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Smaller Hotels Reaping Bigger Rewards for Developers

Boutique hotels are growing more popular with customers -- and more lucrative for entrepreneurs.

When it comes to selecting a hotel, there are many choices -- downtown or by the waterfront? Two single beds or a king? Smoking or non? And increasingly, a well-known chain or smaller boutique pick?

As many customers are choosing the latter, boutique hotels have been holding their own -- and becoming an attractive investment for entrepreneurs -- in the lodging industry. According to hotel consultant R. Britton Colbert, the number of boutique hotels has been growing for myriad reasons, but especially because people desire a unique getaway that maintains a high level of service and security.

Also, customers are increasingly craving the experience that a chain hotel, no matter how high-end, can't provide.

"They want something they can remember and the personal touch," says Colbert, referring to boutique hotels' tailored luxuries like superior linens, plush robes, slippers and house-made toiletries that are provided by an attentive, personable staff. Anyone can go to the Four Seasons or the Ritz-Carlton, Colbert says, but people are now tending to seek a hotel more on the intimate scale.

Developers getting into this niche market tend to locate new boutique hotels based on site or land constraints and supply opportunity. Still, keeping the rooms booked can be a challenge: rates must be set high enough to support a superior level of service. "Remember, there are fewer rooms in a boutique hotel, therefore the average room rates must be high enough to generate the required cash flow for debt and other fixed costs," Colbert points out.

Smaller Is Better on Cape May

Curtis Bashaw, a real-estate developer who has completely transformed Cape May, a seashore resort area on New Jersey's coast, understands the draw of boutique hotels.

Bashaw is well versed in the business: His grandfather was the manager of

Congress Hall, which was built in 1816 and is one of the oldest hotels in Cape May. Since he was 14, Bashaw worked in various roles on the property, from desk clerk to bellhop.

In 1986, Bashaw and his father invested in the

The Virginia Hotel, located in the heart of Cape May's historic district, a half block from the beach. Dating from 1879, the hotel had been closed due to building code violations in 1982. Once the Bashaws reopened it in 1988, however, The Virginia has enjoyed steady revenue growth every summer since.

Congress Hall, likewise, was in jeopardy -- and up for sale -- by the early '90s. Bashaw ultimately purchased it in 1995, wanting to see if he could duplicate The Virginia's success.

"For me, the first love was these old historical properties," says Bashaw.

Renovating and reopening Congress Hall proved to be more complicated than the Virginia Hotel, as many locals wanted to see the property preserved -- but all with a different set of criteria, from environmentalists, investors, fireman and customers, who required certain amenities if it was to compete successfully in the boutique hotel realm.

Congress Hall finally opened in 2002, after seven years of financing and licensing approvals. The wait was worth it: "We are 100% booked from Memorial Day to late September," says Bashaw. The rooms in peak season range from about $295 to $595 a night, with seasonal amenities including beach and pool food service, chairs, towels and umbrellas.

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Bashaw believes part of his success is due to how he respects the personality of the building and its setting, thereby maintaining the emotional connection customers want to make. "If you are taken to any of

Starwood's

(HOT)

W hotels blindfolded, you can be in any number of cities," Bashaw points out. "We try to integrate

our hotels within our communities." Congress Halls' nightclub, the Boiler Room, for example, has a partnership with

The Cape May Jazz Festival. Open nightly from Memorial Day through Labor Day, the Boiler Room's music has been booked with the help of the local Jazz Festival musical acts for four years.

The charm of Congress Hall has been carefully preserved, even though the property underwent a complete facelift during its renovation. The best compliment he ever received, Bashaw says, is from a returning guest who said Congress Hall wasn't at all different, even though he hadn't seen it in over a decade.

The other essential factor is found in the support staff: As customers at a boutique hotel expect a high level of service, Bashaw's hotels have an intense orientation process for its employees. "It's great to have technology to

help you remember someone's name, but at the end of the day it's still got to be about people interacting with people," says Bashaw.

Furthermore, Bashaw believes that if he creates a professional yet relaxed environment, it will be appreciated by the guests. "A hotel should feel like you're coming home to a place where you can enjoy yourself with luxurious amenities," Bashaw says.

Standardization vs. Soul

Still, as chains move to offer a similarly personalized experience, how are small boutique hotels competing with the W's of the world? "I don't see the same individual as having to pick between the two," Colbert says, believing it really depends on the purpose of the travel.

According to the

American Hotel & Lodging Association, the sole national association representing all sectors and stakeholders in the lodging industry, "boutique hotel" originally referred to small, independent properties with unique amenities. But that concept has now been adopted by several chains, like the W, so the lines can be difficult to draw.

Still, some road warriors who are members of the bigger hotels' frequent guest plans may not want to give up their extensive rewards to stay in a boutique hotel.

But Bashaw maintains that as in many industries, the personal touch will win out. "A lot of companies that standardize its products risk loosing the soul."