When Elizabeth Taylor returned from maternity leave to her post as GM of the Courtyard St. John’s in Newfoundland this past January, she barely recognized the place. “It looked completely different,” she recalls. The hotel had undergone a dramatic transformation, including the renovation of 58 guestrooms (the other 28 had been revamped in 2012), corridors, as well as new carpeting, wall vinyl, lighting and signage. Additionally, all the public spaces — including meeting rooms, the fitness centre, the lobby, and the restaurant and bar area — had been updated. The Courtyard, which keeps a four-per-cent furniture, fixtures and equipment reserve, had undergone its first brand-mandated refresh.
The $2.5-million project introduced public-space alcoves for private meetings and a more refined colour palette of blacks, greys and warm browns. “Our product was beautiful when it was done,” Taylor says.
Maintaining an ongoing investment in a property’s upkeep is the cost of participation in the hotel game these days. Whether it’s motivated by the brand, investors or lenders, attention to capital expenditures (capex) is more essential than ever, since today’s guests expect the best.
Still, the parameters of capex were unexplored for a surprisingly long time, and so it languished as an undefined obligation to which hotel operators had to adhere. But that changed in 1995 when the Atlanta-based International Society of Hospitality Consultants (ISHC), a worldwide organization of hospitality specialists, conducted the industry’s first capex study.
At the time, hotel owners were allocating two to three per cent of annual revenue towards property upkeep, but there was no single accepted standard. When the ISHC study was released, it revealed that the stash should be closer to six per cent. “It was an ‘aha’ moment,” says Jonathan Nehmer, president and founder of Maryland-based architecture, project management, design and construction firm JN+A.
Hotel renovations can be divided into two broad categories: repair and maintenance (R&M) and major renovations — though the line between the two can blur, cautions Nehmer.
Typically, the first serious burst of restorative attention (or R&M) should take place when a property is between five and seven years old. It’s at this point that a so-called soft-goods renovation is recommended. Here, vinyl wall coverings, window coverings, carpet, bed linens and lighting are addressed.
When a property has been open for 10 to 12 years, a more involved restoration is necessary. That’s when furniture, case goods and upholstery should be replaced, the bathroom needs renovating and/or the exterior requires attention. “If you’re doing it right, you’re constantly doing preventive maintenance on your hotel to make sure it lasts as long as possible,” says Nehmer.
The 31 properties owned by Bethesda, Md.-based Urgo Hotels and Resorts receive a partial renovation every five to seven years. “And we tend to do it earlier than later,” says Serge Primeau, VP. “We always want to make sure we maintain an edge on our competitors. When you get to the end of a decor or furniture package’s life cycle, your product will look aged. We don’t want to get there.”
The ISHC’s most recent study in 2014 reveals that hotel operators should be setting aside 12 to 13 per cent of their annual revenues for a combination of capex and R&M. This number reflects all properties, not by tier. Consider a hotel’s service type in setting aside these provisions, advises Nehmer. Select-service and extended-stay hotels have relatively similar capex needs, but full-service is different. “A full-service hotel has more moving parts, a lot more public areas, usually a lot more infrastructure, and it will need more,” adds Nehmer.
Bear in mind the newer the hotel, the less capex it requires. As such, if a buyer is considering purchasing a property for conversion or renovation, he needs to think about its age, as well as how much R&M it’s had over the years. “A property that’s been maintained ages better than one that’s been let go,” says Nehmer. “TLC goes a long way in a hotel.”
The importance of ongoing maintenance cannot be overstated, echoes David Oliver, SVP of Dundee 360, a Montreal-based hotel owner and developer. “You can extend the life of everything, from a pipe in a boiler to your roof.” Still, hoteliers often take short-term measures to renovate their property thinking they’ll get back to it — and then they don’t. “Moisture gets in and you have further damage and cost. Best to fix it once and fix it well.”
In a conversion situation, the brand typically presents a new owner with a Property Improvement Plan (PIP), which sets out a schedule for material refreshments and sometimes includes requests for items that were deferred by previous owners.
In other cases, a change of ownership will stimulate a call for new brand initiatives that are outside the normal renovation time frame. “We’ve seen that a lot lately,” says Nehmer, “where hotel brands have reinvented themselves with new public areas and guestroom prototypes, and they’re trying to implement them as quickly as possible so the general public sees the new [look].”
Nehmer counts an under-appreciation for lead times among the biggest mistakes operators make on this front. Depending on whether it’s a partial or full renovation, and whether it’s a custom or prototypical design, owners should consider the 18- to 22-week delay it takes between ordering and delivery of case goods and furniture, much of which comes from China. “You need to plan ahead,” says Nehmer, who adds that owners often put off renovations for as long as possible and then have to rush the job to squeeze it in before a busy period.
“You want to be renovating when it has the least impact on your operations,” says Urgo’s Primeau. In a resort property, that means starting the work in the slow season; urban properties without peaks and valleys should be renovated during a period of lower occupancy to minimize the impact. Ideally, a hotel refresh is completed in phases, a floor or two at a time.
Today’s sophisticated consumers know the current trends. “Ensure that the work you do meets market needs and enhances the business plan,” Oliver explains. That means making sure the revised asset includes signature items that differentiate the property, drive value and will stand the test of time.
Pulling that off has a lot to do with communication. “You’re renovating a hotel that’s open 365 days a year, and there are no downtimes,” says Taylor. The trick to keeping the chaos away from guests, she feels, is to encourage the front desk, housekeeping and maintenance departments to stay connected.
“If you give yourself enough time to do the job, your costs will go down and your quality will go up,” says Oliver, who references a project’s “triangle of value,” anchored by the time, price and quality of renovations. “But if you try and short-circuit the price or the time, the quality will go down. The revenue you can get for a room is a function of having what the customer perceives as quality. As a consumer, you want what takes your breath away.”
Issue 27, Number 3
Written By: Laura Pratt
