Hoteliers must venture to keep renovations simple
 
Hoteliers must venture to keep renovations simple
14 FEBRUARY 2020 8:27 AM

Hotel renovations are complex and difficult, so hoteliers must go into them with eyes wide open, experts said.

LOS ANGELES—Hotel renovation projects can be large, complex and expensive, so experts say investors need to approach them with care and prior thought to get the most of our their investments.

Speaking during the “Renovation innovation” session at the 2020 Americas Lodging Investment Summit, experts shared their takeaways on how to get the most out of a hotel renovation project.

Investment is a necessary evil
Corry Oakes, president and CEO of OTO Development, noted how even though it’s sometimes a tough pill to swallow for owners, renovations and the additional investment they require have to happen for a property to remain competitive.

“There’s a lot of new product coming into the market, and if you don’t have a competitive product, then you’ll quickly lose market share,” he said. “And I think we see that today.”

Don’t bite off more than you can chew
Aly El-Bassuni, COO of the Americas for Radisson Hotel Group, discussed a renovation project his company underwent for a portfolio of properties owned by Service Properties Trust. He said overall the project was a success and remained largely on budget, but had proved a challenge because they decided to undertake a large scale renovation at the same time as they were creating a new prototype for the Radisson brand.

“It was about a $52 million spend across eight properties for us,” he said. “Creating a new prototype, specing and sourcing the technical side of it, defining the product and at the same time administering that renovation was more difficult than we thought it was going to be.”

He said the project was “fun,” albeit slightly behind schedule due to the complexity.

King Scovell, managing partner and chief development officer for Woodbine Development Corporation, said it’s always important to go in to those projects with eyes wide open. That can sometimes be difficult when it comes to newly acquired properties, though.

“There’s a really short shot clock to acquire these assets, especially for those being marketed,” he said. “So the information you can gather and coordinate in such a short amount of time is a challenge.”

He said you have to rely on whatever partners you have in those situations, from brokers to brands, to do as much of a “forensic study” of assets as you can ahead of time.

Don’t overlook the essentials, and expect the unexpected
El-Bassuni noted some of the most important systems and aspects of hotels are often not the things that get owners and operators excited about renovation projects. That doesn’t mean hoteliers can neglect them if they want to get the most out of their investments.

“We’ve found that sometimes we’ve had to make investments in areas that weren’t as sexy and weren’t going to make the immediate guest impact and true ROI,” he said. “Once you get in to the mechanicals, things like elevators, then the building infrastructure, those are the sort of things that you don’t know what you don’t know until you begin to get in to it. So we’ve had contingencies, and in some cases we’ve burnt right through those, and in some cases we were well in line.”

Oakes said it’s important to remember that renovations, like the industry overall, are complex and are often done by small hotel ownership groups with a deep pool of assets or capital.

“Our industry is so fragmented, and most hotel ownership groups are small,” he said. “They’re small entrepreneurs that have one hotel or two hotels.”

It’s important for those smaller operators to not talk themselves in to doing more than they can truly handle because that can quickly get expensive, he said.

“If you don’t have enough volume across your organization to have built-in resources, you can often fool yourself in to thinking, ‘I can do this cheaper,’” he said. “The reality is there are only 168 hours in a week. Are you going to spend them trying to save $5 on a light or are you going to spend them trying to drive three more dollars in (revenue per available room) to the hotel?”

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