Panelists who participated in the “Reinventing obsolete hotels” panel at the Hotel Data Conference discussed the driving forces behind renovating and what projects make the most financial sense.
NASHVILLE, Tennessee—Owners who have an aging hotel in their portfolio or who acquire a new asset in need of improvements know the importance of keeping up with renovations so properties don’t become obsolete.
Hoteliers who participated in the “Reinventing obsolete hotels” panel at the 2016 Hotel Data Conference addressed some of the common issues when renovating, as well as what improvements should receive top priority.
Laurel Keller, VP of Hotel & Leisure Advisors, moderated the panel and kicked off the discussion by citing some statistics on closed hotels. According to STR, parent company of Hotel News Now, most hotels that have closed were between 30 and 50 years old, and the economy segment led all other chain scales for most closed properties.
“You can see that somewhere in the 31-40 year range that most of the properties are closing, so I guess that’s at the end of their financial life or their useful life you would say,” Keller said. “The economy segment is the one that is closing the most. We were chatting about that before this, and we’re not entirely certain if that’s because of the physical obsolescence of economy-grade, exterior-corridor properties or maybe they just weren’t built as soundly. I don’t know; it’s up for debate.”
Each panelist gave a quick update on some of their companies’ renovations before the session transitioned into some of the issues that hoteliers can encounter in the renovation stage. Bashar Wali, president of Provenance Hotels, said renovating an outdated property comes down to investing in improvements that give guests memorable stays.
“To truly take a hotel from being obsolete—meaning a hotel in an urban setting that has no soul, has no story—it’s not just about renovation, because you can certainly go and spend $100,000 a room and still be irrelevant unless you can find that hook that attracts customers nowadays,” Wali said. “And that’s really storytelling, essentially. It’s creating a reason for being. It’s creating a reason for someone to come to you and not go to the tried and true (brands).”
Jim Maguire, VP of guest services at Vantage Hospitality Group—which this month was acquired by Red Lion Hotels Corporation—said some of Vantage’s members have driven the company’s decisions when renovating and, more often, rebranding properties.
“We’re seeing a lot of second-generation hotel owners coming to the market or taking over their parents’ hotel, and they want something different,” Maguire said. “They’re much younger; they’re much more forward-thinking. They don’t want an Americas Best Value Inn; they want something bigger, a little more edgy, a little more modern, a little more focused on millennials. So we’ve rebranded as they take over, off of this brand then basically help them rebrand to a Signature Inn.”
Hang-ups with historical properties
A property’s historical value is a potential obstacle in renovating an obsolete building, the panelists agreed, but successfully navigating the red tape of historical preservation when upgrading the property can make the invested capital and time worthwhile.
“A historical hotel has a story to it. That’s one of the reasons you go ahead and procure that asset,” said Scott Peterson, senior director of development at CSM Corporation.
Peterson added that historical renovation can be “very complex and exhausting” at times.
“It’s probably a two-year process of getting your plan reviewed at the National Park Service in Washington D.C. to make sure you will qualify for the tax credits and make sure those will be granted,” he said. “And at the end you basically have a third-party, unbiased person confirm whether you built the hotel to the plans that you generated and you retained historical value where possible. But I do think historic buildings in great locations tell a phenomenal story that give you an advantage competitively in that market.”
Wali said Provenance takes an interest in historic hotels or buildings but often the tax credits or abatements are just too complicated to rely on in a budget.
“From our perspective, historic hotels are always more exciting. (They are) more interesting, but certainly the complexity comes into play,” he said. “The historic tax credits are sort of golden handcuffs—they don’t always make sense because of the restrictions that are imposed on you, but clearly taking a 1920s hotel and making it something interesting and exciting again is far more relevant than taking this vintage ‘70s hotel and doing anything with it.”
It’s also not uncommon for historic properties to be hampered by core design elements that could hurt their value as boutique hotels, according to Andrea Foster, SVP of development at Marcus Hotels & Resorts.
“We have a handful of historical hotels in our portfolio as well,” Foster said. “And sometimes they’ll have competitive disadvantages, like they may have smaller bathrooms than guests are used to today. … It’s important to balance the story, making sure that you’re renovating and positioning the property so that it does have the advantage maybe in other ways to make up for some things that may not be as desirable to today’s traveler.”
Prioritizing the renovations to-do list
When asked what projects should be prioritized when renovating obsolete properties, most of the panelists agreed that upgrades to lobbies and public spaces should be completed first.
“We do the public space first because that’s where we sell business, where we sell amenities,” Peterson said. “There’s a reason developers build golf courses before they start building homes, because that’s what it takes sometimes to sell the asset. Then we typically work in the guestroom and corridors last.”
Foster said safety concerns at a property should take immediate priority but agreed public spaces should be renovated next because it’s easier to make a first impression on guests with upgrades in those areas on property.
“We focus on guest-facing things that are going to have a return on investment, so things that the guest is willing to pay more for that they’re willing to recognize that this is a value-add to the property,” Foster said.
One example is The Pfister Hotel in Milwaukee, a 307-room property that Marcus has poured $30 million in to for renovations over the past 10 years, which Foster said has boosted the hotel’s popularity and performance. Foster said a jazz lounge and bar recently opened at The Pfister.
“We’ve done a lot of different projects just to keep it relevant, and we’re very proud that we capture everyone from the Silent Generation through Gen Z these days,” Foster said.
But Maguire said Vantage places a bigger priority on updating guestrooms when scheduling renovations because refurbished rooms have a greater impact on Vantage guests.
“We’re going to get to that lobby, but we’re going to do the guestrooms first,” Maguire said.