Boutique Group Graduate Hotels Finds Its Niche in University Towns

Graduate Hotels opened its first two properties in 2014 in Tempe, Arizona, and Athens, Georgia, and since then, the boutique hotel chain known for its proximity to centers of higher learning has expanded to six properties across the U.S., and it continues to grow.

Two years from now, a new Graduate Hotel will open on New York City’s Roosevelt Island, on the same site where the Cornell Tech campus from Cornell University is being built. It will be the only hotel on the entire island, and is slated to have 196 rooms.

Skift recently spoke to Graduate Hotels principal and president Tim Franzen about what it’s like to grow a boutique brand that specializes in secondary and tertiary markets, and the challenges that also come with further consolidation and competition in the hospitality industry.

Editor’s Note: This interview has been edited for length and clarity.

Skift: How did Graduate Hotels get started?

Tim Franzen: Ben Weprin, the founder and CEO of AJ Capital Partners, was taking a look at the core business model of AJ Capital Partners and figuring out where we needed to look for new avenues for investment. When he started the company, he was really focusing, at that point, on high-end luxury resorts in places like South Beach Miami, the Caribbean, and Mexico — that sort of thing. He also had a stake in Auberge Resorts for a time. Then, he quickly saw that that market was getting a little overheated. There weren’t great buying opportunities that he was seeing in 2009 and 2010. He started looking at more of the big city centers and really niche areas of those city centers.

He came back home to Chicago, and started working on projects like the Hotel Lincoln in Lincoln Park, a place that is obviously a neighborhood of Chicago where we’re very interested to buy hotel products. Then he was also doing some adaptive reuse like the Soho House in the West Loop and eventually the Chicago Athletic Association.

Over time, we were also starting to see less of value creation in some of the big major metropolitan across the country and so, at that time, we started looking for other avenues for investment. And we started by looking at the possibility of moving into more secondary markets.

We morphed into really focusing on university anchored secondary and tertiary markets and what we found was that most of those markets had a very limited — or very lackluster is probably a better word — hotel product in what were some very dynamic and unique markets. We saw there was opportunity there because there was very little competition for doing any kind of lifestyle, boutique or independent hotel in those markets. Then, we also saw after doing some research that there was very low volatility in these markets safety well; they didn’t suffer nearly as badly in terms of the last two recessions and they bounced back much quicker.

With that lack of volatility and lack of competition we saw it as an opportunity. That was also brought out somewhat out of the success of the Hotel Lincoln in Lincoln Park that I mentioned earlier. It was only a few blocks away from DePaul University, which is also in Lincoln Park. We developed a really great relationship and we were getting a lot of business from visiting families or professors coming to the university. It was really a business mine that had grown from the hotel more so than originally even anticipated.

And so those things all happening at the same time, looking for new avenues in terms for investment, starting to really like what we were seeing in terms of university market but also seeing the success of Hotel Lincoln and it was really strong with that university. All those things came together and it was really the birth of the idea for Graduate Hotels.

Skift: Did you take any inspiration from The Study at Yale Hotel?

Franzen: Study at Yale has been around for, I want to say, about 10 years now and, as a matter of fact I just recently stayed at that hotel. It’s very nicely done. I believe the gentleman behind that [Paul McGowan] has just recently opened up a second hotel at Drexel University in Philadelphia.

The growth here [with Graduate Hotels] has been obviously on a different trajectory; it’s a different pace of growth there for that brand. I obviously, honestly don’t know what their plans are for further growth.

For us, we really wanted to be — although maybe not the first to do it — we have always been independent hotels in secondary markets but usually they’ve been a little bit more of a mom and pop type of university and campus, as opposed to someone they pay a concerted effort to do an investment platform to grow a brand.

We really wanted to move quickly and really to have a fast move advantage. That’s why, when we started the brand, we chose to go after conversion opportunities first. We started on one new building in Mississippi but of the six that are open today, five of those were existing hotels that we bought and converted that just happened to be in the perfect location and had the perfect size and package and ability to add them to the package we needed.

For us it was about moving quickly and getting into these top community markets and find the very best location for us.

Skift: What do you think makes Graduate Hotels stand out from other hotels then?

Franzen: I think what makes us particularly unique or special is really the depth and subtlety of our storytelling. All of the interior design comes from in-house, and we have our own staff of interior designers headed. They do a tremendous job and spend a lot of time and care researching these communities and the university, and really telling the story of those community and universities, of their culture, through very subtle interior design methods.

I think people are surprised when they come to our hotels. They think they’re entering a market where they might somehow see collegiate themes or only school colors, so when they walk into our lobby they expect to see school colors and banners and mascots. They don’t find that there because that’s easy.

Skift: Do you try to synchronize your hotels’ programming with the nearby universities?

Franzen: We certainly have. We try to make ourselves a kind of a community living room. We want to be a place where people who live and work in the community, whether they are in school or not, have a place to mix and mingle. So, our lobbies are very communal spaces, and there are a lot of communal tables. You’ll often see a lot of students in our lobbies or lobby coffee shops, with their laptops out, their headphones on and hopefully a cup of coffee in their hand. We really encourage that, and we really love that.

We want to have people who live and work in the community coming to the hotel, whereas normally they wouldn’t have any reason to. Even if they never see a guest room, that’s fine by us. We want them in the hotel. We usually do that through a great coffee shop or a lobby or maybe a rooftop bar that we’ve done in a couple of locations. We really want to engage with the local community. For us, there are some good business purposes behind it. Ultimately, it creates a better customer experience. It can be an out-of-town guest who realizes right away that they’re surrounded by people from the community. So they don’t feel like quite as much of an outsider or such a stranger to the community because they realize they’re surrounded by the locals right away.

Also, if we do it right and we really do intend to, there’s a little bit of civic pride in these communities. They’re saying, you know, they’re patting their chest, “Hey, we’ve got a really interesting and great hotel here.” Before all this there was the more typical cookie-cutter, limited-service brand. So, there is a bit of an ‘If you do it right and you really make sure you treat the locals right, here comes the property.’ That’s why you engender that civic pride and it helps your word-of-mouth and sales, and they’re telling their friends and family or customers or clients who are professors or researchers coming to town. Hopefully we want everyone who lives and works there, for the first words out of their mouths to be, “You need to go stay at the Graduate.”

Skift: Have you noticed any changes in what people expect from their hotel experiences over the past few years?

Franzen: It’s really hard to find — especially in major cities across America — unique hotel product. That, for us, is exciting; that the traveling public can get a good, consistent product but delivered in a unique or different vibe.

For us, we just love the fact that that’s really caught on and that’s really what the traveling public for the most part is looking for. That’s really what we’re always trying to service. We’re trying to service a traveling public that’s looking for something unique, special or maybe more fun, has a quirky or distinctive vibe to it, whatever it might be. We’re trying to provide that unique experience to the travel industry.

Skift: But those big brands are getting bigger and there’s so much consolidation in the hospitality industry. Those big players are also entering the boutique space, and as independents, you also have to work with a lot of third parties for distribution too. So how do you carve out a space for yourself in such a competitive landscape?

Franzen: It’s a blessing and a curse, I guess, what we do. In some shape or form, you know, if any supply is more competition that you have to deal with or contend with, that’s always something you have to think about and deal with smartly. At the same time, because of what they’ve done with the all of these brands and the fact that so many of them have a different name but don’t really feel all that different from the brand down the street. For us, it’s easier to stand out because they’re all so similar and oftentimes cookie cutter. For us, it’s so much easier to stand out. One of the reasons why the boutique space has matured, and been so successful is because we look at now with the advent of social media, and that’s matured. Every person, especially the younger generation, they all have a brand of their own.

Every person creates their own brands for themselves and they express to the world through social media. That has to do with things such as the iPhone. Everyone had to have an iPhone because it spoke to who they were as a person, but who they inspire to be as a person. How people dress for something. Where they eat, where they go to drink. All these things are expressions of who they are, who they want to be, who they want to communicate to who they are in the world.

Hotel selection is no different from that. For us, it’s easier to stand out and it’s easier for us to attract those customers because they can post, on Instagram, a picture of sitting at our coffee shop or at our rooftop bar or the unique design in our guest rooms and so, for us, it’s the practice; the space has gotten so crowded, there’s such a proliferation. It’s easy for us to stand out and really attract the customer who wants to tell the world about who they are as a person to their own personal branding through social media.

Skift: Do you rely heavily on online travel agencies (OTAs) for your distribution? Is it hard to get direct bookings as an independent?

Franzen: Early on, yes. So, certain properties at certain times of year, we definitely use that quite a bit more, certainly when you look at some of these markets on the seven football weekends a year. It’s very little. We don’t really use those channels, but other times of the year when it’s a little quieter we do turn those channels back on and depend on them more, but over time, as people come to recognize the brand and understand who we are and start looking for us, we certainly expect to transform more of that to direct bookings.

We haven’t done any particular initiatives in terms of guarantees, or rates, or anything like that yet. Someday down the road we might look at some initiatives to transfer more of it to direct bookings but so far that’s kind of happening naturally as people have found us and maybe booked online through the OTAs for the first time staying with us. When they come back, we’re doing whatever we can through email marketing to encourage them to book direct with us. Over time, we’ll see that contribution come down, but it’ll never be nonexistent. There’ll always be a fairly significant portion who come through the OTAs.

Skift: Are you seeing any impact from Airbnb or alternative accommodation providers to your business and if yes, why or why not?

Franzen: So, actually we really have not seen any of that. What we have seen though is we’ve seen a lot more, it really has expanded the pie, if you will, in these markets. Especially for the very high-demand, high-compression weekends. Every one of these markets has a value during the seven football weekends — most of them, not all of them are huge football schools, but a lot of them are. They always have at least a dozen to 15 weekends where the town is sold out. It’s a move-in weekend, move-out weekend, graduation weekend, alumni weekend. During those kinds of high compression periods, what we’ve actually seen is more people coming to the market because of Airbnb and choices like that. So if maybe you’re a young alumni and you want to come back for a football weekend, you’re not going to just spend $300 or $600 on a hotel. Maybe you’re priced out, and you booked too late because you decided to go at the last minute.

A lot more people come to the market because of the Airbnb popularity that’s grown. So, it’s really adding to the pie. At the end of the day, that ultimately helps us or at least we think it’s going to be helping us more because more people in town are looking for places to dine and eat and have a drink. We’re hoping we can attract them to our coffee shops and rooftop bars so even though they may be staying at the other hotel maybe they’re still spending money on our property and that’s certainly something we’re going to be keep trying to push for.

Skift: Can you tell us more about the upcoming Roosevelt Island property?

Franzen: Absolutely. We could not be more excited about doing a Graduate Hotel there. It’s a process that’s been a long time coming. I know that Cornell has been working on the project for at least three years now. They won the city request for proposal to build this graduate school campus on the grounds. So not long after they won that and they created the partnership at Technion, a university out of Haifa, Israel, to create Cornell Tech.

The campus was really needing and deserving of a hotel to help support the whether it would be visiting students, visiting professors, researchers, a lot of corporations that would be working on the island and coming in to work with the graduate programs there, a lot of research, and new technologies. They knew right away that was going to be something that’s going to be needed. They ran a rather extensive RP process that really began early last year if not late 2015. We immediately jumped into the mix there and we really resonated with Cornell was the fact that we do, every one of our hotels is tailored to the particular market we’re going into.

We don’t have a brand standard. We make it up as we go along, which is part of the fun of it, but we were able to give them what they wanted in terms of programming but also give it to them in a unique way that they aren’t going to see anywhere else. It’s like when Ian Schrager talked about how, originally, he thought building a brand was a sellout, but he realizes now that you can still be a brand but every hotel can be a little bit different but all kind of similar.

The idea that we have all these hotels that all feel similar. They all have a very similar ethos or DNA. They all look drastically different when you’re in there, which sometimes, you’re scratching your heads like how could that possibly make sense. But our design team did a wonderful job of pointing it out. I think that’s what Cornell really liked is the fact that they’re going to get something truly unique to Cornell and Roosevelt Island. In fact, we’re going to tell stories and play off some of the history of that unique location.

Skift: What does the future hold for Graduate Hotels?

Franzen: We’re open in six markets today. We’re opening four more properties this year so we’ll be up to 10 hotels by the end of this year. We’re opening in Berkeley, California, later this month. In June, we’ll be opening in Lincoln, Nebraska. Then Virginia. Toward the end of the year we’ll open in Minneapolis. Next year we’re going to have at least three, maybe four or five opening in Bloomington, Indiana, and Seattle, Washington, and a couple others yet to be named that we haven’t announced just yet. We’ll have 15 hotels or close to it by the end of 2018. We really set a goal of getting to 20 hotels by the end of 2020.

When we look at our target market list, it’s well over 75 different markets where we think Graduate Hotels would make perfect sense. Right now, we’re focused on this very near term, getting to that 20-hotel mark on a very short order which we’re on pace to do. It’s an aggressive goal but one that’s also very achievable if we continue the pace that we’re going on. Ultimately, this could be in dozens and dozens of markets across the country very, very quickly.