While sometimes more costly than building from the ground up, adaptive-reuse projects can offer guests a special experience.
REPORT FROM THE U.S.—Some critics of the hotel industry have knocked the look of hotels as a sea of sameness: you’ve been to one, you’ve been to them all. But adaptive-reuse projects—converting all or part of an existing building to a hotel—create unique customer experiences by virtue of the building alone.
While they are appealing projects for their uniqueness, adaptive-reuse developments can be complicated. However, developers and brands have found that the projects appeal to today’s experience-minded guests, they’re often a good entry into high-barrier markets and it’s easier than ever to adapt hotel design to unique buildings.
“In my 20 years in hotel development, the most fun I’ve had is with our adaptive-reuse projects,” said Eric Jacobs, chief development officer of North America lodging at Marriott International. “To be able to take a 100-year-old building and keep its charm is something special. It’s difficult to recreate. Consumers appreciate when we breathe life into something vintage.”
Many adaptive-reuse projects involve historic buildings. Last year, Historic Hotels of America branded nine adaptive-reuse properties, including a chocolate factory, an army barracks, a silversmith and a jewelry studio. Many Historic Hotels of America member hotels are adaptive-reuse, but not all of them. Some have remained hotels throughout their life cycle.
Appetite for adaptive reuse
“Developers are looking for adaptive-reuse projects as much as new buildings,” said Charles Pinkham III, VP of development for Portman Holdings, which develops hotel, office, residential and mixed-use real estate worldwide. “They attempt to use as much of an existing structure as possible. Character isn’t something you can build. It’s innate in a building and that takes time and context.”
In particular, adaptive-reuse projects are one way to enter urban markets with high barriers to entry.
“We’ve seen pretty strong development growth in urban markets that you don’t find in other areas,” said Matt Wehling, SVP of development of the Americas at Hilton Worldwide Holdings, which has done adaptive-reuse projects all over the world. “It could be an office building, a school or a condo project. It needs to have an open footprint so we have the ability to lay out one of our prototypes with a little flexibility. Usually, the public space is more unique.”
These projects aren’t limited to full-service hotels with large footprints, sources said.
Hilton has adaptive-reuse projects across its spectrum of brands, and Wehling said, “There are a surprising number in the focused-service sector.”
Marriott, too, has completed adaptive-reuse projects with its full- and select-service brands.
“We always recognize the opportunity for these type of projects, which tend to be in urban downtown locations,” Jacobs said.
Such is the case for InterContinental Hotels Group’s boutique brand, Hotel Indigo, which includes an adaptive-reuse property, Hotel Indigo Downtown Atlanta, located in 230 Peachtree Center. Portman Holdings originally developed the hotel’s location as an office tower in 1965. Portman acquired the building again in 2014 after several different owners and redeveloped it as a mixed-use property to include the hotel. The hotel, which is managed by Hospitality Ventures Management Group, opened in December.
“There are so many factors that I can’t say adaptive reuse is generally cheaper or more expensive than building new, but I can say building ground up is easier than adaptive reuse,” Pinkham said.
Still, the pros often outweigh the cons, Pinkham said.
“We saw an opportunity and a need for a boutique hotel in an area dominated by big box hotels. We wanted a boutique offering, relatively smaller and more personal,” he said.
When choosing a brand for a particular property, Portman considers the usual—what’s available, the competitive set and the attractiveness of a brand, such as its reservation system, franchise fees, standards and design flexibility.
“Some flags are more lenient than others, and there are pros and cons to that,” Pinkham said. “There’s value in consistency, but the standard of Hotel Indigo is not to have standards. We’re seeing more hotels being built as boutique because people want a more personal experience. Boutique hotels are no longer solely in destination areas.”
Existing building size can determine the flag that will fly there. And brands also haven’t shied away from redeveloping historic buildings into dual-branded hotels. The Marriott portfolio includes several dual- or multibranded historic redevelopments in Houston, Dallas and Cincinnati.
When redeveloping 230 Peachtree Center, the Portman team looked at number of floors that were in a continuous stack. It renegotiated leases to move other tenants above the 10th floor, where a government tenant was locked in a long-term lease. The company looked at what it could put into the space, which ended up being the 206-room Hotel Indigo.
“It’s a good fit for the product,” Pinkham said. “It’s big enough with economies of scale.”
Rooms are larger than 400 square feet, which is bigger than a typical room in an urban space, Pinkham said. Meeting space, which the hotel didn’t need a lot of because of its proximity to the convention center, occupies 4,000 square feet. The restaurant and kitchen are on the first floor.
“We wanted the ground floor to be the heartbeat of the hotel,” Pinkham said. “We wanted the atmosphere of the fine dining restaurant and bar to flow into the lobby. It’s a function of using the entire ground floor for people to gather.”
Jacobs said that current trends surrounding how guests use hotel guestrooms and public spaces can complement the unique spaces that come with many adaptive-reuse projects.
“Years ago, the assumption was a room needed to be at least 12 feet wide, which was in part dictated by the size of the TV, which needed to fit in an armoire,” Jacobs said. “There was three feet of space, much of it wasted, dictated by the size of the TV. Nowadays guestroom size isn’t always a deciding factor whether to convert a building into a hotel.
“Customers want smart rooms and a unique experience. We could take a 10- or 11-foot-wide room and put the TV on the wall, and the usable space wouldn’t change compared to the 12- to 15-foot-wide room. We’re not giving up usable space even though the room is smaller.”
Years ago, traditional hotel developers tended to steer away from adaptive-reuse projects because of room size standards, Jacobs said. Today, a city will promote and provide incentives to transform landmarks, and many times won’t let a developer demolish a building.
Tax credits on historical buildings are attractive to owners and developers, who work with the federal government, which assesses the buildings. Tax credits can be as much as 25% of the cost of reconstruction and as much as 35% if one factors in city and state tax credits, Jacobs said.
“Many developers can sell those tax credits and cash out on 90 cents on the dollar, which can be millions of dollars,” he said.
“There are many buildings you can’t duplicate today because of the cost,” Jacobs said. “These older buildings are adorned with statues, gargoyles, and made of certain stone that you just can’t make work if you tried to build from the ground up.”