4 Takeaways From Our Chicago Hotel Investment And Development Event

The hospitality industry is often run by the mantra: "back in my day." But disruptions in the market like Airbnb have hoteliers focusing on being part of the local fabric and bringing personal touches to an industry built on customer loyalty.

Here are four takeaways from Bisnow's Chicago Hotel Investment and Development event that show how the industry is evolving.

1. Boutique Hotels Are Not A Millennial Thing

Ace Hotels Group President Brad Wilson said the industry narrative that Ace is a millennial brand is a fallacy.

"I guess they never looked above our lobby," Wilson said in his keynote address.

Although Ace was one of the first hotel groups to attract millennials by offering services like free lobby WiFi, Wilson said an Ace customer is an intellectually curious person. That crosses a wide range of demographics, from millennial backpackers to top CEOs, all wanting to learn something about the city they are visiting while they travel.

To that end, Ace focuses on hiring friendly people with personality. Wilson said many boutique brands hire attractive people who do not serve the customer well. That is not the Ace way.

"We hire quirky people you want to hang out with," Wilson said. 

Wilson describes the Ace brand as an experiential hotel, a philosophy he evolved throughout a career that started as an elevator operator at the Drake Hotel. Wilson said Ace focuses on social environments, starting with active lobbies because they attract people. Wilson wants Ace's food and beverage programs to stand with the best restaurants and bars in their respective markets.

For the Ace Chicago, Wilson knew architecture had to be an important element of the conversation, given the city's history of great architecture, and the pride it takes in it. The Ace Chicago used to be a cheesemaking plant. Ace and developer Sterling Bay added modernist touches rooted in the Bauhaus movement.

2. Airbnb's Positive And Negative Impacts On The Hotel Industry

The hotel industry is learning tricks from Airbnb regarding connectivity between a hotel and the outside community, and leaving personal touches in rooms, Hyatt Hotels Senior Vice President Julienne Smith said.

Airbnb is driving the trend to authenticity and local touches, Gensler Associate Steven Harrell said. Hotel design has always incorporated some element of the property's market, but typically, this would be in the background and barely noticeable. Now, adding unique local touches is a front line, in-your-face matter. Gensler does projects now where art is a prominent program. It is curated, often tied to a local museum and often rotates out like an exhibition. There is also adaptation of area construction methods to give hotels a local flavor.

But First Hospitality Group CEO Bob Habeeb shined a light on the dark side of the Airbnb effect. Habeeb noted that 80% of Airbnb listings are commercial ventures, and those owners have recognized they do not have to go through the licensing hoops that First Hospitality is doing to build its upcoming hotel at Navy Pier. Habeeb said First Hospitality needs 200 licenses to operate that hotel, multiples more than Airbnb hosts do. And Chicago's Airbnb regulations, which are among the toughest in the nation, are not being uniformly enforced.

"The playing field is not level," Habeeb said. 

Smith said during the Cubs World Series run last year, the flood of Airbnb listings hurt suburban hotel occupancy rates in particular, while room rate hikes were contracted during peak shifts. She thinks the field must level over time. 

3. Hotels Are Taking Cues From Residential With Smaller Living Quarters

The amenities arms race across the entire real estate industry was influenced by hospitality. Today, hotel developers are building smaller rooms, which Clark Construction Senior Vice President Dave Trolian said is part of an overall shift in living space influenced by the multifamily sector. As more hotels are being built with full amenity packages and more public space, hotels are shunning things like tubs, installing less carpet and more hard surfaces.

Smith said the shift to be smaller works in certain urban markets because guests are out experiencing the city rather than spending time in their rooms. But the trend cannot work in extended-stay hotels, where a guest is either traveling with family or needs the extra space to get some work done.

Harrell said it will be interesting to see how the the small hotel room movement will affect the programming of full-service hotels moving forward. The possibility of full-service hotels responding to the explosion of amenities packages in smaller hotels by increasing their communal footprints to attract a broader cross-section of users is worth watching.

4. The Wage Growth Issue

Arbor Lodging Partners CEO Vamsi Bonthala said hotel operators benefited from insignificant wage growth for years, but that has changed in the past couple of years. Operators are feeling the pressure to raise wages from other hotels and from outside the sector. Hospitality is the largest entry-level job sector in the U.S., but hotel operators are competing with restaurants and other businesses for labor. Combined with flat RevPAR growth and growing expenses, it becomes harder for operators to make the numbers work, and Bonthala thinks wages will be a major challenge for hotels going forward.