Capitalizing on travelers' growing demand for boutique hotels with high style and personalized service, San Francisco-based Kimpton Group Holding LLC launched a $157 million acquisition fund in June. The newly formed Kimpton Hospitality Partners (KHP) plans to acquire $450 million in boutique hotel properties during the next two years, and the fund will play a critical role in the company's expansion plans.

KHP plans to acquire properties and convert them to Kimpton hotels. It will also build hotels within mixed-use developments. Favored markets include New York, Boston, Washington, Miami, and other South Florida cities.

Kimpton, the nation's largest boutique hotel operator with 38 properties, hopes to double its hotel count within the next five to seven years.

Yet Kimpton isn't the only hotel company expanding in the boutique hotel niche. Starwood Hotels & Resorts and InterContinental Hotel Group (IHG), for example, are among the chains which are growing existing boutique brands or launching new ones.

Leveraging the success of its “W” lifestyle brand, Starwood launched a new boutique brand in June. Dubbed “Project XYZ,” the affordable hotels — designed to appeal to developers looking to build W-inspired hotels at a lower price point — will feature loft-like rooms and light-filled common spaces. The first XYZ hotels are expected to break ground early next year and open in 2007.

Not to be outdone, IHG unveiled its first fashionable Hotel Indigo property last year in Atlanta and expects to have 150 to 200 of the mainly franchised hotels within seven to 10 years.

The boutique segment is becoming more widely accepted by travelers, says Arthur Adler, managing director and CEO of hotel investment advisory firm Jones Lang LaSalle Hotels.

In fact, occupancy at boutique hotels with an average of 166 guest rooms increased from 65.4% in 2003 to 69.5% last year. Average daily room rates jumped 5.3% to $155.11 in 2004, up from $147.24 in 2003. Revenue per available room rose 12% to $107.81 from $96.23, according to PKF Consulting in Atlanta.

“As Kimpton's brand recognition continues to strengthen, we have an extraordinary opportunity to capitalize on the growing popularity of the boutique and lifestyle niche,” says Joseph Long, Kimpton's executive vice president of acquisitions and development. To that end, KHP acquired its first hotel property in July — the former 301-room Radisson Barcelo Hotel in Washington, D.C. Kimpton plans to spend $32 million to renovate the hotel and transform it into a sophisticated and modern Hotel Palomar.

Scheduled to reopen under the new name in early 2006, the Hotel Palomar Washington will be the boutique hotel leader's second Hotel Palomar, a brand that it plans to grow.

“With the recent closing of the KHP Fund, we sought an opportunity to strengthen Kimpton's brand presence on the East Coast, while also attempting to provide superior returns to our investors,” says Mike DePatie, CEO of Kimpton Real Estate.

Although Kimpton competes for properties with other hotel companies, REITs and funds, the KHP Fund gives the chain a bit of an edge, says DePatie. Kimpton can close quickly on projects, he insists. “When you're a seller, you care not only about the purchase price, but also the certainty of the closing.”