Five Key Takeaways By Susan Furbay

2015 BLLA Boutique & Lifestyle Investment Conference

HVS, the world’s leading consulting and services organization focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries, celebrates its 35th anniversary this year. Established in 1980, the company performs 4,500+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a

network of more than 35 offices and more than 500 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. www.hvs.com

Note: The data presented in this article are for informational purposes only and are not meant as a basis for making investment decisions. For more information, contact the authors.

Superior Results through Unrivaled Hospitality Intelligence. Everywhere.

A rapid rise in branded hotel supply over the past several years, among other factors, has created a positive investment environment for boutique and lifestyle hotels.

Just one day after the mega 38th Annual NYU International Hospitality Industry Investment Conference, the Boutique & Lifestyle Lodging Association (BLLA) shifted the focus from big brands to boutiques at its third annual Boutique Hotel Investment Conference. The latter event, held at the School of Visual Arts (SVA) Theater in Chelsea, New York, centered on capital investment and financing for the fast-growing “boutique/lifestyle” hotel segment. Speakers included veteran executives of the hotel industry and major financial firms, as well as independent investment firms and up-and-coming boutique hotel companies, owners, and investors.

Discussions at the 2015 Boutique Hotel Investment Conference touched on financing for independent hotels, the importance of social media marketing, and the food and beverage component for boutique hotels. Key takeaways from these discussions are summarized below.

Debt Market for Independent Lifestyle Hotels Factors such as the lack of a worldwide reservations system and cross-market brand recognition have tended to make lenders somewhat wary about establishing an independent boutique or lifestyle hotel as collateral for a loan. Aggressive growth in RevPAR and NOI for this niche sector, however, has recently piqued interest among lenders, especially non-traditional hotel lenders that are entering this arena for the first time.

Lenders remain cautious, demanding well-supported financials and valuations for hotel development and transactions. For a loan for new construction, the focus falls on a sponsor’s credibility and track record, a completion guarantee, the strength of the operations team, and the validity of the underwriting on the hotel’s projected performance. Hence, before trying to secure a loan, developers need a solid equity commitment and construction documents (“CDs”) fully drawn up and detailed. Loan terms vary from project to project, but sponsorship lenders for independent boutique and lifestyle hotels are reportedly requiring 35% to 50% equity, allowing for 50% to 65% loan-to-cost. All-in costs can range between 9% and 12%.

Social Media Marketing More and more independent hoteliers are using social media outlets to spread word about their hotels. The fertile soil of social media produces an “organic” discussion about experiences with a hotel. Patrons of one-of-a-kind lifestyle and boutique properties are more apt to engage in these discussions on social media, helping independent hotels gain recognition.

Prior to the conference, the BLLA surveyed 55 upscale boutique and lifestyle hoteliers about their present sales and marketing strategies using

social media.1 Facebook was by far the most prominent online marketing tool, followed by Twitter and Instagram.

Which social media channel has the most influence for your business?

Source: BLLA

Of note, nearly 17% of the independent hoteliers surveyed said that they used no social media outlets at all to develop business. Nevertheless, as is the case for big hotel brands, the explosion of interest in social media has changed the marketing game completely for the boutique and lifestyle hotel segment. Many owners and operators at the conference said it is imperative to stay on top of online marketing trends and technology so that they can deliver up-to-the-minute communications about their hotels.

F&B at Lifestyle Hotels From bed and breakfasts to upscale urban boutique hotels, food and beverage is a key element of the guest experience. Lifestyle-oriented travelers expect boutique properties to reflect the local culture, from the artwork and amenities to the culinary options. Guests who dine off-property represent a potential loss in profit for the independent hotelier, experts said. Boutique hotels have the opportunity to offer a dining experience equal to or bettering that at restaurants nearby. To best cater to the tastes of guests, boutique hotel restaurants should seek out locally sourced options and connect the menu and décor to local history and culture.

Hotel restaurants are patronized by locals, as well as out-of-town guests. Boutique hotels can attract local residents year-round, particularly by tailoring the menu to the season and using suppliers of locally grown meats and produce. Experts noted that when the restaurant is operated by a third party, hotel management must form a strong, supportive team that emphasizes the property’s unique local flare through both the lodging and the dining venues.

Speakers emphasized that the boutique and lifestyle hotel sector is highly competitive, and F&B is one way for a property to set itself apart. High labor costs still represent the biggest obstacle in the restaurant business as a whole, with restaurant operators working tenaciously toward a solution. But the smaller-scale, intimate, and more nimble positioning of a well-planned and well-run boutique restaurant deserves to be looked into as a potential revenue generator for independent hotels.

Challenges Most guests of upscale boutique hotels are drawn to a unique lodging experience that can’t be replicated by a hotel from an international brand. While boutique hoteliers perceive only moderate competition from

1 “A Look at the Future of the Boutique Hotel Industry: Boutique Hotel Sentiment Survey Results.” The Boutique & Lifestyle Lodging Association, 2015. https://custom.cvent.com/E08C36DE6659499289B6B7C64F9FEC56/files/4c41923b82aa43da8092184ad13fe040.pdf

Five Key Takeaways By Susan Furbay

2015 BLLA Boutique & Lifestyle Investment Conference

HVS, the world’s leading consulting and services organization focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries, celebrates its 35th anniversary this year. Established in 1980, the company performs 4,500+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a

network of more than 35 offices and more than 500 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. www.hvs.com

Note: The data presented in this article are for informational purposes only and are not meant as a basis for making investment decisions. For more information, contact the authors.

Superior Results through Unrivaled Hospitality Intelligence. Everywhere.

brands, new and evolving boutique hotels in their markets represent, by far, the biggest threat.

The BLLA’s survey bears this out; 50.91% of surveyed boutique hoteliers report “Increasing/Changing Competition” as having the most significant external impact on their business.2 Among this competition, the threat level of shared accommodation sites like AirBnB was rated low, while that of brands was only slightly higher. By contrast, more than 40% of those surveyed ranked boutique hotels as either an eight or a nine (out of ten) on the threat scale.

The best solution to the increasing competition is, of course, to capitalize in every way possible on what boutique hotels can offer—a unique experience that captures the essence of the local food, people, and culture. This can also help curtail cuts in hotel rates, which many luxury hotels struggle to retain in a market where guests are demanding more value. Besides being less price-conscious, boutique hotel guests find value in a unique hotel’s incomparable rooms, service, and restaurant offerings. The boutique hotel that offers the best of each will be best positioned to capture demand in an increasingly competitive environment.

Conclusion John Keeling, Executive Vice President with the Valencia Group, summed up some of the misconceptions about “branded” versus “independent” hotels.3 First, says Keeling, all hotels represent a brand—even if that brand is limited to just one property. A well-known, one-of-a-kind hotel like the Casablanca in Manhattan, for example, represents a brand among consumers, just as Hilton does in the broader market. Second, the legacy brands don’t hold ultimate sway among lenders; financing is increasingly available to established hotel developers whose proposed boutique hotels hold demonstrable promise. Finally, boutique hotels not associated with a legacy brand have the opportunity to move more nimbly in the market, free of expensive brand mandates that can slow down innovation.

The conference made it clear that no matter what they’re termed—boutique, independent, or lifestyle—these hotels enjoy many advantages in the current market, of which developers and lenders are becoming more aware.

2 “A Look at the Future of the Boutique Hotel Industry: Boutique Hotel Sentiment Survey Results.” The Boutique & Lifestyle Lodging Association, 2015. https://custom.cvent.com/E08C36DE6659499289B6B7C64F9FEC56/files/4c41923b82aa43da8092184ad13fe040.pdf 3 John Keeling. “It’s Not about Branded or Independent.” Boutique Hotel Investment Conference Program Guide, 2015. https://custom.cvent.com/E08C36DE6659499289B6B7C64F9FEC56/files/4c41923b82aa43da8092184ad13fe040.pdf

About the Author

Susan Furbay is Vice President of Business

Development for HVS New York. Based in Bethesda,

Susan develops relationships with investors,

brokers, hotel owners and operators, and other

clients seeking HVS expertise in markets around the

world. Susan formerly served as Vice President of

Acquisitions and Business Development at Sage

Hospitality and spent five years as Director of North

America Lending in GE Real Estate’s Hospitality

division, where she originated and closed hotel loans totaling nearly $500

million.

For further information please contact:

sfurbay@hvs.com or +1 516 248-8828 ext. 275

Susan Furbay and Eric Danziger, President & CEO Hampshire Brand, Hotel & Asset Management Photo by BLLA