Hotel Markets Gain Development Momentum

ROSEMONT, IL-Hotel markets across the nation, particularly in the Midwest, are gaining more development momentum. Despite these gains, hotel developers still face many hurdles relative to the sluggish economy and the changing preferences of travelers. Now more than ever, a premium location near attractive downtown amenities, as well as the ability to provide a one-of-a-kind, customized guest experience, can make all the difference between success and failure.

Adaptive reuse is a tactic that many hoteliers are using to overcome these obstacles. Transforming turn-of-the-century buildings into 21^st century hotels presents a unique set of financial, logistical and structural challenges, but it can yield incredible rewards if it is properly scouted and executed.

The renovation of aging, historic buildings into contemporary hotels provides an avenue to city centers and other prime physical locations that are typically tough to break into. The exorbitant cost of securing sought-after, undeveloped urban real estate is prohibitive, or else adequate land is simply not available. Purchasing and remodeling historic infrastructure in one of these desirables locations is an affordable and advantageous solution.    

Historic buildings also offer an experiential advantage over new builds and uniform competition if they spotlight the right features. Projects that preserve elements of a structure's original architecture and showcase a building's historical and cultural significance set it apart as a different, more interesting getaway than that offered by competitors—something that today's younger travelers actively seek as a generation focused on unique experiences.

The soon-to-open Residence Inn by Marriott in Omaha, NE, illustrates this advantage. The hotel, which was originally the New Deal-era Federal Building, will highlight the now uncommon Art Deco-style terrazzo marble floors, geometric shapes, and brick, granite and limestone façade. The striking architecture combined with high quality contemporary amenities will make for a dramatic, dynamic hospitality destination.

Another way developers maximize the benefits of adaptive reuse involves strengthening and leveraging the building's connection to the surrounding community. Residents and hoteliers alike benefit, because a beloved, yet aging building that may be too awkward or costly for the city to remodel finds new life as an exciting hotel. The reuse triggers increased foot traffic, job creation and cultural revitalization, all of which generate a positive welcome for the hotel priming it for success.  

The Hilton Garden Inn Milwaukee Downtown hotel exemplifies this strong community connection. Transforming the city's recognized Loyalty Building into a hotel renewed the city's architectural treasure, which is on the National Register of Historic Places. Management continues to facilitate a strong community connection by hosting public art showings, charitable initiatives and other events.  

While adaptive reuse offers many benefits, there are several potential pitfalls of which real estate developers need to understand. First, it is important to research how restrictive the regulatory environment might be. State and city municipalities, philanthropic boards and preservation groups may be reluctant to surrender too much control to external developers, thus making the approval and construction process cumbersome.

There also may be expensive structural issues inherent to working with a century-old building. It will be crucial to clearly vet the types and extent of the improvements necessary to transform the building into a world-class destination. For example, the floor plans may need to be rearranged if they are not conducive to hospitality use. There may be a significant amount of structural, plumbing and environmental issues that need to be resolved on the front end, and it may be expensive to outfit the old building with modern conveniences like high speed, wireless Internet.   

As real estate professionals, it is critical to consider the potential negatives (as with any deal) and it is just as important to remember that adaptive reuse hotels produce stunning results when properly executed with expert partners.

Robert J. Habeeb is president and COO of First Hospitality Group Inc. in Rosemont, IL. The views expressed in this column are the author's own.