Why Hilton, Marriott, and Choice are Buying Up Boutique Hotels

Are quirky upscale properties the hotel industry's new thing? Marriott International (NASDAQ: MAR  ) kicked off June by announcing its plans to add 20 properties to its Autograph boutique brand by the end of the year. On the same day, Hilton Worldwide (NYSE: HLT  ) launched its new Curio brand, which will consist of "upper-tier, independent" properties around the U.S. All this just two weeks after Choice Hotels International (NYSE: CHH  ) announced its Ascend brand's latest boutique acquisition in Florida, for a total of six new properties this year.

Independent hotels bring the cool factor and hot locations

Local landmark hotels can offer instant cachet to big-chain buyers. Choice's latest win, the Safety Harbor Resort and Spa on Tampa Bay, is a historical property, like many of the boutiques being picked up by the chains. Hilton Curio's Sam Houston Hotel in downtown Houston dates to 1924. And the Algonquin Hotel—frequented by the writers who founded The New Yorker—is now part of Marriott's Autograph brand. That blend of place and history—a hotel's terroir, if you will—can't be manufactured ... but it can be acquired.

The Franklin Hotel in Chapel Hill, N.C. (c) 2014 Hilton Worldwide

It's worth noting that many of the independent hotels being brought into the chain-hotel fold occupy prime real estate. The Marriott's Algonquin, on Times Square, is one example, as is The Franklin, Curio's new Chapel Hill property. It's just a couple of blocks from the UNC campus and is the go-to place for out-of-town Tar Heel football fans on home-game weekends. There may not be any room for chains to build in locations like these, but branded boutiques give them an in.

As if to illustrate just how tough the competition is right now for vintage properties with great locations, NBC News reported Thursday that there are 25 as-yet-unnamed bidders hoping to buy Times Square's Hotel Carter. The hotel is hot despite its need for some $125 million in renovations—to say nothing of its need for reputation rehab. The Carter has a history of murder, reviewer complaints about strip club noise from next door, and three "wins" as TripAdvisor readers' "Dirtiest Hotel in America."

Because of the sweet location, though, the final bid is expected to top $180 million. With a hotel in such dire condition rating that kind of money and that many bidders, it's no surprise that hotel chains seem to be rounding up premium boutique properties around the country as quickly as they can.

Local quirks, corporate perks

Affiliating with historical and independent properties also gives hotel chains a way to vary their portfolio and keep customers checking in to their properties, rather than checking out other companies' offerings. Predictability may be an asset for budget hotel chains, but upscale travelers want noteworthy digs, whether that's Hilton's glitzy reincarnation of the Sahara on the Las Vegas Strip that's set to open this fall, or the "haunted" rustic Hotel Alex Johnson in Rapid City, South Dakota.

The boutique boom lets novelty-seeking guests have their unique cake and eat it, too. Hotel loyalty programs apply at the new hotels despite their independent status, so travelers can rack up points while they soak up local color.

Niche hotels, big revenues

If boutique hotels' variety and uniqueness appeal to travelers, the numbers are what appeal to the chains and their investors.

Luxury properties, a category that includes most of the new independent boutiques, are leading the hotel industry's growth in rates and revenues. According to STR Analytics' Hotel Operating Statistics Almanac, revenue per average room (RevPAR, figured by multiplying a property's average daily rate by the number of occupied rooms) grew 5.4% overall in 2013, but the luxury category stood out with a RevPAR increase of 7.3% compared to 2012.

More upscale rooms ahead

With numbers like those and with the leisure travel market growing this year, expect more alliances between big chains and boutique properties—and expect more higher-end properties. As part of its Curio announcement, Hilton also stated that the company plans to launch another upscale brand later this year.

Marriott, meanwhile, plans to put $15 billion into the luxury and lifestyle niche over the next few years. Its three-year old Autograph brand has picked up 60 properties already, although even with the 20 it expects to add in 2014, Marriott will still have a long way to go to match Choice's 125 current Ascend boutiques.

How the trend will play out remains to be seen, especially as demand growth slowed about 2.2% last year, according to HOST Almanac. But for now it looks like upscale and unique is a winning combination.

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Casey Kelly-Barton

Casey is a writer and journalist who follows the consumer goods, travel, and tech industries for The Motley Fool.

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