How Your Existing Hotel Properties Can Stay Profitable and Compete with New Brands and New Build in the Market!

With the escalation in hotel brands, a big question is which brands will remain viable in 5 to 10 years?  There is continuing concern for hoteliers about the large amount of new product being approved and the “adding of more pin dots,” as Mit Shah, CEO Noble Investments stated.

“Over 10 years, that’s where the specialists win,” Shah said. “If you’re trying to get in and out over three to five years, you’re going to have lots of different economic factors that come into play and a lot of things that (are) just outside your control.”

When it comes to PIPS (Property Improvement Projects), in many cases it takes the same amount of time to invest equity as it does to develop a loan. Which is better? Adding equity to your property is a better decision. Through renovation of a property, it allows that property to compete not only by putting “heads in beds” but making it more profitable for a future investor.

It does takes time to get a PIP review in hand from virtually all the major brands. Usually, three to six weeks are required to prepare a PIP document that generally remains valid for six to 12 months so plan for a realistic timeline. Both the scope and completion timeframe of a PIP are often negotiable. You may be able to negotiate renovation for some areas but when it comes to the condition of the FF&E, it is the largest part of the hotel’s asset and must be addressed immediately. As they say, you don’t get a second chance to make a first impression with your guests and that includes the condition of your guest rooms. Preventative maintenance also includes taking care of the guest room FF&E and making sure you stay ahead of any issues. Depending on the size of the hotel, maintenance accounts for between 4% to 6% of hotel’s operating budget.

Photo Credit: CAPEX Report 2018, ISHC, HAMA

But the growing prevalence of brands and an arms race in the war for guest loyalty is causing an increasing rift between the brands and the ownership community, Shah said. That will necessitate an industry-wide reorientation to make sure everyone on both sides of that equation is as successful as possible, he said.

But for a hotelier trying to maintain profitable existing properties, it is a challenge to say the least, when so many new hotels are being developed. Hilton just announced that their Curio Collection opened its 100th new hotel. Together, Curio Collection and Tapestry Collection have more than 120 properties in their pipelines. Additionally, in January, Hilton Worldwide Holdings announced the launch of a new hotel brand called Tempo. The new chain of hotels will put wellness, sustainability and design front and center, a move that will help it align with younger travelers, keen on more mindful and eco-friendly travel.

Photo Credit: Hotel Management Magazine

At the recent ALIS conference, there was only one big brand announcement – Choice Hotels International’s new middle market extended-stay brand, Everhome Suites. The Choice team said the new-construction concept is attracting institutional capital and that 13 projects are already committed – 10 in Los Angeles and 3 in Austin, Texas. Choice wants to hit 50 deals in 2020 via master area developments and the first property should open next year. Development costs sit at around US$85,000 per key for the 114-key prototype and ADR is projected at US$85.

Newly relaunched WorldHotels is creating a fourth tier for design hotels called Crafted Collection and North America President Gregory Habeeb said overall, he wants the brand to add 40 hotels in the region in 2020 and overall grow from 300 to 500 hotels in 2.5 years.

Hyatt House opened its 100th hotel in the San Jose, CA market. “We are thrilled to be the Hyatt House brand’s 100th hotel and to bring a new and dynamic guest experience to the San Jose marketplace for both business and personal occasion travelers,” GM John McEntee said in a statement. Hyatt House is one of 20 brands within Hyatt Hotels Corp. As of Sept. 30, 2019, the company’s portfolio consisted of more than 875 properties in more than 60 countries.

According to Lodging Econometrics for new hotel openings in 2020, it anticipates that Marriott will open 286 projects/36,767 rooms. Next is Hilton with 284 projects/30,499 rooms followed by InterContinental Hotels Group with 179 projects/17,667 rooms forecast to open by year-end.

Photo Credit: Lodging Econometrics

In addition to developing new brands and opening new hotels, there is also a developing trend of “hotelization” of real estate, and it is an opening for lodging companies to further leverage their brand(s) and property management expertise toward all types of commercial and residential assets.

Several drivers fuel this trend of the “hotelization” of real estate:

• Seeking experiences, mobility and flexibility, millennials and Generation Z’s who comprise much of the workforce today are willing to sacrifice square footage for convenience, more amenities and value-added services. Many of them do not wish to lay anchor in one location and are looking for places to stay and work that support their nomadic lifestyle.
• The advancement and use of technology are diminishing the need for large, permanent office buildings and increasing the demand for flexible workspaces.
• There is a rising preference for shorter or more flexible lease terms in response to business uncertainty and ever-changing market conditions. This is more apparent in the case of startups that often prefer to avoid a long-term lease or to invest in furnishing the workplace due to an irregular headcount and unpredictable funding cycles.

Again, the question remains, how do hoteliers with existing properties compete with more brands, new hotels and multi-purpose properties?   

1.    The key is to focus on improving your existing assets.

“If you have a high-quality asset in a good location you may do well. Focus on high-quality assets in long-term markets & you’ll survive anything,” stated Bob Habeeb, Pres. & CEO–First Hospitality Group. While positioning is important, it means nothing if the product is neglected. Dan Welborn, Principal at Gettys Group, said many hotel operators are resistant to investing in PIPs because they siphon capital directly off their bottom line, but these kinds of investments done correctly, can be offset by substantial long-term gains. “There is ROI for owners, & positives for you as a brand, for successfully carrying out a PIP. Look at what is best for the owner & the brand, typically those two things align.” But what makes for a good PIP? Just ask guests what their biggest complaints are!

“One of the biggest concerns is always making sure that a project finishes on time and on budget. It all starts with putting together preliminary budgets,” said Mark Friesen, Principal, Beyer Brown

If your hotel is facing a renovation in 2020, the more detailed planning and communicating you do right now with your general contractor, designers, suppliers, teams and importantly your guests, the more cost-effective & successful your renovation will be. The Refinishing Touch® team understands how critical it is to get your rooms back into service as soon as possible, incurring minimal downtime. Our on-site full refinishing is done in the rooms avoiding costs of moving furniture, disposing of furniture, storage, shipping and transportation costs for furniture, long lead times.

Photo Credit: The Refinishing Touch®

When it comes to staying on budget, this is where you will see a dramatic difference by choosing to refinish your existing case goods instead of replacing them. Our proven on-site full refinishing process will save you a minimum of 50% up to as much or more than 80% AND we will meet your brand standard specifications!

Photo Credit: The Refinishing Touch®

2. Plan Early and Communicate with Your Team

Planning for PIPs early on can directly increase proceeds to sellers and lower the costs for buyers in most hotel transactions. In the right market conditions, a PIP can be highly beneficial. PIP renovations often create a path to increased profitability, providing a favorable return on investment. With the ongoing demand and increase of brand options contributing to rising PIP costs, parent brands seek to differentiate consumer experiences at each of their sub-brands, partially through furniture packages, revamped amenities and finishes. The total amount of work required to meet brand standards under a PIP can vary tremendously. These factors typically depend on the property condition, length of time since the property’s prior renovation and recently enacted brand standards not completed by the seller.

3. Don’t Make a Price-Driven Decision and Don’t Throw Away the Specification!

We always encourage hoteliers to contact The Refinishing Touch® early in the specification process. It gives us the opportunity to save you time and more money without incurring more costly missteps that could be avoided. And while our goal is to help you avoid pitfalls with our years of experience and expertise, we also know that if price is driving your decision, that can be the costliest misstep.

Photo Credit: The Refinishing Touch®

4. Add more Sustainability into your Project and Hotel

And importantly, sustainability is the future for hotels. Millennials are twice as likely to support brands with strong management of environmental & social issues & expect brands to not only manage their impact but communicate it. As of 2019, Millennials have officially overtaken Baby Boomers in the U.S. workforce. Their reign will last well into 2034, at which point Gen Z will be fully employable (peaking at around 78 million). So, as an industry, we can’t ignore them & now they’re demanding that hotels go green.

Let’s look at a few facts about this generation:

55% of global travelers are more determined to choose sustainable accommodation than last year — but lack of appealing options makes it difficult to put this into practice.

87% of millennials believe that the success of a business should be measured by its impact on the world.

“Going Green” isn’t some corporate gimmick to cut down on housekeeping expenses – our planet is at stake. Conservation efforts to minimize energy, water, food, & other types of waste, along with the use of locally based, sustainable products, not only benefits the planet but also helps properties save money & run more efficiently.

The trick is to get ahead of the curve, because the sooner a hotelier embraces going green & implements sustainable practices, the better It is for the planet & the hotel’s bottom line.” – Anthony Melchiorri, Pres. of Argeo Hospitality

When you make the smart decision to refinish your existing casegoods instead of replacing them, you are dramatically reducing your carbon footprint and putting more sustainability into your hotel.

Photo Credit: The Refinishing Touch®, www.Carbonfootprint.com

5. Reinvest Your Savings into Your Hotel, Employee Training, Security, Technology, HVAC, Lighting and more!

For over 42 years, The Refinishing Touch® has been at the forefront of providing the hospitality industry affordable and sustainable FF&E solutions and asset management. As a trusted PIP Advisor and Preferred Supplier for HILTON and Host Hotels and Resorts and many more, we have completed over 7,000 renovation projects nationwide. We help Project Managers, GM’s, Chief Engineers, effectively navigate around the costly PIP pitfalls because of our years of experience and expertise.

Photo Credit: The Refinishing Touch®

See some of our completed projects!

Photo Credit: The Refinishing Touch® – On-Site Refinishing, Re-Engineering, Color Change, Solid Surface Replacement, Hardware Replacement

The Refinishing Touch® team will partner with you and review all the critical details during pre-construction planning of your renovation and provide many options you may have not considered. We provide on-site refinishing, re-engineering and reupholstering but we additionally provide solid surface replacement including stone, glass and laminate. We also provide decorative hardware selection.

Photo Credit: The Refinishing Touch®

Our expertise includes providing strategic timing for when it’s best to have our team on the property during the renovation to keep it running seamlessly. We save you additional costs by not moving the furniture out of the rooms and incurring additional manpower, time and storage and reducing downtime of rooms out-of-service by getting the rooms back in-service the same day in many cases. This sets us apart and provides you with a trusted partner that has the professional experience you can count on.

We are the trusted and preferred supplier for HILTON, HOST and many brands. We have completed over 7,000 hotel renovation projects!

Call us today for your online quote at 1.800.523.9448 and email Erek Schwartz, Sales Manager at [email protected] to discuss your project. It would be our pleasure to be your Sustainable, FF&E Solution Provider! For more information about our community of services, we invite you to visit www.therefinishingtouch.com

RESOURCES:

Hilton Launches New Tempo Lifestyle Hotel Brand by Grant Martin, Contributor, FORBES

WorldHotels Introduces WorldHotels Crafted Collection ; Curated Collection of Immersive Hotels and Resorts to be added to WorldHotels Portfolio, News provided by WorldHotels; Jan. 27, 2020, 09:52 ET

Hyatt House opens 100th location by Chuck Dobrosielski; Hotel Management Magazine

Mit Shah on Noble’s recession-resistant strategy ; By Sean McCracken, HOTEL NEWS NOW

The “hotelization” of real estate by Daniel Lesser, Hotels Magazine