The price of land — when you can find it — in downtown cores such as Vancouver, Toronto and Montreal is as sky-high as the cranes that tower above it. But most of those cranes, at least in Vancouver, are busily building condos, leaving developers of hotel, office and commercial projects jockeying for whatever property is left. But if they’re willing to share the space, everybody wins.
“Developers are getting pushed in the direction of mixed-use projects because they can’t find single-purpose hotel sites in the core,” says Carrie Russell, senior managing partner at hotel-valuation firm HVS.
Prime examples of the segment include Montreal’s Humaniti, which comprises hotel, condos, rental apartments, office and retail; Toronto’s venerable One King West Hotel & Residence; and Parq Vancouver, featuring two upscale hotels (JW Marriott and The Douglas), eight restaurants and lounges and a casino. And, while Russell says the segment is on the rise, aside from upcoming projects such as Vancouver’s Opus Versante, slated to open later this year, and Toronto’s Nobu, which has a few more years of construction ahead of it, there aren’t a lot more examples to point to. “But more developers are talking about the potential.”
Big brands such as Marriott, Hilton and IHG lead the pack with this type of development, which maximizes land, offers a strong return on investment, is supported by several prongs should one of the uses falter, creates diversity and promotes community engagement and interaction.
“We love when our projects are affiliated with mixed-use,” says Paul Loehr, regional vice-president, Lodging Development for Marriott International, pointing to the Ritz-Carlton Toronto, St. Regis Toronto, Westin Whistler and Westin Vancouver as examples. “The ability for the guest to have what we call ‘the luxury of walkability’ to a restaurant, entertainment venue, shopping, et cetera — that’s positive. There’s energy and a vibe; it’s a place where people want to stay rather than a stand-alone hotel with nothing around it.”
Developers determine a mixed-use project’s type and locale by working with a firm such as HVS to conduct a “highest and best-use study,” says Russell. “They look at what the site’s zoned for; the economics of the site; what it can hold physically; if a hotel makes sense on the site and, if so, what type of hotel and what amenities does it need to fit the market. Then they’ll [start] talking to brands and, potentially, management companies.”
As for financing, she says these types of projects tend to be the purview of the bigger developers who have a history of major projects under their belt, so securing funds is not necessarily more challenging than any other project. “It’s rarely a newbie or small operator that will come into the mixed-use space,” she says. “It’s often a more sophisticated developer and they’ve had the relationships and done their homework. These [projects] are also being developed in core locations where lenders feel safest on lending. It’s probably harder to finance a limited-service hotel in Red Deer right now than it is to finance a mixed-use hotel component in downtown Vancouver.”
Many of those outlier communities that do want to attract development rely less on tax breaks and more on space bumps. “The most common way to [incentivize] a mixed-use project is bonusing on the density allowed on the site,” says Russell. “So, if you have a site that, for example, zones for 100,000 sq. ft. to build on, the community might give you 120,000 sq. ft. of density. That extra 20,000 sq. ft. can be quite valuable to a developer.”
As for location trends, Andrew Grant, president of Vancouver’s PCI Developments, which focuses primarily on residential, office and retail hybrids, concentrates its current builds — including the sprawling 820,000-sq.-ft. Marine Gateway and the 760,000-sq.-ft. King George Hub — around rapid-transit stations. He says hotels would benefit from those venues as well. “People are anxious to live and work near transit,” he says. “They can go outside, take a few steps and get on the transit system. For the same reasons the residential succeeds, so would a hotel. [Developers] like to be on transit and near retail because the people staying at their hotels can go to the theatres, grocery stores, restaurants, et cetera. You start to see the energy that’s coming from it; the uses are enhancing each other and supporting each other, so the whole is better than the sum of the parts.”
With any new development, almost everything is branded, says Russell, because it’s too difficult to finance anything else. “There’s a bit of boutique [development] happening out there, but the vast majority — about 80 per cent — of projects carry some kind of flag on them. If you’re not branded, you either have to have your own sales-and-marketing team doing the work a brand j would do, or rely heavily on the online-travel-agency channels, which can be expensive for a hotel. The lenders are really driving the push to brand. It’s almost too risky to start a project [without it].”
Grant agrees. “A mixed-use development is usually reasonably sophisticated and intensely developed. They take sophisticated financing and marketing and brand names are important.”
Loehr says branding not only helps from an economic standpoint, name recognition — especially one associated with luxury — it adds cachet to a project. It also helps “differentiate your residential project from another. When you brand a residential project with Ritz-Carlton, there can be premiums anywhere from 25 to 45 per cent relative to unbranded residences of the same quality. It’s one thing when a guest comes in and has a terrific hotel experience, but when one of them actually calls the place home, it’s a phenomenal way to deepen that relationship.”
Russell says hotel affiliation can pay dividends when it comes time to sell a condo. “You can get a premium on what you can sell a condo for per square foot if it’s part of a hotel complex,” she says. “Because now you have a condo owner who has a restaurant [on site]. Some hotels also have a property-maintenance team [and housekeeping] that will take care of your condo. It’s almost like living in a hotel from the service level that you can receive.”
Loehr says shared fitness areas or food-and-beverage options imbue a kind of club atmosphere to owners and guests alike. “The residents make the restaurant their own, so you have a captive audience that has a restaurant or roof-top bar they can frequent.” Shared-but-separate is key, however. “You want to have a separation to give it that upscale-residential feel,” he says, suggesting separate entry ways, lobbies, elevators, even separate pools in some cases.
Loehr says the mixed-use segment has proven so successful for Marriott and affiliated properties that they will continue to grow this area, particularly in the luxury-lifestyle market. Still, he says he’s noticed, globally, some regions are trending toward the upper-upscale space as opposed to pure luxury. But, to guard against any downturn in the trend, he says many developers phase their projects, (i.e., pre-sell a certain number of units, then deliver a second phase when the market rebounds).
Grant says market conditions are increasingly becoming a challenge, particularly with a project on the scale of a Marine Gateway or King George. “They span over several economic cycles so you don’t really plan to the moment because the conditions and the economy at the time when you’re initiating the planning is going to be very different from those when you deliver it. So, you have to have a long perspective and patient partners and lenders. It’s literally a train — a very long train — and it takes a lot of coordination to get all the pieces moving together.”
Written by Robin Roberts