Folks in small cities still have money to spend on trendy bars and restaurants. There’s a new playbook for high-end, lifestyle hotels that doesn’t require a massive, global city to usher in success.
There are more places than Dubai, London, or New York City to open a hip hotel, despite what major brands indicate through their portfolios.
Lifestyle hotels, a newer generation of high-end hotels that cater more to local traffic, generally focus on some of the world’s largest cities. Ennismore — which encompasses The Hoxton and Gleneagles brand as well as some of Accor’s lifestyle brands like SLS and Mondrian — largely pursues projects in major cities like London, Paris, and Dubai as well as resort destinations.
But a smaller player sees a lot of growth potential away from global gateway cities.
“Ten years ago, if you were to talk to the great lifestyle hotel companies, they would say, ‘I need to be in San Francisco, New York, Miami, L.A., and London,’” Dream Hotel Group CEO Jay Stein said in an interview with Skift. “We see Middle America.”
First thing’s first: Dream Hotel Group isn’t ignoring major cities. The company has hotels in New York City, Los Angeles, Miami, and Bangkok — to name a few — with another planned to open in Doha, Qatar, next year.
But it’s the significant pipeline of hotels in smaller U.S. cities that might raise eyebrows in a sector that seems to be all about exclusivity and higher rates.
Dream Hotel Group operates a hotel under the Unscripted brand in Durham, N.C. Dream hotels in Memphis, Tenn.; Cleveland, Ohio; Oklahoma City, Okla.; San Antonio, Texas; and Louisville, Ky., are slated to open over the next four years.
The company likely won’t stop there.
“I can name 25 more great markets where my brands would be a great fit,” Stein said.
Putting so much stock in smaller cities is unusual, particularly for a smaller company like Dream Hotel Group that doesn’t have the distribution reach of companies like Hilton or Marriott.
Accor CEO Sebastien Bazin defines lifestyle hotels as ones that make more than half their revenue from local traffic frequenting the property for uses beyond a guest room, like visits to restaurants and bars or use of an on-site coworking venue.
Larger cities would be the logical first choice for pursuing this kind of development, as lenders would be more comfortable with the idea a bigger city has the population to support a lifestyle hotel. But Stein says working with developers with strong relationships with local banks in smaller markets can side-stop traditional financial ideology, especially at a time when construction financing is hard to come by for many projects.
“We usually do passion projects for owners that are local in their market,” Stein said. “They want to do something that makes a statement in the market that is different, and they usually have their lenders that they work with, usually local banks that fund project like that. It’s not the same as construction financing is dried up. These guys are different. They have relationships, and they’re more unique-type projects.”
Stein also notes most of the “smaller” cities Dream Hotel Group is eyeing are only small relative to the likes of New York City or London, each with metropolitan areas home to tens of millions of people apiece.
Places like Oklahoma City, Memphis, and Louisville may not be deemed global gateways, but they each have significant metro area populations in excess of 1 million people.
“A million people live [in Louisville] and have a couple of great restaurants and a couple of great hotels where the smarter people are saying, ‘Where is a good place to go,’” Stein said. “Locals anywhere like to party. It’s not a mystery.”
Standalone or Sitting Duck
Dream Hotel Group has 10 hotels across its four brands — Chatwal Hotels, Dream Hotels, Unscripted Hotels, and By Dream Hotel Group — at the moment, but there are 19 in the development pipeline.
The question that always comes up with a company like this, similar to others like Standard International, is if leaders plan on remaining independent or if they’d ever consider linking up with one of the global conglomerates like Accor or IHG.
Accor has an appetite for growth in the U.S., and a company like Dream fits the bill for its most likely path toward growth. The Paris-based company envisions lifestyle hotels eventually accounting for as much as 40 percent of its overall fee volume, Bazin said at Skift Global Forum earlier this year.
IHG and Choice Hotels are among the many hotel giants pushing into the lifestyle sector in recent years, and an acquisition would provide a rapid ascent. Common industry ideology is that future mergers and acquisitions activity will likely stem around “tuck-in” deals that fill a brand or geographic hole in a company’s network.
Stein admits he was intrigued by takeovers in the past, and he isn’t ruling it out in the future — without providing much in the way of details.
“It’s not necessarily our goal to not ever get swallowed up. We had fished in those waters four years ago or so and felt we had more work to do to bring the value of where we thought it would make more sense to look at an option like that,” he added. “There’s nothing that I’m ready to go on the record and say [whether] we’re going to do this or do that.”
Photo credit: Dream Hotel Group's Unscripted hotel in Durham, N.C. Dream Hotel Group