David Duncan is the recently appointed president of the Denihan Hospitality Group, New York City. Since its recapitalization in 2006, the boutique owner-operator with The James and Affinia brands among its stable has grown from six hotels in New York City to 13 in locations that include Chicago, Washington, D.C., and Miami Beach. In fact, it is in the middle of a US$40 million renovation of the Royal Palm on South Beach, which will relauncn as The James in the fourth quarter. At the same time, Denihan is about to announce deals for three new hotels in New York City and is eyeing West Coast expansion next.
HOTELS sat down with Duncan during the recent ALIS conference in Los Angeles to discuss growth and ongoing operations.
HOTELS: What is your first priority in your new position as president?
David Duncan: To make sure we have the right allocation of resources to realize our growth goals. On the development front, we are adding resources on the West Coast and in our management team to make sure we have the right bench strength so as we take on new properties quickly it will be routine and a guaranteed success.
We will add resources during the next quarter on the West Coast. We have been working on aligning the platform and making sure we understand our team’s individual objectives and how they fit with our growth plans.
HOTELS: What are Denihan’s growth objectives?
Duncan: The West Coast is a big focus, as we have big customer base that travels with us who travels to L.A. We have great unaccommodated demand in places like L.A. … Now is a good time to build on our momentum and grow The James and Affinia brands west.
HOTELS: Tell me about the status of the South Beach (Miami) property?
Duncan: We are running it right now as the Royal Palm and will relaunch it as The James in the fourth quarter for the busy season. We are spending about US$40 million renovating the property. Through the summer we will renovate public space, bringing in restaurant and bar concepts.
HOTELS: What else is in your pipeline?
Duncan: We are close to announcing three new properties in New York City. One will become an Affinia and two will be independents that we will manage for New York-based family owners.
We would like more assets in Chicago at the right entry price. We are looking at Boston and more in New York City, as there are still a lot of submarkets with unaccommodated demand.
HOTELS: Are you looking at strict management opportunities?
Duncan: As part of our strategy, we wanted to have capital available to grow the company, so we sold 49% of six assets in New York City to Pebblebrook last year freeing up US$100 million of capital to accomplish our growth strategy. We will take that capital, partner with other institutional capital and use family capital to grow. We have a very strong interest in having an equity interest in real estate. We will do third-party management deals, but we prefer to put equity in deals.
HOTELS: What is the biggest challenge in your new position?
Duncan: The primary one is finding well-located real estate at rational prices. We can locate them. The rational seller is the hard part, as they have high expectations. Abating seller expectations is challenge one, two and three.
HOTELS: How well can you compete with big hotel companies with boutique brands?
Duncan: I will take on any big brand on a heads-up basis. We will run 100% index or better of the competitive set, and on a net margin basis we win every day, as we are not an expensive solution. We are a creative solution without expensive guest reward systems or PIP requirements, and we do what makes sense for the building.
The second challenge we have is overcoming the inaccurate presumption that a brand, because it is large, is a better solution for the building. When you look at net profit results, it is not that compelling. They can run an 8% RevPAR premium, but you have to pay them more than 8% to plug in.
There is an institutional bias to large brands just because of their history. There is a comfort level of going with the brand.
HOTELS: What are you doing on the operational side to drive profits?
Duncan: On the bars and restaurants side we have good people attracting good talent. Chefs are interested in doing business with us, and we do business with them in a different way. We make sure we control profitability of the operation. It is great to have the top chefs involved, and they are great at driving top-line revenue. We work closely with them from an asset-management perspective to make sure they develop profitable solutions in addition to popular solutions.
HOTELS: How do you maintain success with F&B?
Duncan: We try to have more timeless restaurant concepts. For example, David Burke’s Primehouse (at The James Chicago) is not a flash in the pan. Chicago is a beef-eating city, and the Primehouse continues to run as the top two or three steakhouse in the city. It has been running for five years, and 2011 was its best revenue year.
In a majority of our successful restaurants, about 80% of the restaurant business is local. We try to make sure we honor the local demand.