The Resurgence of Small Hotels

Chicago's Felix Hotel
Chicago Tribune: The city of big shoulders historically has been famous for supporting hotels like the 2,019-room Hyatt Regency Chicago, built in the 1970s, and the 1,544-room Hilton Chicago, once the world's largest lodging property.

But they aren't making them like they used to.

In the aftermath of the recession, hotels are still popping up in Chicago but they're smaller and aim to be uber-stylish with an attitude, eschewing sameness and staidness.

"You couldn't build them like that today," hospitality consultant Ric Mandigo said of the mammoth properties that supply rooms for the city's conventions and events. "As these aren't as relevant as they once were, and with financing becoming more difficult, it just doesn't make sense to build huge hotels anymore."

Take the nine hotels that opened downtown in 2008 and 2009. They averaged fewer than 225 rooms, said the senior consultant at TR Mandigo & Co. By the end of 2011, new hotels that opened in the central business district over the past decade will have boosted the room supply by only 13 percent, he said.

Some of the city's newest hotels are gut rehabs of buildings designed and built around the time of the country's last major downturn, the Great Depression.

Consider the Old Dearborn Bank Building in the Loop.

To be converted into a 250-room hotel, with restaurants and lounges that will open in the fall of 2013, it will be the first such property launched by Virgin Hotels. The 27-story Art Deco building at 203 N. Wabash Ave. was designated an official Chicago landmark in 2003 and features terra cotta ornaments depicting medieval and mythological figures. It was designed in 1928.

"The design of the building successfully blends the overall straight-forward form of Chicago Commercial skyscrapers with the exotic ornament more typical of movie 'palaces' of the 1920s," according to the city's description of the building.

Virgin calls its concept a "four-star lifestyle hotel brand."

And that means, "a place where you experience hospitality and lodging that is utterly comfortable and functional but has vibe and style and a little something extra, something surprisingly delightful," a Virgin spokeswoman said.

Mark Eble, vice president of PKF Consulting, said "lifestyle" hotel is "certainly more a term of art than science."

"I speculate that they mean the term in the same way that designer clothes, exotic cars and certain wristwatches are purchases that convey various messages about the consumer's lifestyle," Eble said.

It's more impressive for a traveler to New York to say that he or she stayed at, say, the Standard — a boutique hotel of Andre Balazs, a onetime boyfriend of actress Uma Thurman — than to say they slept at a Hilton, among the big chains that provide consistent standards, Eble said.

No formal definition exists for "boutique," which is frequently tossed around in the hotel industry. It's like trying to define art, lodging industry observers say: "I know it when I see it."

But boutique properties typically skew upscale and are favored by younger travelers who prefer lodging with an edgier, quirkier or more fashionable look. As hotels try to avoid a cookie-cutter look, the traveling public often has strong feelings one way or another about them.

The buildings typically have fewer than 250 rooms, have smaller accommodations and aren't affiliated with national chains, or at least try to downplay any connection. Given the large number of franchised properties in Chicago already, for example, it's hard to find a brand that's not already represented, helping to fuel the number of properties claiming "boutique" or "lifestyle" status.

"One can only place so many Hiltons in downtown Chicago before the owners of the existing Hiltons object," Eble said. "In response to the boutique trend, the chains have introduced chain boutique concepts, a circumstance previously thought to be an oxymoron."

Examples include the W Hotels, affiliated with Starwood, and the Wit, which is a Doubletree, part of Hilton.

The opportunity for boutique hotels in big cities is excellent, Eble said. "There just aren't enough brands to go around, and robust demand in some markets is keeping the rooms filled without the overhead of corporate marketing and reservations expense," he said.

According to HVS, a hospitality consulting firm, marketing fees for a typical chain-affiliated hotel can average 6.3 percent of revenues, while a typical boutique, which doesn't have franchise fees, might average 4.3 percent.

Boutique hotels were recently built or are under development in such cities as Indianapolis, Cleveland and Columbus, Ohio, Eble said.

Public, The James, Felix and Palomar are among Chicago's new boutique hotels, Eble said. Older examples, he said, include Allegro, Burnham and Monaco. These older three, along with Palomar, are owned by San Francisco-based Kimpton Hotels, which has 50 properties in 23 cities.

"The boutique segment currently represents about 1 percent of the hotel rooms in the United States," said Joe Long, Kimpton chief investment officer. "Demand for this product could be as much as the equivalent of 5 percent or more of the supply."

Ed Watkins, editor-in-chief of Lodging Hospitality magazine, said many developers are looking at boutique hotels as an economically viable way to own a hotel due to their smaller sizes and limited amenities.

Still, financing can be difficult, Watkins said. "One problem with financing is that, even in good times, the lender's first question is, 'What will the brand be?'" said Watkins, who considers the Talbott a boutique hotel. "A true boutique hotel doesn't have a brand."


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