From the days of the Gold Rush to the turn of the 20th century, Chinese and Italian immigrants caught fish and Dungeness crabs at Meiggs’ Wharf in San Francisco to eke out a living. The Best Western Plus Tuscan Inn is situated at the original endpoint of this historic landing—long since transformed into a section of the larger tourist-filled Fisherman’s Wharf area. When Walnut Hill Group purchased the property in February 2011, the real estate investment company planned substantial renovations to bring the hotel up to date and reposition it in the marketplace. They enlisted the help of an all-local team for the project, including North Beach historian Al Baccari, designer Tamara Sypult of Interior Design Workshop, construction manager Joe Erickson of Cooper Riley, and builder Michael Angotti of Angotti and Reilly, to create an authentic Fisherman’s Wharf experience for guests.
“In terms of specific goals, the renovation focused on those areas that would impact the guest experience the most,” says Stephen Yang, one of Walnut Hill’s founding managing principals. To provide an escape from the hustle and bustle of North Point Street, they warmed up the porte-cochere with heavy curtains and chandeliers so guests would feel like they’re walking into a sanctuary. The lobby was completely transformed in the spring of 2012 with new carpet, tile, furniture, and lighting. Now, guests can plug in mobile devices at a communal table or cozy up by the fireplace with a glass of wine. They traded in the restaurant’s white tablecloths for reclaimed wood, a new paint palette, and zinc countertop bar with triple the amount of seating. A manager-hosted wine reception each evening helps pull more guests into Café Pescatore.
The hotel, under the helm of general manager Jan Misch, is now receiving an average daily rate penetration of 105 to 110 percent, up from 90 to 95 percent, and its TripAdvisor ranking for the city of San Francisco has jumped from 60 at the beginning of 2012, to 26—the highest of any Wharf hotel. The renovation not only improved the property’s earnings, it also gave it broader appeal. Rather than solely relying on wholesale business as a key component of its distribution, the Tuscan now has a better chance of capturing younger, more discerning guests booking directly with the hotel or Best Western.
The second wave of renovations, the 221 guestrooms, began in January. The more labor-intensive work, such as installing new baseboards, wallpaper, and lighting, was completed last year. The next step is changing out the beds, headboards, and furniture so all guestrooms can be fully transformed by the spring.
Renovation of key areas, such as building exteriors, lobbies and breakfast rooms, and guestrooms, is the main focus behind Best Western International’s Design Excellence Initiative. Ron Pohl, Best Western’s senior vice president of brand management and member services, says the program is a revenue management strategy. “We recognized the impact design trends can have on the guests’ decision to buy and their value perception. Spend the right amount of money, in the right places, to properly position the hotel in the marketplace and you will increase revenues and profits.”
The company created business cases based on complete and partial renovation of these high impact spaces. “We measured the revenue impact, financial costs of a renovation, and customer satisfaction and the results were overwhelmingly positive,” Pohl says. “Every hotel is unique and different and therefore this is not a boilerplate approach. We are working with each individual hotel to determine the proper position in the market for both short ROI and long-term asset value.”
As the U.S. lodging industry continues to recover, more hotel owners are in a better financial position to invest in property improvements with hopes of raising rates and boosting profits. A September 2012 trend analysis report by Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University, revealed that U.S. lodging industry capital expenditures for existing hotels are accelerating. The report estimated that hoteliers would spend approximately $5 billion in 2012, up from $3.75 billion in 2011 and $2.7 billion in 2010.
Best Western owners are no exception. At the brand’s Product Showcase in October, held in conjunction with the annual North American convention, members spent nearly $20 million with hospitality suppliers to update their properties. Although hotel owners are pouring more money into property improvements, they are being more selective with how and where they spend it. Smart renovations can help owners stay within their financial means while getting the biggest bang for their buck.
Spend money, make money
In tracking Best Western property redevelopment and conversions, the company has found that guestroom and public space renovations bring in an average of 23 percent in incremental revenue per year and guest satisfaction scores increase 16 percent when a room is completely overhauled. “There is no better incentive for owners to renovate than great ROI,” says Amy Hulbert, Best Western’s managing director of design.
To set the Design Excellence program in motion, designers and regional service managers began Best Western property visits in April of 2012, with a goal of issuing improvement plans (PIPs) to all properties in North America by the end of 2016. That’s more than 400 properties a year for a total of 2,200 hotels. The program also will help achieve a clearer distinction between the brand’s descriptors—Best Western, Plus, and Premier. “We know we’re going to inspire more people to be excited about the program if they understand we’re targeting a return for them,” Hulbert says. “We tell them you need to spend a little bit of money to make a little bit of money.” On top of this initiative, there are basic requirements due in 2014 for all properties that will provide a foundation for consistency and quality.
Sales in Best Western design packages have jumped significantly as owners embark on renovations. Hulbert says the total number of guestroom packages sold in the first two months of 2012 was more than Best Western sold in all of 2011. More recently, the company introduced public space packages, including lobbies, elevators, corridors, meeting spaces, business centers, and restrooms, that are already starting to achieve critical mass.
The design services team, a full-service interior design firm within Best Western, works with about 150 properties each year on contract projects, and that number is growing. “Those contracts can be as small as selecting carpet and lighting for the corridors, or it could be a complete renovation,” Hulbert says. At the end of 2012, the team had about $79,000 under contract specifically for Design Excellence properties.
Hulbert echoes the importance of targeting high impact areas. If a property isn’t appealing from the outside, or guests check in only to discover an outdated lobby, they may not give the hotel a chance. “Well-designed guestrooms are, for the most part, cost of entry,” Hulbert says.
Almost all properties Best Western’s design team visited in 2012 have exterior work to complete. Simple things like paint schemes can make a big impact. “Curb appeal is critical,” she says. “In many cases, if the exterior isn’t appealing enough, even if the guestrooms and public areas are renovated, the guest might not even give you the choice of redeeming yourself. They may just not come in.”
Best Western is also focusing on top-of-bed requirements, including sheets, duvets, throws, and decorative elements. “To have a bed that has a perception of being clean and fresh and up to date from an aesthetic standpoint is a really a nice element to have impacted the whole brand on,” Hulbert says.
To keep up with the social lobby trend, Best Western is encouraging owners to maximize square footage by combining their breakfast and lobby areas. “By using community tables and lounge seating that’s functional for people to work and socialize throughout the day, instead of just during the breakfast meal period, owners can keep that area active.”
Meeting brand standards
Every few years, hotel franchisees are faced with new design concepts and other brand standards they need to address in order to stay competitive and maintain their flag. The challenge is coming up with a plan that fulfills the brand’s vision and also makes sense for the owner’s budget. As the partner and managing member of Roedel Companies and president of ROK Builders, Fred Roedel III has been involved in his fair share of renovation projects. In addition to providing development, construction, management, and design services to third-party owners and investors, Roedel Companies owns and operates its own portfolio of hotels. When implementing new brand standards, ROI is always top of mind. “We really want to keep our overall investment in line with what we think the improvement will be in our revenue and ultimately our cash flow,” Roedel says.
He thinks back to when Marriott debuted its new Courtyard lobby design in 2008, and his colleague spent approximately $1.5 million in renovations as the first adopter. “Every owner in the world said, ‘Woah, back up. We’re not touching that with a 10-foot pole,’” he recalls. Marriott looked at alternative designs and materials to reduce the cost burden for owners while still achieving its objective, Roedel says. When the price eventually came down, the investment made more sense for owners. Roedel Companies has renovated a number of Courtyard lobbies that have cost between $500,000 and $700,000, depending on size. The entire Courtyard system should be updated with the new concept by mid-2013.
As lobbies continue to evolve into 24/7 social hubs, there are more opportunities for ROI. “It’s an important point to the hotel,” Roedel says. “For that level of hotel that has food and beverage, you have to do certain things that cost money, but you can get revenue out of it.”
Brand standards are typically good for about six to eight years before they are updated. “Brands are cognizant that there’s only so much money in the world and they’ll hit a brick wall at some point,” Roedel says. “But certainly they want to make sure they’re changing, modifying, and keeping their respective brands fresh, exciting, and relevant to the public.”
Fairfield Inn & Suites by Marriott recently introduced a fourth generation prototype to better meet the needs of its consumer base while helping owners boost performance. To achieve brand-wide consistency, hundreds of existing hotels will need to implement a new renovation package with core components of the Gen 4 design.
This includes flexible workspaces with mobile desks, purposeful storage solutions like peek-a-boo drawers and luggage counters, and an elevated bath experience with glass showers in king guestrooms and suites. New seating components in the public spaces are intended to inspire meetings and foster socialization.
Shruti Buckley, vice president and global brand manager for Fairfield, says franchisors are expected to upgrade to the new look when their properties are due for cyclical renovations, but some owners have chosen to implement the package sooner than required. “Hotels that have already gone through the renovation have been able to increase their rate and their RevPAR performance, as well as their guest satisfaction,” Buckley says.
In 2013, the brand expects about 80 renovation projects to begin, with that pace continuing each year until the rollout is complete. Among the early adopters of the Gen 4 renovation is the Savannah Airport location. The owners shared their feedback to help Marriott’s design team identify value-engineering opportunities, which will be passed along to all future projects.
For example, one of the décor elements—a large Plexiglas panel with embedded images that sits behind the front desk—had a high price tag. “Now we’re working with our vendors to not only decrease the size,” Buckley says, “but to also look at different materials that provide the same effect but cut the cost by more than 50 percent.”
Test driving property plans
Renovating one typical room before embarking on the full renovation is another tactic owners and their teams can use to develop a more reliable plan and identify trouble spots in advance. When John Hardy Group (JHG) implemented a strategy to renovate 79 Candlewood Suites and Staybridge Suites properties owned by Hospitality Properties Trust and managed by Intercontinental Hotels Group (IHG), model rooms were a key milestone in the project, which kicked off in November 2011. JHG divided the $165 million renovation program into five phases, starting six properties each week. A team of vendors, general contractors, and warehouses completed each property in about eight weeks, and wrapped up the entire process by the end of 2012. The renovations involved 10,000 guestrooms, kitchens and baths, exterior painting, and other quality upgrades.
“Model rooms are a key component of ensuring the design everyone settles on and is happy with—and that you’re going to create 10,000 rooms of—is also in the budget,” says Nathan Hall, senior project manager for JHG. During the model room construction, the team discovered that the gypcrete subflooring was in poor condition. The design initially called for carpet tile, but that would require a level surface to avoid individual squares from popping up over time. “We were able to steer them away from carpet tiles and go with more of a broadloom, which is your standard commercial carpet,” Hall says. “That would have been a huge expenditure that required a lot of unnecessary subflooring repairs.”
Instead of removing the old kitchen cabinetry, the team refinished the existing boxes and only replaced the door fronts and hardware. In the end, the model room design demonstrated cost saving measures for the overall renovation project. “Any time you spent $100 on anything, you had to keep in mind you’re then doing that 10,000 times,” Hall says, “so you’re looking at a $1 million expenditure across the entire portfolio.”
But in some cases, owners prefer to skip the model rooms and get right down to business. When Roedel Companies recently started renovations on a couple of Hampton Inns for a client, things didn’t go exactly to plan. The wallpaper didn’t come off as cleanly as anticipated, and left a lot of glue residue behind. When the contractors put up the first room as per specs—remove wallpaper, give the drywall a light sanding, put up new wallpaper—the old glue showed right through the paper. Although it was a minor speed bump, Roedel had to revise the plans and come up with a new schedule that required an hour more of sanding per room.
“That costs money, but somebody has to do it,” Roedel says. “Versus knowing it up front, we had to find out during the plan. The only challenge is, if you work very hard with the client to get them to their monetary objective, this is something possibly above and beyond their objective.”
Other frequent problems discovered during renovations include mold and mildew, broken down drywall, and water leaks. “You really don’t know until you dig in there,” Roedel says. “It’s stuff we always have to be ready for. If you can do that exploratory work beforehand, that’s a perfect world.”
To maintain position and relevance it’s important for owners to invest in renovations, Roedel says, but they have to be smart about how much they can afford to spend. If you allow assets to deteriorate, they will go downhill fast. Guests notice when hotels aren’t up to par. And once you lose them, it’s hard to win them back.
Extensive preplanning, defining a reasonable budget, developing clear objectives, and establishing a reliable team will all help streamline renovations. “Regardless of the breadth of the renovation project,” Roedel says, “I think its success or failure is probably directly linked to how much effort you put into it beforehand.”
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