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As a long-time member of the boutique and lifestyle hotel industry, I decided to take a holistic look at what is happening in this current economy that is ripe for buying what you may not have in your own arsenal.
The subject has become even more topical because of the recent spate of boutique hotel buyouts by larger hotel companies. Marriott International, Hyatt and AccorHotels have shed real estate assets to raise cash, which has then been used to buy smaller hotel companies that specialize in the boutique sector.
Hilton in 2016 took that strategy one step further by spinning off its real estate assets into a real estate investment trust (REIT) that would become Park Hotels & Resorts.
The trend started in early 2015 when InterContinental Hotels Group (IHG), whose mega-brands include Holiday Inn, Holiday Inn Express and Staybridge Suites, completed its $430 million acquisition of San Francisco-based boutique-hotel progenitor Kimpton Hotels & Restaurants.
The Boutique Appeal
The pattern has picked up substantially this year, however. This summer, AccorHotels literally doubled down on the boutique-hotel sector by agreeing to buy stakes in SBE Entertainment Group and 21c Museum Hotels. Accor’s $125 million investment for its 50% share of SBE — which itself acquired Morgans Hotel Group in late 2016 — gives the Paris-based company a piece of formerly independent hotel brands such as SLS, Delano, Mondrian and Redbury. Meanwhile, Accor is paying $39 million for 85% of 21c. That company, which was founded in 2006, specializes in operating individually-designed hotels that also feature art galleries in such nontraditional (for boutique hotels) locations as Louisville, Kansas City, Cincinnati and Oklahoma City.
And early last month, Hyatt reached an agreement to acquire Two Roads Hospitality, whose 85 hotels include properties under the Thompson Hotels, Joie de Vivre, Destination Hotels groups, for $480 million. Hyatt said at the time that it may invest as much as an additional $120 million in the group and that it will create a “dedicated lifestyle division as a catalyst to bring together the operations of Two Roads’ and Hyatt’s lifestyle brands.” The acquisition will also bring Hyatt’s brand total to a whopping 19.
Meanwhile, Marriott, which exemplified the lodging-consolidation trend with its $13 billion buyout of Starwood Hotels & Resorts in 2016, recently debuted an ad campaign for what it calls its “Independent Hotel Portfolio.” With the tagline “Everyone Has A Story,” the campaign is earmarked for the 300-plus hotels under Marriott’s Autograph Collection, Luxury Collection and Tribute Portfolio soft brands. Marriott also said at the time that it would add more than 50 independent properties by the end of next year.
What’s clear is that the boutique-hotel sector continues to be an attractive one for potential suitors. According to a report prepared by CBRE Hotels Americas Research (CBRE), boutique hotels comprised just 3.2% of the total U.S. lodging supply in 2017 and boutique projects represented 17.8% of the rooms in development as of June 2018. Last year, the 1,281 properties considered boutique and lifestyle hotels in the U.S. achieved an aggregated occupancy of 70.5% and an ADR of $208.52, beating the overall U.S. lodging industry by nearly six percentage points. (Full disclosure: BLLA has a relationship with CBRE.)
The larger companies have taken note by launching and expanding soft brands. Marriott, which launched the Autograph Collection in 2010, had expanded that group to more than 130 properties worldwide as of June 30. In the four years since Hilton announced its Curio Collection, that group has grown to 70 properties. And Hyatt’s Unbound Collection, which debuted in 2016, totals 13 properties, including iconic hotels such as Cannes’ Hotel Martinez and the Driskill in Austin, Texas.
Part of the boutique hotels’ appeal lies in the ability and freedom for their operators to pursue the “live-like-a-local” ethos espoused by vacation rentals like Airbnb by tailoring the hotel’s design, amenities and services to its geographic location.
Does it mean the larger chains will continue their inexorable march towards boutique-hotel domination? Not necessarily. First, these acquisitions are primarily for management and branding contracts at most and, in AccorHotels and SBE’s case, primarily for licensing purposes only. With little or no real estate being traded, such boutique hotels’ control by larger chains are usually temporary, and a number of factors can push such hotels back into the truly-boutique sector.
Additionally, the draw of loyalty programs, which larger hotel operators pitch as either an advantage over competing boutique hotels or an additional perk for their “independent” hotel divisions, isn’t assured either. Case in point is Marriott and its two-year effort to integrate the 110 million loyalty members under the Marriott, Starwood and Ritz-Carlton groups. That merger became official in mid-August, but according to a September post by The Points Guy, it hasn’t been a smooth one.
“The Marriott/SPG integration was a massive undertaking that has been years in the making, and it was inevitable that issues would arise,” The Points Guy wrote in a September post. “That’s certainly been the case over the last few weeks, but from the viewpoint of many readers, Marriott’s response to these problems has been underwhelming.”
The bigger question, though, is whether the owners of such hotels will be satisfied with the prospect of being one of several hundred instead of one of a few dozen or whether they’ll choose to walk away from such management agreements when the opportunity arises.
Still, by joining the larger groups, these independent hotels are forced to buy into the larger companies’ “brand standards” and other rules, regulations and long-term agreements. Will these hotel owners continue to enjoy the tradeoff of independence for a little exposure to loyalty members and corporate groups, or will many of them find that their properties may not be properly housed in the right brand or don’t belong within a larger group at all? Only time will tell.
December 27, 2018 at 08:15AM
Forbes – Entrepreneurs