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Mike Depatie (MBA 1983)
With well over 35 years in hospitality, Mike Depatie (MBA 1983) has seen every side of the business, from front-desk minutiae to sweeping real estate negotiations. Most recently CEO of the boutique group Kimpton Hotels & Restaurants, a boutique hotel group, Depatie oversaw Kimpton’s $430 million sale to the InterContinental Hotels Group in 2015 before stepping down to co-lead KHP Capital Partners, a real estate private equity firm focused on boutique and independent hotels. Spun out of Kimpton’s real estate arm, KHP Capital’s roots go back to 1997; since that time, it has overseen six funds totaling more than $1.1 billion.
With the coronavirus pandemic and travel restrictions continuing to batter the industry, Depatie takes a clear-eyed look at what the future might hold for a profession that depends on consumer trust and a willingness to leave the safe haven of home.
The coronavirus pandemic has decimated hotel occupancy rates. What does the way forward look like?
Mike Depatie: Nobody could see anything like this coming—what’s happened in the hotel business is truly dystopian. We’re seeing occupancy rates of 10, 15 percent, and room rates in some cases that are less than half of what they were a couple of months ago. The hope is that it won’t last long, but it’s going to take quite a long time to dig out of this hole. Tourists will probably return the quickest, especially to locations they can drive to, simply because they can load their family into the car, versus loading them onto an airplane. Then business travelers will start to come back, with those who travel on airplanes coming back more slowly than those who drive. And finally, the big conventions. It could be a couple of years out before people feel comfortable gathering in large groups. If we get to 40 or 50 percent occupancy rates by the end of the year, we’ll be doing pretty well.
What will hotels need to do to make guests feel safe?
MD: Hotels need to ensure their guests and their employees feel a real, not just perceived, level of safety. In the hotels we own, we’re looking at hospital-grade sanitation programs. We’re looking at things like plexiglass shields between the customer and the check-in desk. We’re considering what social distancing looks like in our restaurants—or do we even open restaurants? We’re looking at a standard room service option where we drop the delivery next to the door so they don’t have any interaction with people.
The unfortunate thing is that hospitality is all about people. We’re now, as an industry, trying to figure out how we eliminate people from the equation for guest and employee safety. I just hope that it doesn’t last too long, because it changes the whole idea of hospitality.
Right, I was just thinking about masks, and how they prevent us from reading each other’s expressions easily. Yet one of the best things about staying in a hotel is being welcomed with a real smile.
MD: It’s true, I find it difficult when I can’t see if someone is smiling or not. I just finished reading Erik Larson’s The Splendid and the Vile, about living in WWII London during the Blitz. They carried on, they figured it out, and they went about their business. People are resilient. We’ll figure out how to deal with this. Our service model at Kimpton was not service per se, it was care. What does the guest on the other side of the desk need right now? How can we properly care for them? If people are traveling right now, what they’ll need more than anything is actual care they can trust, that makes them feel safe.
Okay, come October I’m dying for a getaway. What does my experience look like?
MD: First, I think it will be a great time to travel. It will be years before hotel occupancy and room rates get back to where they were in 2019, so it’ll be very economical. When you arrive, you’ll probably check in with your phone, which also will be the key to your room. As a trend, keyless entry will really be accelerated by the pandemic. If you do go to the front desk, the person serving you will probably be behind a plexiglass shield. Your room might be sealed, with a message that it’s been cleaned, inspected, and certified in the appropriate way. The room probably won’t have had a previous occupant for two to three days. You’re the only person who breaks that seal, and nobody will be allowed in the room during your stay unless you authorize it. This could change over time, but I think that’s the way it will be to start.
Pre-pandemic, the hotel industry saw some of its market share eroded by Airbnb. Do you see that shifting in the hotel industry’s favor, given that consumers may be looking for a more standardized experience, especially in terms of cleaning?
MD: It’s true that Airbnb’s model is really being challenged now. It’s harder to establish a sense of trust and safety with an independent host you’ve never met before, versus a national hotel brand. Many of the mom-and-pops who purchased multiple units as a way of going into the Airbnb business are going to get crushed. I don’t wish Airbnb any ill will. I think it’s a good, well-run business, but I think they’re going to have some significant challenges in the short term, maybe in the medium term as well.
How has the present situation affected KHP’s investment strategy, if at all?
MD: This downturn is terrible for the travel business, to be sure, but it does create significant investment opportunities. Our strategy has always been to find an existing hotel that we think would benefit from a capital investment that would reposition it into a boutique style hotel—in other words, a design-forward property with a chef-driven restaurant and often a rooftop bar. Quite often we also change management firms and brand affiliations. And what’s happened over the past ten years is that there are now a number of different ways to play in the boutique space that didn’t exist previously. For example, Marriott has its Autograph Collection, Hyatt has its Unbound Collection, and Hilton does something called Curio. You can affiliate with those big brands and still be an independent, boutique-style hotel.
What happens in a downturn like this is that the number of investment opportunities increases exponentially. Our most recent fund, which closed in April 2019, was $361 million. We have about $310 million left to invest.
Tell me about a property you’re developing right now.
MD: We’ve purchased five historic inns in Key West, Florida, that are now affiliated with Kimpton. We’re adding private porches and lush, tropical landscaping and renovating the rooms; it hasn’t been terrible timing, because we were already under construction when the pandemic took hold. The way we’re thinking, as I mentioned before, is that drive-to leisure is going to be one of the first market segments to come back in a big way, and there’s already a big demand for Key West—in fact, it has higher room rates on average than New York City.
You sound pretty optimistic overall.
MD: Even though travel is getting shellacked right now, it’s been a growth business over a very long period of time. In the United States over the last 30 years, demand for hotel rooms has increased on average about 2 percent per year. I don’t see that changing in the long run, even if the short term is tough. There have been difficult periods, like after 9/11. And then it keeps growing. You can’t Zoom call a vacation.
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