PHOENIX—It took Richard Kessler a little time to warm up to the concept of soft brands, but he now likes the idea so much that he might even develop his own.
Kessler, an Orlando-based entrepreneur and connoisseur of fine art and music that shows up in his hotels’ personalities, was among the first entrants into Marriott International’s Autograph Collection after initially dismissing the idea. Nine out of 10 hotels in the Kessler Collection are affiliated with Autograph.
“One day we might have our own soft brand under the Bohemian and Grand Bohemian names,” Kessler said during a break at last month’s 19th annual Lodging Conference.
In the immediate future, the Kessler Collection CEO, along with his son Mark and daughter Laura, is focusing on using the reservation distribution network of Marriott to grow the company’s portfolio. The Kessler Collection plans to open four new hotels before the end of 2015 in Charleston, South Carolina; Birmingham, Alabama; Savannah, Georgia; and Healdsburg, California. At least two of them will carry the Autograph soft brand. Additionally, the brand plans to further its growth with prospective locations in California, including the Napa and Sonoma County areas.
“There are numerous opportunities for us to expand the Bohemian and Grand Bohemian names,” Richard Kessler said. “Finding the top, quality locations takes patience and time, but there’s a big reward when it comes to fruition.”
Richard Kessler said the company is also working on introducing the Bohemian or Grand Bohemian brand to Nashville, Tennessee. It has two opportunities in the discussion stage.
“Nashville is a pretty resilient market; it’s a real growth market,” Richard Kessler said.
Mark Kessler said the boutique nature of Kessler’s properties makes a project in Nashville different from the recent spate of hotels opening in the market. He said there’s a reason the company isn’t building 300-room hotels.
“By scaling the products down in secondary and tertiary markets, we can drive the rate and sell out on the weekends,” he said.
The Kessler Collection includes three hotels in Orlando, Florida: Castle Hotel, Grand Bohemian Hotel Orlando and Bohemian Hotel Celebration. Another two properties are located in Colorado: Beaver Creek Lodge and Kessler Canyon in DeBeque. Savannah, Georgia, is home to two properties, the Bohemian Hotel Savannah Riverfront and Mansion on Forsyth Park. The remaining properties include: El Monte Sagrado in Taos, New Mexico; Grand Bohemian Hotel Asheville in North Carolina; and Casa Monica Hotel in St. Augustine, Florida.
Richard Kessler called them all “very high-end boutique hotels” that range in size from 50 guestrooms in the developing Charleston, South Carolina, hotel to 250 rooms in downtown Orlando. Beaver Creek Lodge is the only property not affiliated with the Autograph Collection.
A change of heart
Richard Kessler said the initial concept for his company when it started in 1995 was to build a portfolio of high-end, self-sufficient independent hotels. That philosophy worked well until three years ago when, like many hotel companies, the Kessler Collection felt the pinch of the Great Recession. At the same time, Marriott approached Kessler with the notion of the Autograph Collection, which at the time had not been officially launched. Marriott insisted on taking seven of Kessler’s hotels into the Autograph Collection. Richard Kessler declined until he told Marriott to make him an offer he couldn’t refuse. He declined to reveal specifics about the deal.
“We’re obviously still independent; we still operate everything,” Richard Kessler said. “The only thing that’s Marriott in a sense is a sign about so big (he holds up his hands so they are about 12 inches apart) that says ‘Autograph Collection.’”
The Kessler Collection maintains its own website, and consumers are unaware of the Autograph affiliation until they click the “Book” button. That’s when the user is switched to Marriott’s reservations system.
“That’s the first time there’s any marketing relationship between what we do and what Marriott’s doing with the reservation system,” Richard Kessler said.
Richard Kessler said he has made it clear to Marriott from the beginning that he will continue to march to an independent drum. Marriott has attempted to introduce some control creep into the relationship, but his company nipped it in the bud.
“The challenge for the big companies is that they have a DNA for control creep,” Richard Kessler said. “Sometimes the biggest enemy is themselves.
“If you want to make a program successful you can’t let corporate creep ruin your own idea,” he said. “For independent operators that call me (to ask about the Autograph Collection relationship), their fear is not paying the fees; their fear is losing their individuality.”
Richard Kessler said the other fear for independent owners and operators who are looking to possibly join a brand is the brand creep that comes along with having multiple brands under one corporate umbrella.
“The danger is they load the market with other product around you and it bleeds off your business,” Richard Kessler said.
Positive performance
Properties in the Kessler Collection, which has 1,300 employees, are built around an art-and-music theme, and there are no two hotels alike.
“When we go into communities, particularly very high-end communities, that’s what they really like about what we do,” Richard Kessler said.
To date in September, the company’s year-over-year RevPAR was up 13%. Richard Kessler said he expects the system-wide 2013 occupancy to check in at 75% and average daily rate to be around $214.
“Generally we run twice the industry (RevPAR growth) average in the comparable markets,” Richard Kessler said. “People usually are extremely surprised and sometimes in disbelief until we show them the numbers. We do a very efficient operation, very focused, and something different than other people do.”
The Kessler Collection will collect more than $100 million in revenue this year, Richard Kessler said.
“We have very strong margins,” he said. “We put a lot of emphasis on food and beverage; that’s a big part of our business.”
Mark Kessler said the company has made a concerted effort to drive rate this year, even in the wake of an industry-wide market mix change that involves a stagnant group sector.
“We’ve really focused on driving our team to focus on rate growth in the transient segment and manage that segment of the market,” Mark Kessler said. “That really was a big growth in RevPAR growth this year and last year.”
The secret to raising rates isn’t much of a cloak-and-dagger approach, as there are four distinct pillars:
• Getting employee buy-in in terms of the product and service they represent;
• working closely with Marriott International and the Autograph Collection revenue-management team to maximize revenue opportunities;
• using a holistic revenue-management approach to its food-and-beverage program; and
• achieving top-notch guest-satisfaction scores while taking advantage of the social media revolution.
Mark Kessler said guestrooms represent about 55% to 60% of the Collection’s total revenue, with the balance coming through food and beverage, including banquets, weddings, social functions and other types of business that involve a tooth-and-nails competition in local markets.
“You have to do a fair assessment of what your product’s worth,” Richard Kessler said. “What is the experience worth? What we do that really sets us apart is we create experiences.”
Money talk
Richard Kessler said the company is financing its projects through banks it has dealt with for 20 years. Terms are for seven years.
“The cost of money is still low, and that’s a big, big factor that affects profitability,” Richard Kessler said.
The company isn’t in it alone. Last year, Inland American acquired three Kessler Collection properties, which Kessler maintains long-term management contracts on.
Kessler utilizes investment partners—including Inland, which is a partner on the Charleston and Birmingham assets—as it focuses on projects that cost between $40 million and $100 million.
“To do the speed we want to do we need to bring in outside capital,” Richard Kessler said, adding that the company is looking to add other investment sources to the mix.
The internal rate of return expectations range from 20% to 50%, which is why it’s important to create unusual environments that attract crowds, the CEO said.
“Put a seven cap rate on that and you just made yourself some significant money,” Richard Kessler said.