When demand causes hotels to expand
 
When demand causes hotels to expand
26 APRIL 2016 9:05 AM

For hoteliers who have the space and the demand, a hotel expansion can be a challenging—but highly profitable—endeavor.

REPORT FROM THE U.S.—Hoteliers who find themselves in the enviable position of simply not having enough rooms at a given property might want to consider adding an expansion if the site allows. As costly and time-consuming as these projects might be, industry insiders said the profits are still there when the dust settles.

That’s provided it’s the right property from the get-go. According to developers experienced in expansion efforts, having both the room and need to grow, as well as the public space to support that growth, are essential criteria for hoteliers considering an add-on.

“The original building has to be set up so you can do it,” said Mike Marshall, president and CEO of Marshall Hotels & Resorts, which recently added 46 rooms to its former 61-room Hampton Inn hotel in Pittsburgh.

“You’ve got to think about it before, when you’re building the original structure, especially if you’re doing things like complimentary breakfast,” he said. “Because then you add the rooms, and suddenly you have all these people coming down for breakfast.”

In the case of Marshall’s property, the original developer didn’t have the funds at first for a full build-out but constructed a disproportionately large front and back of house to support additional units in the future. As time went on and the industry shifted toward larger room counts, competitive pressures necessitated an expansion.

“At 61 rooms, you just couldn’t be very profitable,” Marshall said. “A lot of the hotels that went up between 2000 and 2006 were of the smaller variety. A lot of that had to do with cost. So later, if you had the land to expand, that was the way to go.”

The demand to expand
In other instances, even a large property with hundreds of rooms can find itself in need of more.

At the Pechanga Resort & Casino in Temecula, California, the hotel’s existing 517 rooms are full most days. The resort is in the midst of adding 573 guestrooms, along with an additional restaurant, parking structure and a 20,000-square-foot spa. The ballroom also will double in size from 20,000 to 40,000 square feet. As ambitious as the project seems, representatives said the demand for it by guests is clearly there.

“I can say pretty confidently that the past couple of years we were well over 100% occupancy,” said Vicky Naputi, interim VP of hotel operations for the property. “Looking at the needs of our guests and their requests, and looking at our competitors, decisions were made to be able to better service our guests with the extension.”

Naputi said that although the construction might cause short-term disruption for guests, the goal is to be more accommodating overall by offering greater inventory, instead of using the high occupancies at the resort as justification for jacking up rates.

“We definitely don’t want to raise rates,” she said. “That’s not doing what we need to do as far as accommodating our guests. Our demand is so high that we need additional rooms.”

In addition to the casino, the resort wants to encourage a steady stream of visitors attending concerts at the property, or arriving to use the massive new spa or the resort’s 13 pools. The more public space and amenities the resort contains, the more guestrooms it also requires.

The competitive landscape also can play a large part in the thought process behind an expansion. For some developers, taking on such growth represents not just a challenge but also an opportunity, as the finished product can be elevated among its comp set, in some cases into a class all by itself.

That’s the thinking at the Clearwater Casino Resort overlooking Puget Sound in Suquamish, Washington, which just added a new 95-room tower to its existing 88 guestrooms, along with additional parking and new public and convention spaces.

“The whole project was identified to make us more of a regional footprint,” said Russell Steele, CEO of Clearwater Casino Resort. “We were very much a local property, I think, prior to our expansion. I’d say 8% to 10% of our business came out of the Seattle market. That has obviously changed with this expansion, rather successfully.”

The Clearwater Casino Resort added a 95-room tower to its existing 88 guestrooms. (Photo: Clearwater Casino Resort)

For both Pechanga and Clearwater, an ever-expanding base of meetings and group business provided yet another driver for guestroom growth, mirroring a broader trend in the industry.
Similar to Pechanga’s effort, an upcoming phase in Clearwater’s redevelopment includes adding another 15,000 square feet of meeting space to its existing 10,000 square feet, as well as another 11,000 square feet of pre-function space to its existing 4,500 square feet. As a result, both tired casino guests and the property’s newly cultivated throng of convention attendees all will be seeking beds at the end of the day.

“We already had heavy demand on weekends,” Steele said. “For example, last year before we opened the new addition, we turned away over 18,000 roomnights. Now, we also have the capacity to take large groups in need of meeting space. We’ve added the additional rooms, and we’re still filling up on holidays and weekends. That’s obviously something we should have done sooner.”

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