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Smarter Spending

With the economy recovering, here’s where hotels plan to put their money.

Wednesday, June 29, 2011
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A stronger economy with more hotel transactions means that owners are spending more on renovations and finding less flexibility on delaying required improvements.

That’s good news for brands.

“Frankly, hotel sales are good for us,” Phil Keipper, Hilton’s senior vice president of architecture and construction for the Americas. “It gives us the opportunity to refresh the product and work with a new owner.”

Edward Hoganson, executive vice president of business development at Crestline Hotels and Resorts, said “the volume of transactions is skyrocketing,” and driving CapEx spending. That’s not to say owners have given up asking for relief.

“The brands have good reasons,” he said, “and we’ve found it’s harder to debate scope than it is the timing. You build the relationship with the brand and not come to it confrontationally but as a partner: ‘I understand why you’re asking for this, but given the financing and the market and what everyone else is doing, we need to push this off and instead of 12 months, we need to talk about 24 months or 36 months.”

Keipper said Hilton tries to be reasonable with owners, but ultimately it has brands to manage. Brand leaders won’t be flexible on the basics such as flat-screen TVs, upgraded bedding packages and high-speed Internet.

“Some of our brands take a hard line and some are flexible,” he said. “It’s more on the timing than the standard. I don’t think you’re going to see big new initiatives by us. It’s getting all of the fundamentals right and focusing on reconnecting with our owners and making sure we are adapting to the changes in traveler preference.”

He described the approach as “fine tuning” the spa, business center or food and beverage outlet rather than mandating huge projects.

Where else is the money going this year? Jonathan Nehmer, president of Jonathan Nehmer Associates, said public space renovations, particularly food and beverage outlets and lobbies.

“These are major gut jobs and repositioning the way the hotel works, from the way you come in and the way you’re greeted to the food and beverage,” he said. “It’s encouraging to see them repairing what’s been languishing the past two years.”

Richard Senechal, senior vice president of facilities with Loews Hotels, agreed. He said Loews is repositioning about one-third of its portfolio with updates to lobbies and F&B. The company sees the move as “preparation for what we think is going to be pretty solid business,” he said. “That’s the core of our spending.”

At resorts, Hoganson said the focus would be on adding water features: “This is a way of distinguishing properties that can drive real value,” he said. For urban properties, he said the focus will be on the lobby and bar areas. Those areas can generate business as well as “add a pop to a property.”

Thomas Ito, principal at Gensler, agreed that lobby bars will see attention, and added that pool bars also are popular right now.

Some hotels are spending simply to catch up after a period of not investing in properties, while others are finding an opportunity to reposition their brands. Hoganson said Crestline is adding meeting space at three full-service hotels.

“That’s not catching up to the market, that’s changing the mix,” he said. “Adding a ballroom or building out meeting space changes the way a hotel is marketed. We didn’t have the money to do that a couple of years ago, now we do.”

For one project, a Westin hotel, Crestline is adding meeting space that will allow the hotel to host high-end events that it previously did not have room for. The incremental room nights and banquet revenues will show a clear ROI.

Ito said Gensler tries to help hotels identify the best ways to use space -- and make money.

“On the design side, we look for missed opportunities,” he said. “How do we take a space and make it flexible and provide some type of revenue-producing venue for ownership? What are those special places where you may be missing opportunities?”

For other projects, it’s harder to make the business case.

“Don’t underestimate the ‘wow factor,’” Nehmer said. “Sometimes you say, ‘You need to spend this money. I can’t quantify that to you, but it will change the character of your property.’ It’s worth something.”

One thing brands have to do is justify new projects and standards. Keipper said each of Hilton’s brand’s advisory council consults on major changes and can suggest ideas.

“All of the industry brands have been guilty of launching half-baked initiatives that are not well founded in consumer research,” Keipper said. “In the last three to four years we’ve taken a strong stand to make sure the things that we do make sense. Our customer are changing and our standards have to change with that.”

The way for owners and management companies to move the brands is to become involved in brand advisory councils, Hoganson said. That way, no PIP is ever a surprise and owners can guide their direction.

“The brands will always be reinventing themselves. That’s a central part of lodging,” he said. “I give brands a hard time, but I also think it’s important. They will continue to evolve and change, and you have to work with them.”

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