April 26–When Brian Obie opened his upscale boutique hotel Inn at the 5th in 2012 there were plenty of people who questioned whether the hotel would survive, let alone thrive.
The country was deep into a punishing recession and, with rates starting at $189 a night, the inn was the priciest hotel in the local market.
At a time when many Americans were cutting their travel budgets, the inn targeted a high-end market. It offered amenities such as room service from March? restaurant, original artwork, in-room fireplaces and a “butler door” that allowed hotel employees to deliver food and beverages to a room through a pass-through from the hallway without disturbing the room’s occupant.
But the hotel not only survived, its average occupancy rate has been increasing by about 20 to 25 percent per year and will approach 70 percent this year, said Obie, who also owns the adjoining 5th Street Public Market.
In fact, luxury boutique hotels have outperformed the rest of the hotel/motel industry, growing at an average annual rate of 5.6 percent over the last five years “thanks to consumers increasingly demanding accommodations with unique offerings,” according to a new research report from IBISWorld, an international research firm.
Obie is now following up on his prototype hotel with plans to open additional boutique hotels in the West, patterned on Inn at the 5th.
First up will be the Inn at 500 Capital, a $25 million hotel in Boise.
The seven-story, 104-room inn recently received unanimous approval from the Boise planning commission’s design review committee. Obie Development Partners, the company Obie created to handle the expansion, is tentatively planning to break ground this summer with completion scheduled for late 2016.
Setting criteria
Obie began planning for expansion by deconstructing what went into creating Inn at the 5th. There were eight factors, or what he labeled “solid reasons for success,” that were in play with the Eugene hotel, Obie decided:
No comparable hotel competition;
The presence of a major university;
The presence of regionally headquartered companies;
The location, including surrounding commercial activities;
An airport with flights to and from major cities;
An average income of $50,118 within a five-mile radius;
An urban population (247,000 people);
Government impact (the county seat).
He turned to a University of Oregon business marketing class to help find other locations in the West that shared these characteristics. They winnowed the possibilities down to 43 communities that they screened, which Obie then ranked using a point system he devised.
Boise scored the highest and was, in fact, superior to Eugene in such areas as air travel connections, presence of corporate headquarters and government impact, he said. “They have the added benefit of being the state capital, having things like lobbyists that we don’t see here.”
Boise, like Eugene, also had the benefit of lower costs than the urban centers where many of Obie’s hotel guests live or visit.
While the inn’s room rates are high by local standards — upwards of $200 per night — compared to cities like New York, Chicago, or even Seattle, the Inn is cheap considering the high-end amenities it offers, Obie said.
“To people from major cities, these rates are a bargain,” he said.
And for universities and companies that are spending large sums of money to fly in a prestigious guest speaker or a candidate for a top job — “or a top quarterback and his family” — luxury rooms with such amenities as a chauffeured Mercedes-Benz are part of the package, Obie said. “We do a lot of recruiting business,” he said, with employers who are wooing top-flight job candidates.
The detailed research that Obie did when opening his first hotel — down to the two sinks in the bathroom — “that’s a high issue with women” — will translate to the other hotels he plans to build, Obie said.
That research solidified the importance of location, offering more physical amenities than other hotels in the area and a heavy emphasis on service, starting with the complimentary glass of local wine offered at check-in.
Overcoming challenges
Opening his first hotel during a recession had some advantages, Obie said, although it wasn’t exactly fun.
One of the biggest advantages didn’t look like one at the time.
About the time he was thinking about breaking ground on his first hotel, lenders started getting cold feet about projects like a luxury hotel being built on spec.
After his initial financing fell through, Obie put together a package that combined loans from local credit unions and two small government loans with funds from private investors, mostly local.
That worked out so well, he said, that he is applying the same financing model to his expansion.
Half the funding in the Boise project is coming from private investors, he said, about 70 percent of whom were investors — mainly local — in the first inn.
“This makes it easier to get financing, and it gives us confidence,” Obie said.
As the inns multiply, Obie sees opportunities for cross selling. He already has 13,000 email addresses in his database and expects it to grow to 20,000 by next year.
Obie declines to identify other markets he plans to target for competitive reasons. He is willing to say that he is targeting the western United States for several reasons, including lack of similar properties competing with his, proximity, and the fact that “we are more comfortable in understanding the psyche of travelers and visualizing opportunities in the West.”
Good timing
Obie’s timing for his planned expansion is good, according to IBISWorld’s research. The company expects the boutique market to continue to grow with revenues increasing at an average annual rate of 5.9 percent, to $8.4 billion, over the next five years.
Travelers have grown weary of “cookie-cutter hotels geared toward a mass audience,” IBISWorld researchers said, and “begun migrating toward new and more intimate types of hotels, especially in urban locations.”
This trend, and the sizeable profit margins boutique hotels offer, has not gone unnoticed by major players like Starwood Hotels and the Wyndham Hotel Group, which are moving into the boutique market IBISWorld said.
The region that Obie is targeting, however, has a low concentration of boutique hotels, which is not expected to change in the immediate future.
Follow Ilene on Twitter @ialeshire . Email ilene.aleshire@registerguard.com .
Travelers are “migrating toward new and more intimate types of hotels.”
— IBISWorld, international research firm, on the rising demand for unique properties
