The formula: Take a venerable building, gut it, and transform it into a highly designed, modern hotel.

The end result: The 230-room Palomar Hotel at 17th and Sansom Streets in the former Architects Building, which will open its doors Thursday. A restaurant featuring American cuisine, Square 1682, will be housed in the former American Institute of Architects bookstore.

City tourism and convention officials say the Palomar, owned by San Francisco-based Kimpton Hotels & Restaurant Group Inc., will bring in a new clientele appreciative of the company's signature boutique style. A clientele that is affluent, well-educated, and loves the arts, fine dining, and being pampered. Also, one that travels with pets - the hotel welcomes all creatures, no matter how big and furry.

"Having a property like Palomar by Kimpton come to Philadelphia confirms that we have made it as a city," said Ed Grose of the Greater Philadelphia Hotel Association.

Yet the Palomar is opening in the "softest market in recent history," said Peter Tyson of PKF Consulting, which tracks the hotel industry.

Its average daily rate is $159 for a standard room. The combined average daily rate (ADR) for Center City's 42 hotels from January to August was $148.34, down 12.5 percent from the same period a year earlier, according to Smith Travel Research Inc. Occupancy was 68.1 percent, down 4.7 percentage points.

In August alone, the ADR for Center City hotels was $133.82, down 16.3 percent from a year ago. Occupancy was 68 percent, down 4.1 percentage points. (Average daily rates and occupancy numbers for September will not be available until the end of this month.)

"Customers are asking for lower rates because business is down and they are able to pit the hotels against each other," Grose said.

The Palomar is the only Center City hotel scheduled to open this year as the recession and continued tight credit stall development intended to support an expanded Convention Center.

When the expansion is completed, likely in early 2011, the center will offer 1 million square feet of sellable space. Jack Ferguson, executive vice president of the Philadelphia Convention and Visitors Bureau, which books the Convention Center, said Center City's 10,400 hotel rooms will need to increase by about 2,500, with 70 percent occupancy or better needed to keep hotels healthy.

Still, said Kimpton's president and chief executive officer, Michael Depatie, it is a fortuitous time for boutique hotels.

"A lot of people are suddenly into boutique hotels. That was not the case 10 or 15 years ago," Depatie said. "People want an alternative to the chain-hotel experience. When they travel, they want it to be more interesting and meaningful. They want an experience."

Kimpton began an East Coast invasion 10 years ago. It now has two hotels running and two under construction in New York; three in Boston; no fewer than a dozen in Washington; and one each in Miami and Atlanta.

Earlier this month, the company moved into downtown Baltimore, taking the 1904 B&O Railroad building and turning it into a Monaco, another Kimpton-brand hotel.

Market Metrix of San Rafael, Calif., considered the J.D. Power & Associates of the hospitality industry, conducts quarterly surveys of 35,000 hotel guests. In 2007, 2008, and the first two quarters of this year, Kimpton ranked first in customer satisfaction in the upper-upscale category, ahead of Marriott, Hyatt, Westin, and Sheraton hotels.

Kimpton also ranked higher than luxury competitors such as Four Seasons and Ritz-Carlton for customer satisfaction.

"Overall, Kimpton has done incredibly well in our measures," said Jonathan Barsky, cofounder and senior vice president of research at Market Metrix. "The reason is they are a hidden gem, a combination that wows people.

"When you go to their properties - and Palomar is one of their gems - you have no fixed expectations, and that is a real opportunity to wow the customer. You feel better. You feel welcomed and comfortable - emotions that drive loyalty."

The company has allowed pets since it opened its first hotel in San Francisco in 1981, and several hotels have directors of pet relations.

Kimpton also makes its meeting rooms green, serving water in pitchers and reusable glassware, using electronic catering menus to save paper, and offering napkins made of cloth or recycled paper. Renewable and sustainable materials (recycled glass tiles, custom furnishings made from replenishable wood) are used extensively.

The extra steps have not gone unnoticed.

"Because of cutbacks throughout the [hotel] industry, we're finding out guests are feeling less welcome," Market Metrix's Barsky said. "All the cutbacks are finally hitting the guest experience, but Kimpton has been able to maintain its emotional connection with their guests despite the budget pressures."

Julie Coker, general manager of the 350-room Hyatt Regency on Penn's Landing, said Kimpton's reputation for quality means the Palomar "can only add to the value of the hotels we currently have."

With the 201-room Le Meridien due to open early next year, the Palomar also may help sharpen Philadelphia's image for visitors, said Meryl Levitz, president and chief executive officer of the Greater Philadelphia Tourism Marketing Corp.

"What visitors are still having a problem with is whether Philadelphia is a romantic city," Levitz said. "They tell us we fall short on that. Not so much the luxury part as it is on being exotic, in terms of European - a kind of pampering and catering to a very youthful kind of taste that's somewhat eclectic. That kind of image is very important.

"These two hotels will help us with that," she said, "especially with romance, luxury and worldliness - three areas where we still seem to fall short."