The Ace Hotel Group which spun from a single hotel founded back in 1999 at the hand of Alex Calderwood reinvigorated the traditional hotel model. By offering something completely original, Calderwood created the definitive hip hotel chain and broke hotel convention. While a complete pioneer in regard to its design, the first Ace Hotel in Seattle, Washington also offered affordable rooms with communal bathrooms under the same roof as large luxury suites and was created out of Calderwood’s desire to create a place where his friends – DJs, artists, creators, musicians – would want to stay. The Ace Hotel Group is now a branded operating company with seven properties and over 1,000 rooms currently under management. It is scheduled to open its new Pittsburgh property this week with the New Orleans opening following next year.
Hotels are generally high-margin businesses but getting them up and going takes a lot of wheeling, dealing, and capital. The Ace Hotel Group’s business model is centered on enhancing the value of properties through an innovative and locally-inspired approach to design and development. This is done through its relationships and partnerships with financiers, developers, and a number of the creative community. Essentially each new hotel is handpicked and designed to fit specifically within its location. I found this especially interesting because it makes their business model, in a sense, a bit inconsistent as the design and development can’t simply be replicated. The firm creates and captures value by finding a challenged, sometimes historical, property in a less than desirable neighborhood and repurposing it in the Ace image by instilling local culture and collaborating with local businesses to create an authentic feel. It has leveraged this business model to bolster its brand which has allowed it to split its revenue among hotel rooms, bar/restaurant offerings, and merchandise.
“We don’t think of ourselves as a hotel company. We’re more about creating community and a cultural venue.”
-Brad Wilson, president of the Ace Hotel Group
Ace’s operating model hinges on resourcefulness and the behavioral change garnered by the rise of the millennial and the creative class. It is no longer all about the in-room amenities, spending lots of time in the comfort of your room, or standardizing properties quickly across regions. Resourcefulness begins in the development process in which Ace opts against gut renovations and tries to use as much of the existing architecture as possible. This unconventional style has led to quirky room layouts, and its New York property having about 54 different room types. This would prove disconcerting to the average hotel company, but the typical Ace Hotel customer unbothered by such a quirk and may actually find delight in a slightly different room on each stay. Due to the shift in behavior and rise of the creative class, Ace is able to employ a streamlined operating model that pairs varying room sizes with large social spaces and unique restaurants/bars. Rooms are typically fitted with the likes of inexpensive yet highly functional industrial supply lamps and unpainted metal doors, and the large communal spaces offer free Wi-Fi, coffee and tea from boutique brands, intriguing art, and lots of interaction. Restaurants are helmed by popular local chefs and draw a constant flow of people. While hotels of the past kept everyone at a social distance, Ace has always been about encouraging interaction.
Atelier Ace, an in-house creative services firm, provides interior, graphic and product design, marketing, PR, development, digital presence and event & cultural engineering for the properties. The upcoming generation desires uniqueness in product offering and has an affinity for film, fashion, theater, and other forms of art. Atelier Ace feeds this desire by initiating various partnerships and events which have ranged from geek-chic “codeathons” with the Clinton foundation to fashion shows. This is another critical component of its operating model and a source of competitive advantage.
The business model drives the operating model, and the operating model builds the brand which creates new opportunities to employ the business model. By purchasing and developing these distinctive properties in unique locations, Ace is able to make its hotels “nodal points” in the cities in which they go up. An Ace hotel is developed and literally becomes a destination for travelers and locals alike. By stripping the in-room experience to its basics and utilizing its community spaces and event programming, Ace has created a brand that resonates with a specific group while also maintaining a sense of inclusiveness. By redoing this over and over again in different cities but with a completely bespoke approach, it has created a competitive advantage in that no one hotel is alike, but each is still distinctly Ace. This has led to profitable hotels with thriving food and beverage offerings as well as a line of Ace branded merchandise.
The Ace Hotel Group has spearheaded a new way of hotel design and hospitality and has prompted a number of imitations. This extends from smaller independent brands to larger hotel companies introducing new brands with a focus on style, design, uniqueness, and affordability. While its 2014 revenue was stated as being around $110 million, a small dent in the overall hotel & lodging market, I find it remarkable what was built from one man’s vision in a 28-room hotel in Seattle, Washington and the overall impact its had. It will be interesting to see what locations come next and how much growth the company will be able to achieve with such a unique business model.