A Vintage Year

By Eugene Gilligan"Last year, $3.8 billion was spent worldwide by consumers customizing their cell phone rings," he pointed out.

He cites another statistic that speaks to the consumer's ability to pay for such personalized experiences. "When adjusted for inflation, Americans' income has doubled in the past 30 years," said Depatie, who in addition to being Kimpton's president assumes the CEO position when chairman & CEO Tom LaTour retires on July 1, after five years in his current position and 23 years with the company. The board of directors will elect a new chairman following the annual shareholders' meeting on June 13.

The boutique hotel company, founded by Bill Kimpton in 1981, is focused on providing a high-level and unique experience to guests. That includes a 24-hour yoga channel and complimentary wine receptions in its lobbies. Each hotel follows a theme, with the Hotel Triton in San Francisco featuring "celebrity suites" designed by Carlos Santana (the Black Magic Bedroom) and Jerry Garcia (the J. Garcia Suite). Specialty suites, such as the Yoga Room at the Topaz Hotel in Washington, D.C., are also becoming more prominent.

While consumers may think "trendy" when boutique hotels are mentioned, Depatie wants a different word to come to mind.

"We're not looking to be the most trendy," Depatie said. "That can be dangerous. We do want to be the most fun."

While it is trying to be fun, Kimpton has an eye on growth. The company's portfolio currently includes 38 hotels, 15 of them owned and 23 managed, in 15 cities in the United States and Canada. Depatie anticipates growing by 50 percent in three years and doubling in size during the next five years. Approximately two-thirds of that growth will come from management contracts and one-third from acquisitions, according to Joe Long, executive vice president of acquisition & development.

There is room for such growth, Depatie believes, due to a combination of supply and demand. Only about 1 percent of the 4.5 million hotel rooms in the United States are in boutique properties, so a lodging demand of just 3 to 5 percent can make a big difference.

And such demand is likely because consumers are constantly looking for style and unique experiences in their daily lives and also want that when traveling, believes LaTour, who will continue to work with the company in an advisory capacity and will remain on its board of directors.

"The fattest magazine on the newsstand is InStyle," LaTour said. "That tells me that people are looking for style, and looking for stylish accommodations as well. As people mature, they want to collect experiences. They may want to graduate from a limited-service to a full-service hotel and then want to stay at a full-service hotel that doesn't look like all the other hotels they've stayed in."

Scott Berman, advisory leader in the hospitality and leisure group at PricewaterhouseCoopers, also believes the boutique hotel segment is positioned for growth in the coming years.

"(Boutique hotels') economic model is rather compelling," he said. With urban land prices so high, development of large urban hotels, which usually contain large common spaces, continues to escalate in price. But boutique properties can be developed on much smaller urban footprints.

"Boutique hotels largely consist of rooms and restaurants," he noted. "That's where the return dollars are found."

Funding Growth

Kimpton's growth is now coming through Kimpton Hospitality Partners L.P., a $157.2 million fund it launched in September 2004 with the anticipation of purchasing or developing about $450 million worth of properties, although it will make smaller joint-venture investments in hotels directly through the company.

The fund was established to acquire existing boutique hotels that Kimpton feels are undermanaged or in need of capital investment or repositioning. "We are also tapping the fund to acquire traditional hotels that we are converting to Kimpton hotels and (for) adaptive reuses of older, typically historic warehouses, office buildings and department stores that can be converted to Kimpton hotels," Depatie said. The fund is targeting the major U.S. urban and resort markets for acquisition, particularly New York City, Los Angeles, Boston, Miami, Chicago and Washington, D.C. Investors in the fund, which is now closed, are primarily large college endowments and large individual investors who have historically invested in hotels.

For its developments and redevelopments, Kimpton is creating new models for one-off hotels as well as re-creating a number of models it already owns in its hometown of San Francisco. The Hotel Monaco properties, which are redevelopments of historically significant buildings, incorporate whimsical features and bold colors. The template for its Hotel Palomar properties is a sleeker design with a more subdued color scheme. Its one-off hotels also feature unique characteristics.

"Our Helix Hotel in Washington, D.C., has a fun, modern design and a '60s-ish feel. Austin Powers might stay there," noted COO Niki Leondakis.

It is also currently redeveloping a former Radisson Hotel in Washington, D.C., using the Hotel Palomar model and plans to open a new-build Hotel Palomar in Dallas this year and to convert the Doubletree Los Angeles to a Hotel Palomar in 2007. Another new Hotel Palomar is scheduled to open in 2007 in Arlington, Va., as part of the Arlington at Waterview mixed-use development.

In March, Kimpton announced plans to open a Hotel Monaco in the historic Old Town section of Alexandria, Va. Kimpton and ING Clarion Partners are partnering on the $89 million transformation of a 227-room Holiday Inn Select into a Hotel Monaco.

Other investments include the acquisition of the Caleo Resort & Spa in Scottsdale, Ariz., last year and, most recently, the late April purchase of the Nine Zero Hotel in Boston.

That property is Kimpton's third in the Boston metropolitan area, and management does not consider that unusual. Because each Kimpton hotel has unique characteristics, Long said the company can support multiple properties in major cities.

"We've found that hotels in the cities where we have multiple properties perform the best," he said. "We gain operating efficiencies and sales and marketing synergies. People in those areas come to know us and get to like us."

In fact, Depatie noted, Kimpton has 11 properties in its headquarters city of San Francisco. "I could easily see the day where we would have 20 hotels in New York (City)," he said.

The company did in fact increase its New York City presence to two hotels in February, when it signed a contract to manage The Muse Hotel and District Restaurant, a 200-room hotel located in Times Square, for Cornerstone Real Estate Advisers L.L.C.

That is typical of Kimpton's management model. It prefers hotels in the 100- to 350-room size, Depatie said. That makes economic sense for an owner, first and foremost. "We have no interest in taking on a management assignment where we don't believe in a project. Also, it has to meet our quality standards. We are interested in doing projects that are at the four- to four-and-a-half-star quality level. And most important, we must like and respect the property developer, who must have a proven record of success and history of dealing with people fairly."

Future growth may also include both mixed-use and resort properties. The company is already exploring the mixed-use concept in downtown Miami, where it is building the Epic Hotel as part of a project combining a hotel and residences, with plans to open in 2008.

"We can add value to a condominium development as leaders in the boutique hotel sector," Depatie said. "We can add pizzazz to these types of developments."

Hotel-condominium combinations can be particularly beneficial to the hotels because unit owners tend to be attracted to the hotel's amenities. That can boost the hotel's financial picture, Depatie noted.

As for the resort business, Kimpton has a hotel in Aspen, in addition to its new Scottsdale hotel, and Depatie sees opportunity for further pursuits. "We provide fun and unique experiences for business travelers," he said. "In resort locations, I believe we can do that same kind of thing in spades."

The array of models Kimpton offers is designed to appeal to its typical guest. That guest generally makes about $100,000 a year, said Leondakis, but psychographics are at least as important as demographics, and the Kimpton guest is looking for new experiences.

"Our guests like adventure and making new discoveries," she said.

Wine and food are also important parts of the experience the company provides—hence the signature nightly, complimentary wine hours in the lobbies. "Many times, our guests are tired and sometimes lonely, and at the end of the day need a break," Leondakis said. The wine hours also provide a chance for hotel management to interact with the guests, she added.

The hotel restaurants are likewise major attractions. Bill Kimpton, the company's founder, who died in 2001, leased out the restaurant part of the hotel because he did not want to be concerned with that part of the business. That proved to be a smart move. The pioneering hotelier launched its first chef-driven restaurant, Cafe Bedford, at the hotelier's initial property, The Clarion Bedford, in 1981. Since then, restaurants have been a major draw at the hotels.

As it pursues further growth, though, Kimpton faces challenges.

"These hotels gain a reputation and a loyal following," Berman said. "But there is pressure to keep providing a high level of consistent service and quality."

Depatie cited that as one reason he does not want the company's growth to get ahead of itself. "Customer service is so important to us," he said. "We want our people to be indoctrinated in the Kimpton culture. We can't go to a hotel across the street and hire someone and that's it. We have dedicated service, and we want to keep that high level of service. That's one reason why we don't franchise."

One hotel owner praised Kimpton employees' passion for their work. "They have such enthusiasm and are so outgoing," said Greg Clay, senior vice president of JMI Realty L.L.C., which owns the Hotel Solamar, a Kimpton-managed property that opened last year in downtown San Diego.

"Employees are there because they believe in Kimpton," Clay said. "We get dozens of compliments each month about them. They have an owner mentality."

Depatie believes that the company LaTour helped build sits on a strong foundation. "He's 62, and this is a great time for him to be (retiring)," Depatie said. "He has left the corporation in great shape."

Depatie expressed optimism for future opportunities: "We're at the right place at the right time. This is a great point in the lodging cycle. I'm pinching myself when I think of the opportunity I have." n





Looking Back, Looking Ahead



When Tom LaTour was 14 years old, he worked as a dishwasher for his best friend's father, who was in charge of meals at Michigan State University. He soon told his supervisor that he wanted to graduate to food preparation.

"He said to me that if I became the best dishwasher there, I would get that opportunity," LaTour recalled.

LaTour said Kimpton Hotels & Restaurant Group L.L.C. will provide opportunities to employees through expansion. "You can have all of the growth plans you want, but you have to serve your customer," he said. "You have to balance the needs of your guests, your employees and your investors. At this point in the lodging cycle, the price of assets is very high. You can't go with the flow. You have to be a little contrarian and look where others don't."

LaTour sees many opportunities for Kimpton's growth in mixed-use developments that combine condominium and hotel properties. And he views the company's president, Michael Depatie, as the right man to lead the charge into the future.

"I recruited Mike three years ago," LaTour said. "Our company needed additional financial expertise in order to grow, as my experience is in operations." Depatie has held a number of finance positions at hotel companies, including as CFO of La Quinta Corp. and Sunterra Corp. In addition, he co-founded Summerfield Suites.

"His experience is a perfect fit. He's the ideal person to take the reins," LaTour observed.

Depatie has likewise sought to ensure the right balance of talent to take the company forward. He further bolstered its financial expertise by hiring Greg Wolkom from Bank of America in March to become Kimpton's CFO.

He also credits two executive team members with longer tenures for rounding out the team's expertise. Prior to joining Kimpton three years ago, executive vice president of acquisition & development Joe Long was senior vice president for acquisition & development at Starwood Hotels & Resorts Worldwide Inc., while COO Niki Leondakis, who has been with Kimpton for 13 years, was previously food and restaurant director for Ritz-Carlton Hotel Co.

LaTour's future will now center around his passion for winemaking. He grows Chardonnay, Pinot Noir and Syrah grapes at his vineyards in Napa Valley in California, as well as in Washington and Oregon.

But he will not sever his ties with Kimpton, continuing to serve as an advisor and to sit on the board of directors.

"I still have a lot at stake there," he said.