon, said he‟s ordered products direct from

Amazon.com and also recommended alibaba.com for sourcing and shipping direct from factories

around the world.

Bethel, who had no prior hotel experience, said he‟s not afraid to call other owners and

properties he respects to ask for advice. It was his only education after maxing out credit cards

and using home equity loans to buy the dilapidated building in Phoenix two weeks after he first

considered the idea.

At the Clarendon, he doesn‟t see an ROI in having a sales staff and doesn‟t employ a director of

sales. Instead, he heavily incents his front-desk staff with 20% to 50% commissions for every

room upgrade, early check-in or additional pool pass sold, meaning they can make up to $80,000

per year on their $10/hour salary. “Our front desk staff is so important, not just for loyalty

building, but to increase revenue,” he said.

Even more outside the box, Bethel charged guests for his property taxes during the downturn to

stay afloat when he couldn‟t even make his debt service. A 5% property tax fee was included on

all folios and also listed as a surcharge at all online sites. “We brought in $90,000 initially and it

enabled us to catch up,” he said. “It‟s not what I wanted to do, but at the time was something I

thought was a great idea when we were having problems making ends meet.”

Be Strong If You Want to Finance a Boutique

Hotel

Oct 24, 2012 6:44 AM, By Ed Watkins

Cash Flow Is the Most Important Ingredient

A panel on lending to boutiques said strong and stable cash flow is the most important element in

securing financing.

In the final analysis, finding financing for a transaction involving a boutique or lifestyle hotel

isn‟t much different than for a more traditional branded property. Most speakers on the topic at

last week‟s Lifestyle/Boutique Hotel Development Conference in Miami agreed it‟s all a matter

of strength: a strong story, strong sponsorship and management and, perhaps above all, strong

cash flow.

“In putting together the capital stack for a boutique property, the first questions to come up are

what is the cash flow, how stable is it, how does it compare to the peak of the market and how

much more room is there to grow,” said Frank Nardozza, chairman & CEO of REH Capital

Partners, who spoke on a panel titled „The Boutique Lending Landscape.‟ “If we can articulate

the cash flow, we can then get the interest of capital, both debt and equity.”

Financing is easier for boutique properties in a hot market like Miami, said Suzanne

Amaducci-Adams of Bilzen Sumberg law firm.

While she agreed “cash is king,” attorney Suzanne Amaducci-Adams said capital sources also

look at other factors in considering debt or equity placement for a boutique hotel transaction.

Location, uniqueness of product, food and beverage offerings and sponsorship are on her list of

important items.

“The market is critical. Miami is so hot right now it‟s a lot easier to get financing for a boutique

hotel here,” said Amaducci-Adams, a partner with the Miami firm of Bilzen Sumberg. “The

hotel needs to be unique and part of that often is food and beverage. But, at the end of the day,

it‟s all about sponsorship.”

Still, some significant barriers exist for boutiques that make acquirers, and especially developers,

work harder to get funding for their projects. The consensus among panelists was that boutique

and lifestyle hotels are financeable, but it may cost more to do so. Nardozza speculated while

loan-to-value ratios for financing of a traditional branded hotel may be as high as 70%, it‟s more

like 60% to 65% for non-branded properties or boutique hotels. And debt yields (net operating

income divided by the amount of the loan) tend to be higher, he said. Cassie Resnick, a vice

president of Mast Capital, pegged yields for boutique deals at 9%-10% up to 13% if it‟s a

particularly risky deal.

Craig Greenberg of 21c Museum Hotels said it took a complicated web of financing vehicles to

fund the company‟s first boutique hotel in Louisville, KY.

Another panel at the conference tackled the problem of how to overcome the often-negative

perception lenders have about unbranded and independent boutique hotels. Craig Greenberg,

president of 21c Museum Hotels, acknowledged the issue is especially critical in the markets in

which his firm operates. The company has a successful property open in Louisville, KY, with

another to open next month in Cincinnati, followed by one in northwest Arkansas.

“It‟s definitely more challenging, especially in smaller or medium-sized cities, to get money,”

said Greenberg, who showed the audience an elaborate chart outlining the variety of funding

sources—a mix of tax credits, rebates, grants, equity and traditional recourse bank loans—used

to develop the first 21c. “In that kind of environment, it usually takes a perfect story to put

together a financing package.”

Oliver Striker, a director at UBS Investment Bank, agreed, saying his firm, which provides both

CMBS financing and direct investment, takes a “holistic approach” to evaluating financing

proposals, both from traditional hotels and also boutique and lifestyle properties. While he said

location is a primary factor, it‟s not the only one.

“Gateway cities with high barriers of entry and depth of demand are obviously preferred,” he

said, “but sponsorship is also crucial, especially the depth of experience they have in the sector.

It‟s also important the sponsor has skin in the game, because it forces them to keep their eyes on

the ball.”

Despite these caveats, speakers on both panels believe financing for boutique and lifestyle

products, both branded and non-branded, is becoming more mainstream.

“Because real cash flows are showing up on the bottom lines of boutique hotels, there is more

receptivity in the lending community to funding and capitalizing [these products],” said

Nardozza. “It‟s a more familiar product to guests and a more familiar product to the capital

markets.”