As the industry inches closer to recovery, and before any new development comes, renovations and conversions continue to take priority. And because of tight wallets and competitive market conditions, designers will be asked to do a lot with a little—and quickly.
A multitude of distressed hotels that are on the brink of turning over to new owners or being repositioned in the market with a new financial strategy. Most of these properties will need to renovate to gain market share.
And it doesn’t stop with distressed properties—renovations remain a top priority across the industry for the next three years.
“Properties pushed investments back the past few years,” said John Boettger, SVP of asset management for Hilton Worldwide. “You’re going to see that recover this year and then accelerate into next year. … [Owners] are going to start to see their older hotels lose market position.”
Bruce Ford, SVP of Lodging Econometrics, says the start of a new-build cycle is at least as far away as 2013 in the U.S., making conversions more attractive, at least for the lower chain scales.
“The type of conversions you’ll see are relatively far down the food chain,” Boettger said. “You won’t see a lot of Sheratons convert to Hiltons. It’s not going to happen. If they have a problem, they’ll solve it or they’ll get rid of it.”
This leaves the design community with plenty of oppurtunity, but these jobs also will be more competitive, tense and involve a shorter timeframe with less pay.
“Clients have had two years of no reserves,” said Warren Feldman, SVP of Jonathan Nehmer + Associates. “They will squeeze our budgets [as a result].”
But not all designers will feel the squeeze the same. The area designers focus on will depend on the owner or buyer’s ultimate goal. If the owner wants to quickly improve the property in order to sell or flip it, the focus should be on guest-impact items. If the owner plans to keep the asset long-term, infrastructure is usually the first priority.
Ron Kollar, chief design officer at Tishman Hotel Corp., said his company frequently does an initial property assessment to determine how much is needed to get the property in basic shape before the company even thinks about FF&E investment.
“Reality is, you have to bring hot and cold air and hot water into the room and have windows that don’t leak before [anything else],” he said.
“Focus on what makes the transition from a 20-year-old property and bring that around in a visible way without breaking the bank,” Kollar said.
- Use manufacturer stock products rather than custom goods
- Use neutral colors to avoid trends
- Carpet, bedding and art are great improvements done quickly
- Labor-intensive work is now cheaper today
- Many jurisdictions will help fund green hotels
Cost and time
One benefit to renovating in a down market is that most other costs associated are down as well. Owners hand the designers a smaller budget, but with costs down, designers can get more value.
Depending on the area of the country, certain updates might make more economic sense because costs are dropping differently. Labor rates have held better in union areas, Feldman said, and in regions where unemployment rates are up, labor rates have gone way down, as much as 25 percent in some places.
Feldman said construction costs are down anywhere from 15 to 25 percent, but overall, the most value is in labor, with material costs not dropping as dramatically. These differences should be considered when planning a renovation—a higher priority should be placed on labor-intensive jobs like wallcovering or painting as opposed to jobs that carry a higher material cost, like stonework.
Panelists agreed the time to act on any updates is now, for several reasons. For one, forecasts indicate the market will start to improve in three to six months. When the market improves, costs go up, so renovating in this window of advantageous pricing is critical.
“We have access to significant cash reserves and there are other owners like us, who will take advantage of the competitive bidding that was developed in this economy,” said Richard Senechal, SVP of facilities for Loews Hotels and Resorts. “If you have money, it is a great time to renovate.”
Second, as the market improves and budgets loosen, renovations and improvements will become much more popular, placing a large demand on vendors and manufacturers to ship materials. For example, bedding, carpet and artwork are the most in-demand products right now. As more projects renovate, the lead times for these items will get longer, which will prolong the renovation and cost everyone more money, Feldman said. In fact, the poor economy has already created this issue.
“Manufacturers have drawn down inventories,” Feldman said. “Stock items don’t really exist that much anymore. Yes they can make it, but the availability is limited.”
But Kollar still advised staying away from custom items in most of today’s renovations. Just choose items manufacturers have and that they’ve made 100 times before.
“You have to get smarter about the budget,” he said. “Designers and architects and owners have to be cognizant of how to work with each another and the budget. Don’t show me something I can’t afford. And [designers] are going to be the ones who have to go back and design and reselect to trim down the budget.”
Panelists said owners are trying to accomplish a more timeless looks, to avoid the ups and downs of the design trend world.
“Keep the box as neutral as possible to help in the future,” Feldman said. “People are not going to be willing to go out on a limb, and they want to know for every dollar they spend they’re getting a $2 impact.”
Howard Wolff, SVP for WATG, said even luxury hotels are looking for a less-trendy look.
“The days of overpricing undersized, trendy hotels are over,” he said. “Owners don’t want the pressure to spend money to update and renovate every year. Hotels with a history can use their age to their advantage.”