Overnight growth

Hotel operator Valencia Group has unwrapped a niche by keeping a focus on boutique properties

14th April 2006




The Valencia Group upgrades hotels like most people upgrade cars. Founded in the mid-1990s by Doyle Graham Sr., the Houston-based hotel company first distinguished itself by developing a successful track record with midrange properties, then experienced a turning point in 2001 with a shift toward catering to the upscale hotel market.

At that time, Valencia Group hired principal and executive vice president Matthew Nuss to move forward the company's vision, soon releasing its three properties in Austin -- the Hampton Inn & Suites in Southpark, the Hampton Inn & Suites at Bergstrom Airport and the Homewood Suites -- in lieu of more luxurious hotels.

Valencia Group began its foray into the luxury market by securing a bid to build a flagship property on the San Antonio Riverwalk. Federal Realty Investment Trust was looking to develop the land, and hired the Valencia Group to do it.

"Federal Realty Investment Trust wanted something uniquely different, something that wasn't in any other market," Nuss says. "They liked what we were pitching."

After receiving a 99-year lease on the space, Valencia Group funded the hotel's construction costs with nearly 40 percent private investment and the rest from banks and construction loans. That hotel opened in 2003, and its success led to the Hotel Valencia Santana Row in San Jose, Calif. From 2003 to 2004 -- the years the San Antonio and San Jose hotels opened -- Valencia Group's revenue increased 67 percent. In 2005, revenue climbed another 28 percent.

According to industry data publication "Source Strategies," Valencia Group's annual room revenue in 2005 was $18.5 million, up from nearly $15 million in 2004 and $11.2 million in 2003.

Small is big
The San Antonio Valencia hotel's mission-style architecture and interior design by Los Angeles-based design firm Dodd Mitchell Design elevated the property to the ranks of the Small Luxury Hotels of the World, a network of independent hotels that enjoy upmarket brand recognition. The Hotel Valencia Riverwalk also was named to Condé Nast Traveler magazine's list of the world's Top 100 best new hotels in May 2004.

Those accolades have raised Valencia Group's profile, helping the company grow.

"We followed the concept of creating something unique at the full-service level that incorporated world-class locations, interesting interior design and classic exterior architecture," Nuss says. "We wanted to be competitive with brands like the Westin and just below the Ritz-Carlton and Four Seasons."

Meanwhile, meeting the luxury hotel standards put forth by Small Luxury Hotels of the World requires hard work. Valencia properties must submit to regular on-site visits by Small Luxury Hotels of the World inspectors, who rate hotels on everything from thread-count of the sheets to the number of times a phone rings before someone picks it up. Hotels are also rated on how their exteriors blend in with their surroundings.

Connecting into the Small Luxury Hotels network has drawn customers who migrate from one affiliated property to another, which Nuss says has helped the Valencia Group build name recognition.

However, despite a successful opening in San Antonio, the company was forced to overcome a major obstacle when, in the middle of developing the San Jose property, the dot-com bubble burst. San Jose is in the heart of the tech-heavy Silicon Valley.

"It took the wind out of our sails from an industry standpoint, but we were lucky enough to have all of our financing in place and equity in place so that we were able to push through the tough period," Nuss says. "Luckily we were not open yet, and we weren't affected too much."

The 211-room Hotel Valencia Santana Row was positioned in the middle of an upscale, mixed-use area that included high-end retail shops such as Escada, Burberry and Brooks Brothers, but when 250,000 people lost their jobs in San Jose within a six-month period, Nuss says, the company was forced to rethink its strategy. That's when the Valencia Group joined forces with two Silicon Valley giants, Hewlett-Packard Co. and Cisco Systems Inc.

"We went to them and said, 'We want to be the poster child for you regarding what a business can do in the hospitality industry related to technology,'" Nuss says.

The Valencia Group shelled out an additional $500,000 to equip the property with a mega-server, IP phone system, video on demand and wireless Internet solutions.

"We were the most robust hotel in the Silicon Valley," Nuss says.

That investment paid dividends.

Nuss points out that Valencia Group's technology stood out not only because of its sophistication, but because the services were offered complimentary to guests.

"With so many hotels, you pay $9.95 an hour (for Internet access) -- everywhere you get nickel and dimed," he says. "We believe technology should integral going forward."

Hotel Valencia Santana Row was named by Mobile PC Magazine as one of the country's Top 10 most-wired hotels in February 2004.

Indeed, corporate executives have discovered the Valencia Group's commitment to being wired-in.

Lanny Grossman, a spokesman for Small Luxury Hotels of the World, says the Hotel Valencia in San Antonio fills more rooms than many of the network's other properties because of its proximity to technology giants SBC Global and AT&T, as well as its commitment to luxury standards. With 200 rooms, that hotel is also one of the network's larger properties. Small Luxury Hotels prefers to admit smaller hotels into its network in order to provide consistency and maintain high standards.

Most member hotels average 55 rooms, but Grossman says the organization also takes into account how a hotel fits into a marketplace.

"Top-tier executives don't want to stay in a Hilton or a Radisson," Grossman says. "They can spend $300 a night, even on business, and there is a level of luxury they have come to expect."

After gaining a reputation in Texas and the Silicon Valley, the Valencia Group began receiving inquires from other hoteliers and developers. In January of this year, the company took over management of Houston's 93-room Lancaster Hotel and is embarking on projects in Dallas, St. Louis, and Telluride, Colo.

The company is also planning to roll out a new concept called Hotel Elle in Midway Cos.' mixed-use development on the site of the former Town & Country Mall.

The company's biggest competition continues to come from upscale, independent hotel owners and companies such as Joire de Vivre in the San Francisco Bay Area, according to Nuss, who feels confident about the Valencia Group's future.

"We're a blossoming flower -- things are happening nonstop," he says. "People have seen our success and want to be a part of our equation."

© 2006 American City Business Journals Inc.