Two good hotel options in Cuenca include:
Mansion Alcazar Boutique Hotel: This is a lovely boutique hotel, in a former colonial residence, a short distance from the main square. It has 11 rooms and 3 garden suites. I loved my spacious garden suite, #303, with large king bed, sitting area and lovely bath. The lobby is formal and elegant with lovely antiques and the Casa Alonso restaurant is very attractive with excellent food; a good choice to dine in town. There is a nice breakfast buffet as well. There is a small dining room with outdoor seating. There is a bar in the front of the hotel and tea is available on a self-serve basis each afternoon in the lobby. It is located at Bolivar 12-55 y Tarqui.
Hotel Santa Lucia: This is another recommended boutique hotel located at Borrero 8-44 y Sucre. The restaurant on the central patio is most attractive.