IHG’s purchase of Kimpton makes a lot of sense when you look at how the boutique hotel and restaurant company operates. We shared the secrets of Kimpton’s success in our October 2014 cover story:
Despite being the largest boutique owner and operator in the country, Kimpton still considers itself a David in a ring full of Goliaths. On the one hand, this is understandable, since there are plenty of heavyweights making moves to compete with the San Francisco-based company. But like David, Kimpton arms itself differently than other brands as a way to remain nimble and singularly focused on creating a distinct experience for guests.
This different approach to hotels also has proven wildly successful, yet Kimpton’s massive growth has more to do with sound business fundamentals than it does antiquated concepts of what is and isn’t boutique. When you think boutique, quirky urban repurposed properties in major markets probably come to mind. While hotels like this are still a big part of the company’s identity, it is also rapidly expanding into secondary markets and resort locations.
At Kimpton, each property is individually conceived to celebrate the personality of its locale, and each embodies a spirit that’s unmistakably, but without pretense, corporate, embracing the attentive, alchemistic providence Bill Kimpton initiated with the business he founded. Now that Kimpton has reached $1 billion in revenue, with 61 hotels and 66 restaurants and bars in 26 cities across 17 states, and is in the throes of its most aggressive development and expansion in history, how will it stay committed to its core values and keep true to form? By turning to the following 10 guiding principles.
1. PROVIDE INSANELY GREAT SERVICE
At the root level, the company relies on a unique, highly intuitive level of customer service, which is embedded throughout the form and functionality of its hotel and restaurant spaces, as well as in the attitude of every staff member. The Kimpton stamp is one of a particular culture evoking an emotional connection with the customer, a concept that seems to come more from the heart or a person’s DNA than any corporate manual or code of conduct.
“We don’t have a manual,” offers COO Mike DeFrino. “Ours isn’t an easy organization to describe. What makes us tick is that we have a culture of care. Our employees have a care gene, and that really resonates with our guests. Additionally, we have a culture of high performance. In order for us to compete, we have to perform at a high level, and part of that is building highly functional, well-operated hotels. When you have that going together with great employees, you create a love bond with your customers and you’re in turbo mode. That’s what we’re after.”
For CEO Mike Depatie, it’s about making an emotional connection. “We’re never going to beat the big guys at the distribution game—they’re always going to have more hotels in more locations,” he says. “So we have no choice but to win on differentiated and distinctive customer service and unique guest programs.” He adds that Kimpton consistently provides a substantially better experience for its guests, which really matters in a world of social media where people are constantly talking about their experiences.
2. FILL THE PIPELINE
The turbos really kicked in last year. In 2013, Kimpton closed its fourth institutional real estate fund (KHP Fund III), which raised $203 million in private equity and was used to leverage another $500 million toward the acquisition, development, and redevelopment of more Kimpton properties through 2016. This follows the pattern initiated with the first such fund, offered in 1997.
Kimpton has a unique model in that it secures a commitment from investors—in this latest fund’s case, over the course of a three-year period. Then, it finds properties to develop and seeks the necessary equity from those investors plus makes additional investments itself to become a general partner that acts as the owner’s representative. In this way, there’s enough lead time in developing deals, and Kimpton is able to make every management, finance, and refinance decision. In addition, Kimpton acts as a third-party manager for existing hotel owners under long-term contracts. “With this model, we’re able to grow the company faster, without franchising, which is not something we want to do,” Depatie says.
(Editor’s Note: IHG’s acquisition of Kimpton will not include the purchase of any real estate. Kimpton Real Estate Investment Funds will continue to operate as a separate business that will make future investments in Kimpton branded hotels. )
3. MOVE QUICKLY ON THE RIGHT LOCATIONS
A short list of recent and future Kimpton hotel locations includes Austin, Texas; San Antonio; Palm Springs, Calif.; Denver; Milwaukee; Winston-Salem, N.C.; Savannah, Ga.; Nashville, Tenn.; and Cleveland, along with resort areas such as Miami/South Beach; Goleta, Calif.; Sedona, Ariz.; and Grand Cayman Island. This lineup doesn’t seem to fit the classic idiom of boutique.
“We’re not the too-cool-for-school guys,” Depatie says. “We’re still looking to grow in primary markets, but we’re also looking in secondary markets and resorts, not only because we’re seeing an increase in the demand for this type of lodging, because the customers are there and the neighborhood makes sense, but also because the economics make sense in terms of a new or redeveloped property or the management company makes sense in terms of an existing property.”
Kimpton has a distinct edge when it looks to pull the trigger on new hotels. “The discretionary nature of our fund gives us an advantage because we’re able to offer sellers and developers a quick and certain close, something that few others can match,” said Depatie in a statement upon KHP Fund III’s closing. Additionally, Kimpton’s track record as one of the largest adaptive reuse hotel specialists in the world means that it’s able to go after properties nobody else can handle and secure a more favorable bid. In some cases, historical tax credits can nearly equal the cost of the building, as with the Hotel Emma in San Antonio, a converted 19th-century brewery, on tap to open in 2015 or Pittsburgh’s 1903-built Beaux-Arts office building turned Hotel Monaco, slated to open later this year.
“From the financing side and also the design side, there are specialized areas we’re able to manage, to get up to LEED, for example, and be sustainable,” Depatie says. The company manages third-party construction companies and the technical services areas so the end result is not only a refurbished local landmark but also a brand fit. Kimpton’s internal design team carefully vets local design and construction firms. To date, Kimpton has converted 13 historic buildings. “We’re able to do things other people can’t do,” he adds. “We turn junk into antiques.”
(Editor’s Note: Following IHG’s takeover, Depatie will focus on running the funds, which own approximately 30 percent of Kimpton’s existing and pipeline properties. “As an owner of a significant number of Kimpton hotels through our real estate investment funds, I am committed to developing additional Kimpton hotels, and I look forward to seeing Kimpton go from strength to strength as part of IHG,” he stated.)