Boutique hotels defy upstream economics.

Wither the expense account?

Manhattan's lodging sector runs the gamut from vast atria filled with glass elevators to staid suites in pre-war buildings. Many of these properties are stationed along tourist corridors, namely Times Square and Fifth Avenue, where visibility is part of the business.

Also strewn throughout Manhattan in chic, less touristy neighborhoods are the boutique hotel: the lone wolves of the lodging industry.

The development of several boutique properties in recent years, with more on the way, singles out this end of the hotel sector as a Manhattan phenomenon.

"Boutique means a lot of different things to a lot of different people. I define it as less than two hundred rooms with a high degree of style and service," says John Fox, senior vice president at PKF Consulting, a hospitality firm.

The definition is relative, as many hoteliers have embraced the term to promote their business, but one common thread involves the number of rooms. One thing that the boutique isn't, to quote a line from more than one boutique manager, is "cookie-cutter."

Some background data is helpful.

According to Fox, occupancy rates are down four percent from last year. Those rates hovered around 84 percent, however, which are extremely high. "Last year was so good it was almost an aberration," says Fox.

According to research from Collier's International Hotels', the boutique hotel sector is one of the most active in the hospitality market, strongly favored by independent operators and management companies. Colliers predicts that brands like Starwood and Marriott will become stronger players in this sector. In Manhattan, with the exception of the W chain (Starwood's concern), most boutiques are independently owned.

"In down periods, it's the mid market that tends to get hurt the worst. At the top end of the market, they are more insulated from a recession," says Fox.

An examination of three Manhattan boutique establishments suggests that these hoteliers aren't exactly alarmed about the possibility of a severe recession. One explanation might be that they have created something that, in their view, is profoundly unusual, driven by funky themes and designs.

Image is essential to the boutique establishment. The level of self-consciousness is so high that every single detail -- that leather bound book on the mini-bar, the shower curtain's brass rings -- is exorbitant chic. But by far the biggest selling points are the clients, who via their eclat and with-it status are the ideal advertisements for these businesses.

This recent encounter at a midtown boutique hotel proves the point.

Morris Moinian -- a hotelier with roots in the development sector -- was sipping a cocktail in the lounge of his hotel on a recent Monday night when his cellular phone rang. Excusing himself, Moinian stepped out into the hall to talk.

He returned ten minutes later, beaming. The phone call was from the Elite Modeling Agency. They were interested in seeing his hotel, the Dylan, located on 41st between Madison and Fifth Avenue. An event this summer would require plenty of rooms for the models who would be visiting New York that week.

Could he provide a tour of the premises, perhaps next week?

It was the sort of windfall that hoteliers dream about, especially a boutique owner like Moinian. Think about it -- the most image-conscious clientele imaginable staying at the most image-conscious hotel around. A perfect fit.

When asked how he responded to the Elite staffer, Moinian grinned rakishly.

"I told them we would have to talk in the morning, after I checked availability," said Moinian, nonplussed.

A fitting reaction indeed for a hip boutique hotelier -- poker-faced at the prospect of models roaming the halls of his hotel. Beneath the surface, however, Moinian was ecstatic at the prospect.

Moinian is a rabid promoter of the Dylan Hotel, which opened last fall, and this is his first foray into the hotel management sector. With bravado, Moinian shows off the Dylan as if it were the eighth wonder of the world. He gestures towards the fixtures and decor with the reverence of a high priest flaunting the stained glass in a cathedral. There is, in fact, a room, with stained glass at the Dylan.

With 108 rooms, the Dylan features a marble grand staircase and a ballroom with a 20-foot coffered ceiling. The restoration of the building cost more than $30 million - it used to house the Chemist's Club, a mysterious private organization. Some of the other materials used in the Dylan are walnut parquet floors, Carrara marble, and titanium glass panels.

Even the elevator is unconventional; a curved wooden panel backs it.

"That was not easy to construct. Look at it: it's curved," says Moinian, with pride.

Like the rooms above it, the ball room that houses the restaurant, named Virot, is ample, with extra-large tables and a massive fire place located in the center of the room. It's a cavernous fireplace suited to a Nordic keep.

The tour enters the kitchen through a side door. The chef, says restaurant manager Ron Lybeck, is a rising star on the New York food scene. His name is Didier Virot. Moinian follows with a prediction or perhaps a statement of fact, such is the way with which Moinian says anything:

"We will obtain four stars," says Moinian, with a nod to Lybeck.

At the time of this interview, the restaurant had only been open for a total of nine days, but Moinian credited a recent Sunday New York Times article for drawing a substantial crowd to his restaurant. "We have fresh flowers brought in every day. And look at the size of this kitchen," says Lybeck.

The kitchen is proportional to the dining room, quite large. The menu is prixe fixe, for now.

Leaving the kitchen, Moinian gestures toward the columns that rise up in each corner of the dining room. The wood floor in the dining room has a Bordeaux pattern on it. Even though the lighting is subdued, it is possible to make out the ornate designs on the ceiling. The rooms here range from $295-$695 a night.

Only fifteen blocks south, another boutique hotel opened last August. It is called the Hotel Giraffe, one outpost of Henry Kallan's boutique hotel empire. Kallan owns several Manhattan boutique properties.

"Staying in a boutique hotel is a lifestyle thing. Like if you wear strictly Calvin-Klein. You are making a statement about yourself," says John Flannigan, the general manager of the Hotel Giraffe on Park Avenue and 26th Street.

Flannigan's hotel pitch is dulled by the intermittent white noise of a coffee machine positioned in the center of the lobby. Nobody is shouting "venti latte," however -- the process is completely automated.

That machine -- a $17,000, 21st Century samovar that grinds coffee beans, froths milk and spits out steaming coffee in several exotic variations (cappuccino, espresso, cafe au lait) within seconds after pressing one of several buttons on the console -- is emblematic of the boutique phenomenon.

This is a realm of wood-paneled elevators, Turkish carpeting, and marble- topped surfaces. Even the bathrooms beneath the lobby shirk conventional overhead lighting in favor of aromatic candles. Piped-in music--it ain't Muzak -- emanates from speakers somewhere above the sink.

"The FFE will still be here ten, fifteen years from now," says Flannigan, using lodging patois for "Furniture Fixtures and Equipment."

"See that rug? It's a $50,000 Turkish rug," says Flannigan, pointing to the floor.

Lest you assume that the rug wasn't made for the hotel, Flannigan adds: "The word is custom."

But high quality translates into high overhead. When you consider that the Giraffe Hotel only has 72 rooms, the rate must be higher than so-called "flag" operations that boast a thousand or more units. But that's the idea at a hotel like the Giraffe -- smaller, more intimate surroundings for the discriminating client who despises cookie-cutter hotels.

The 73 rooms at the Giraffe range from $265 to $375. Due to the limited footprint of the building, there are only seven units on each floor. Corporate clients, says Flannigan, account for a high percentage of his business.

This is one area where fears of a recession have already put a dent in the Giraffe's potential clientele. One of the first departments to cut costs in a corporation, says Flannigan, is the travel office. Instead of putting three employees up at a luxury boutique hotel, they may decide to send one employee instead. According to Flannigan, "we are already starting to see this happening."

Flannigan reports that over fifty percent of the Giraffe's business is corporate-based.

When the subject of boutique hotels as investments came up, Flannigan said that despite the smaller size of a boutique hotel, it is still a solid investment.

"Look at the kind of money that was spent here," says Flannigan, referring to the decor in a suite. The details, even down to the choice of Dashiell Hammet's "The Thin Man" on the bookshelf of a suite, beg to be analyzed on their own merits.

The Hammet novel is a carry-over from the Giraffe's sister property -- the Library Hotel, located on Madison Avenue and 41st Street. As the name suggests, there are plenty of books in the 60-room hotel. According to the general manager, these books were selected from the Strand. Over $45,000 was spent on them.

The bibliophile theme is carried to an extreme as each floor is assigned a subject from the Dewey Decimal System. That's right -- you can tell people to meet you in room nine hundred point zero zero six (this is the junior suite, biography is the subject and history is the floor.) It's a quirky idea, executed in an obsessively thorough fashion.

Unlike the Hotel Giraffe, a new construction, the Library was built inside a circa 1912 office building. Its dimensions are unusual -- only 25-by-l00 feet. Thanks to a copper bay window that extends out over the avenue on several floors, a guest can actually look north along Madison and see Carnegie Hill in the distance.

"You cannot just slap a boutique label on to something and expect it to work," says the Library Hotel's general manager, Craig Spitzer.

"Henry Kallan had a vision about how this place would operate," says Spitzer. As Spitzer discussed the hotel, guests wandered into the reading room to use the giant coffee machine, identical to the one at the Giraffe.

"I'm convinced that I have some guests who stay with me simply on the basis of that cappuccino machine," says Spitzer, reloading the milk compartment on the machine.

The rooms range from $325 to $475 a night.

The hotel's first-floor restaurant is scheduled to open this spring. It will serve Italian fare and feature communal tables with a central fireplace. The dining element is an integral part of the boutique experience.

The owner of the Library and Giraffe has been involved in this business since 1988, the year that he developed the Wales Hotel, a boutique hotel located in Carnegie Hill.

"These are small hotels. That's the idea, you see, because the guests feel like they can interact with the staff," says Kallan. Service is, in Kallan's view, a crucial issue in his hotels.

"If you call one of my hotels, they will pick up on the second ring. Why should they make you wait?"

A hotelier with humble roots, he credits an entrepreneurial outlook as the reason why the boutique model works so well in Manhattan. Self-made clients staying at self-made hotels, in a nutshell.

It's a formula well suited to Manhattan, apparently.

"My hotels are like private clubs. If you are a guest, you are also a member," says Kallan.

For both Moinian and Kallan, the boutique "club" appears to be doing well in terms of recruiting.