Mr. Migdal

Hospitality Law

After the Boutique Boom

By Nelson Migdal, Real Estate, Shareholder, Greenberg Traurig LLP

This article addresses the pros and cons of the aftermath of the boutique boom and what lessons might be learned as we move through the current paralysis of the credit markets and the daily operational struggle to both preserve rate and maintain occupancy.

To be honest, the many varieties of "boutique" hotels has worked to render any common or standard definition of a boutique hotel illusionary. Think for a moment of any of the well known national operating companies and any one or more of their "brands". You can probably be fairly certain that whatever brand you have just conjured up will be comparable to other offerings within the brand family, and deliver a comparable guest experience regardless of where the hotel is located. Purely to provide an example or two, without offending anyone, if you pictured a Starwood "W" Hotel, and it was at all factually accurate, that "W" could be almost anywhere and you would have a similar guest experience everywhere. The same is probably true if you imagined a Courtyard by Marriott or a Hilton Embassy Suites, as well as a Four Seasons, Hard Rock Hotel, Ritz Carlton or a full service Hyatt Hotel. That is the point of having a brand after all, that the guest can replicate a good experience by staying with that brand no matter where the hotel is located. There can be no brand loyalty in the absence of brand consistency. The challenges of being a national or international brand will continue to include the operational imperative to be consistent. Consistency in the boutique space will include hiring and training and each place where a hotel guest interacts with hotel staff.

Think for a moment now of any satisfactory guest experience at a hotel you would consider a boutique hotel. Unless that boutique hotel was part of what some may consider a chain of boutique hotels, which are few in number, and may include the "W" to some, that prior guest experience is not necessarily predictive of your next boutique hotel experience. There is simply no assurance that one boutique hotel will feel and behave like another boutique hotel or perform like another boutique hotel. There might develop a loyalty to a particular hotel in a particular city or market, but that does not translate across this particular segment of the business.

Despite the absence of branding and despite the absence of even a clear understanding of what a boutique hotel is or should be, there has certainly been a resurgence of interest in the boutique hotel. What is this phenomenon all about?

Because so many guests consult the internet as one of their primary sources of data, it is interesting to note the following internet definition of a boutique hotel. "Small unique hotels that are distinguished by their level of personalized service and individual styles." We now know that boutique hotels are generally small. All we need now is to consistently understand the general number of hotel rooms available in a small hotel. Wikipedia tells the world that boutique hotels are "intimate, usually luxurious or quirky hotel environments", and that the number of guest rooms often falls between "3 to 100 guest rooms", but that "some city-centre boutique hotels may have several hundred."

This data, without more, is illuminating. On the one hand, the ideal boutique hotel guest is probably looking for an experience that is highly personalized, within a unique physical environment, and operating on a level that is undisputed to be luxury. On the other hand, it is extraordinarily challenging to be able to deliver such an experience within an operating environment of over 100 hotel rooms. The case can probably be made that once the hotel is over 40 or 50 rooms it is no longer "small" and it is difficult for the hotel staff to recognize the guest by name, identify, catalogue and retrieve guest preferences, and generally be that intimate, personal, unique place that a boutique hotel might be expected to be. At 100 or 200 hotel rooms, the hotel can offer certain lifestyle experiences, and provide some personalized guest accommodations and amenities, but is it really a boutique hotel? This is perhaps one of the negative aspects of the recent boutique hotel boom. It is difficult to manage guest expectations, and the guest may arrive at the hotel with a set of expectations for a boutique experience that may not be achievable, in a larger asset. So many hotels bear labels such as "boutique", "hip", "lifestyle" or "design" hotels that, from the perspective of the hotel operator, the operator and its staff can only approximate what it thinks the guest expects of the operator and the staff. Realistically speaking, it is difficult to separate success from failure when all we can do is guess at what success might look like. There are very real hurdles to scale when the task is to deliver a unique and personal experience to 200 guests. Today, with occupancy levels at 50% or less in many markets this might all work out, but that is certainly not the plan!

Despite the negative effect of being unable to differentiate among boutique hotels, boutique hotels have become popular, and the savvy hotel owner and operator that can find a unique niche can achieve significant success in occupancy levels and in supporting a better than market average daily rate. Moreover, there is a level of loyalty that can be achieved, although it may be limited to a smaller number of hotels that may be unbranded but managed by the same operator, or participating members of a collection of collaborating hotels.

What will be examined in the years to come will be whether the entry of the well known national branded operators into the boutique hotel space will be successful for those companies and for the guests they seek to serve. Can the unique, special, intimate, personalized experience of a boutique hotel be branded and replicated across markets? Certainly the operators seem up to the challenge and the "W" brand and the efforts by Kimpton Hotels have been well received. Although less obvious, independent third party operators like KOR and Gemstone have also demonstrated the capacity to manage unbranded boutique hotels in a manner that keeps guests returning to places like the Avalon Hotel, Beverly Hills, the Viceroy, Miami (both managed by KOR), and the Calistoga Ranch (an Auberge Resort managed by Gemstone).

Admittedly, in a moribund credit market like our current situation, an underwriter will be most comforted by a name brand. Financing a boutique hotel that is not affiliated with a brand will be particularly challenging, and will require an extraordinary story about the sponsor, the location, the target market, the operator and other factors. Nevertheless, there are those powerful and compelling stories out there, and they will be told, and perhaps the hotels even built.

Ultimately, the most telling perspective will be that of the boutique hotel guest. Identify and list as many adjectives and descriptive terms as possible to attempt to describe the experience intended to be created. The creation of the experience will involve art, color, sound, and fabric. There will be requirements to reach the eye, the ear, the nose, and each venue of sensory perception of the guest. Then the operational level as to greeting, assistance, attention, insight, and professional excellence must be brought into play. Call it intimate, personal, sensory, unique, personal or anything else you wish, but the boutique hotel guest will expect all of this and more, and there will be no second chance to make a good first impression.

Nelson F. Migdal is a Principal Shareholder at Greenberg Traurig and head of the Mid-Atlantic Real Estate practice group. He has practiced hospitality law for over 25 years. He handled the management agreements for The Echelon Place, in Las Vegas. In Panama, as owner's counsel, he obtained the first "Trump" license in Central America. Nelson is owner's counsel for The Trump Soho Project, and handled the Exclusive License with Trump in Istanbul. Nelson is an officer of the Academy of Hospitality Industry Attorneys and a member of the International Society of Hospitality Consultants. Mr. Migdal can be contacted at 202-331-3180 or migdaln@gtlaw.com Extended Bio...

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