RCH BUILDERS Why Hotels Need To Continuously Renovate

The Breakers in Palm Beach, Florida, does a $20-million renovation every year and considers it upkeep. Starwood Hotels & Resorts Worldwide, together with its owner and developer partners, has invested more than $400 million to revitalize just their New York portfolio of hotels. The Broadmoor in Colorado Springs, Colorado, seems to be in constant state of expansion. When  a hotel announces new ownership,  to support its new identity and brand integrity, a flagship renovation is not far behind. Renovation plans are announced almost daily.

Is it out of necessity or is it the current marketing vogue?

Hotel renovation has become much more than replacing worn out furniture and mattresses but a line in the sand—the definition of competition in today’s hotel industry.

It is essential to keep a hotel up to standard, fresh and technologically aligned.  A renovation cycle peaks at three years and then it is time to do it again (where needed). But renovations also have become the new marketing tactic.  Whether you are a 5-diamond hotel in a major city or resort, a brand enforcing a property improvement plan onto a franchise or a boutique establishment in a secondary or tertiary market, the cost of a renovation has become the new bragging rights.

A guide to basically maintain a well-renovated property would be 5% of annual revenues.  A guide to “wow” the guest would cost much more and that is what we are seeing these days.  So we have to look at this:

The purpose of renovating:
Is it renovating or reinventing? Is it revitalizing what you’ve got or is it the splendor of a whole new expression? Is it attempting to create the next big thing, or it is it change for change sake? By trying to keep up with the latest trend or upgrading to the latest technology standards, are we diluting a hotel’s traditional brand recognition in the process?

When a major hotel brand that reinvented its interior architectural look only a few short years ago ultimately realizes the idea did not work and is redesigning is that defeat or just the smart thing to do?  I think it’s courageous. Brand standards fluctuate according to public response, but the bottom line maintains: their beds are always clean, the food is good and the guest feels safe.

In today’s competitive market, has the hotel renovation become the industry’s new benchmark because that is what the guest now expects?

The hotel renovation relationship is like a Dagwood sandwich. There are a lot of layers and a lot going on in between the slices. This is a very high pressure/high stakes situation.

For example, if a hotel is owned by a real estate investment trust (REIT), the hotel operators, and the contractor and their suppliers are mashed into a potpourri of partnerships with one imperative objective and goal: the deadline.  This creates a relationship of tricky and sensitive situations at best.

A REIT, for the most part, doesn’t understand the intricacies of running and managing the day to day of a hotel operation. The REIT’s job is to ensure their investment—the hotel—is a money-making investment.

REITs have to rely on full-service hospitality-management groups or branded hotel operators to run the hotels. They may not understand or appreciate the pressure and level of frustration the management team experiences when overseeing a major renovation while also continuing to maintain a level of seamless service to the guests and groups.  GMs and their staff become masters of the work-around as they adjust to unmet deadlines and unexpected interference with their in-house groups and limited meeting space.

There are two things the hotel operators know in this situation:

  • 1. The hotel must continue to make revenue by knowing exactly how much of the hotel is useable at any given time during a renovation (it is not often that a hotel will close completely); and
  • 2. the hotel must continue to provide invaluable development and operational support to maintain their high level of commitment to their brands and guests.

While the REIT depends on the management company to make them money, the contract company knows they represent the REIT during the construction period and that is where their allegiance lies. They look for the best way to manage the REIT’s money that is to be spent on the renovation. The contractor will put on a good face to all concerned and will work closely with the hotel operator during the inevitable challenges that will come up, never forgetting that their true client is the REIT. Contracting has nothing to do with making aesthetic choices. The contractor is there to implement the purpose of the design being made to the hotel. Contractors are not there to create the splash; they are there to make the splash happen.

So, as it appears, a hotel renovation is all about making future money. But it is the “pull and tug” among the REIT, operator and contractor that makes it interesting.  The better the working relationship is among the hotel, contractor and supplier, the quicker the renovation period and the sooner the hotel can begin improving its revenue per available room.

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