The boutique hotel industry has finally come of age. Twenty-one years after it was invented by Ian Schrager, a nightclub entrepreneur, in New York, his business is going public. But the company he created, Morgans Hotel Group, will have to cope without him; he resigned as chief executive last June. It will be interesting to see if the group can retain its cutting edge, especially as the segment has become steadily more crowded.
Schrager pioneered the concept of cool design, with trendy bars and restaurants, inside urban hotels. He understood the power of public relations and destination locations: he and partner Steve Rubell previously ran Studio 54, the ultra-hip 1970s New York discotheque.
Unfortunately they got into trouble with the taxman, and Rubell died of Aids; but despite that Schrager got big in the hospitality business.
From Morgans and the Royalton in New York, he opened the Delano and Mondrian in Miami, the Clift in San Francisco and the Sanderson and St Martins Lane hotels in London. All were critically acclaimed and they thronged with celebrity guests.
The economics were brilliant - rooms were cramped and accommodation rates high - but trendy travellers like staying in places with happening public spaces and the right sort of reputation, rather than the usual boring chains. Hip designers such as Philippe Starck did the designs and got opinion formers talking.
Meanwhile the food and drink facilities were big contributors - and acted as wonderful marketing devices, promoting the hotels as smart places to stay. Unlike many hotel companies, Morgans did not franchise; it tends to own and manage its properties and brands.
In the late 1990s Schrager got involved with two real estate investment bankers, who run a business called NorthStar Realty Finance. Morgans Hotels then expanded, just as the industry slumped following the dotcom collapse and the 9/11 attacks. By late last year it had $660m of debt, and one property had been in and out of Chapter 11. The business has been loss-making since 2001, although occupancy has recovered in the past two years and Ebitda in 2004 was $68m on $234m of revenues.
The IPO raised $360m last week by the sale of 18m shares at $20. Schrager himself owns only 6.4 per cent of the company and no longer sits on the board, although he has a generous service contract as a consultant which gives him at least $750,000 this year plus the use of a private plane, secretary and chauffeur. He also took $20m cash off the table on the flotation.
Two NorthStar bankers have assumed the roles of chief executive and chairman and have installed cyclist Lance Armstrong as a non-executive - presumably to give some sex appeal to the flotation. The jury is out as to whether the financiers, who also run NYSE-quoted NorthStar, can keep the magic that makes places such as the Hudson so groovy.
Since Morgans opened its doors in 1985, others have jumped on the boutique bandwagon. The biggest player in the space is "W", owned by hotel goliath Starwood, which runs 19 such hotels already, with many more in the pipeline. There are various independent firms, such as Kimpton Hotels and Andre Balazs's Standard in the US and Firmdale and Malmaison hotels in Britain, among others.
All aim at well-heeled business custom and high-end tourists in markets such as New York and London and use attention-grabbing design. Even Schrager himself may set up rival establishments: he has no non-compete restrictions in his contract with Morgans and has recently bought a hotel close to the Delano in Miami to renovate.
Traditional hoteliers believe the whole "boutique" concept is a triumph of form over content, and think affluent travellers prefer conventional five star operations such as Four Seasons or Orient Express. My view is that the younger generation of leisure visitors and executives prefer going to funky, innovative hotels with an exciting atmosphere, good-looking staff and eclectic designs - and that the niche is only going to get bigger.
Dining out and bar-hopping are an integral part of any city visit and Schrager was the first to capitalise on this. The part-time duo now running his legacy plan a big joint venture in Las Vegas and have bought a hotel in Scottsdale - neither city really in the same league as New York or London. Somehow I don't think their new ventures will have the same cachet as the early openings