Thinking about future conversion prospects during the design and construction phases of a hotel project can extend the longevity of the structure.
Hotel owners who are long-term holders can increase future profitability prospects by thinking differently about the hotel construction process. Building a property with a keen eye to its eventual future use extends the structure’s longevity by potentially adding decades of value after it’s no longer a viable hospitality product.
Of course, one must meet the requirements conscripted by the brand for their new property. However, there are ways to adapt those designs and remain within brand guidelines while also thinking about its eventual conversion to another asset class outside the hotel space.
Remember, brands change over time, and the perfect building now might not work in the future. Major franchise companies like recycling product within individual markets—something we’re seeing now as prototypical footprints are being changed though the evolution of the individual brand.
The market may also unexpectedly shift as demographics change over time. This can be seen in a fundamental way in major markets such as New York. Locations where there is more need for extended-period housing have seen conversions from hotels to these types of living quarters. Therefore, think about how these spaces can one day be used as college dorms, senior housing, affordable housing or even apartments. Urban markets respond well to small studios, for example.
Also, don’t always think about repurposing down the chain scale; think about repositioning upward. Neighborhoods in metropolitan areas are gentrifying, and these areas are attracting higher-paying customers. Build into the design the ability to adhere to stricter standards in areas with a higher barrier to entry. This can make the hotel a strong candidate for a boutique model or lifestyle brand or possibly a higher-scale brand, should market changes warrant a price much lower than replacement cost.
It also could be time to convert if average daily rate precipitously drops. With newer hotels entering the area, the loss of revenue could make the property obsolete, if profitability and brand standards are unable to be keep up.
Create a business model and project an ROI to reflect that morphing demand streams will warrant change at some point, and pitch it that way to financiers. Remember, a new college could be built in the area, and there may not be enough apartment space. A smartly thought-out plan years in advance could make the structure easily convertible to private dorms, for example.
Here’s some property elements to consider:
Make rooms as big as possible based on available site size. Yes, the current trend at the major hotel franchisors is shrinking guestrooms to smaller sizes than we’ve previously seen. These companies are emphasizing public space experiences, and to manage construction costs, room sizes are smaller. However, over time this trend may reverse itself as guests become uncomfortable with room sizes that are considered tight if staying longer than a couple of nights.
Consider the rise of extended-stay hotels and serviced apartments, rentals which are more generously sized. Think ahead about the floor plan and create one that looks forward in time to the realistic possibility of eventually combining two rooms into one free-flowing space.
That means thinking about current room layout for future flexibility. Think about plumbing placement in correlation to where a future kitchen could be added. This works particularly well with guestrooms that feature the bathroom vanity outside the bathroom.
There also could be opportunity to build walls in a way that creates a section that’s easily knocked out to combine two rooms into one unit.
Also, look at the systems in the soon-to-be-constructed hotel. Electrical systems can be created to make it easily adaptable to apartments by preplanning how every unit or two can be converted to its own meter for power. And think about bringing in the right amount of utilities on the front end.
Another consideration is rethinking public spaces for future conversion to another use such as street-side retail.
One critical area every hotel developer should consider no matter the future use of the building is future-proofing for technological innovation. There is always going to be technological evolution, so include the ability to easily switch out older, outdated technologies more simply.
If you are a long-term holder, think about the investment’s future in decades. With some visionary modeling, protecting your investment by making it easier to readapt its use can provide longer-term profitability.
Stephen Siegel is principal of H-CPM (Hospitality CPM) and a proven professional in the areas of design, engineering, contractor negotiation and project management for new construction and renovation projects. He earned both a Bachelor’s and Master’s Degree in Construction Management from the University of Florida.
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