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Hotels gobble up urban fixer-uppers


FT’s Tom Kaiser is on the hunt for urban tales in franchising.

The sparkling new Embassy Suites in my hometown feels like it’s always been here, because the building has been for more than a century. Melding old with new, the lobby has snowy marble floors accented by super-mod wood accents. Over the fireplace swims a school of fish, an installation from a local artist.

For an old building, this hotel has some personality—and a Minneapolis flair. That’s no accident.

Big hospitality players are capitalizing on resurgent cities with a building spree of entirely new structures, but also by converting underutilized or abandoned buildings in urban areas. In most American cities with a pulse, buildings that were once dilapidated blight have been transformed into uber-hip, gleaming hotels that are now highly visible symbols of America’s rediscovered fondness for cities.

Plymouth Building

Plymouth Building

Plymouth Building

In repurposing the 105-year-old Plymouth Building, HRI Properties put a modern spin on the building’s beautiful original features—lots of marble and hardwood floors throughout.

From LA to Boston, and in most significant markets between, hulking old factories, warehouses and office buildings are now proudly waving the most fashionable hotel flags from their artfully restored cornices.

Marriott’s AC Hotels, Hilton’s All Suites, Hyatt Centrics and a host of franchised and independent brands have succumbed to the gritty attraction of exposed brickwork, refinished marble flooring, rehabbed (often historically protected) windows and, above all, locations in the heart of central business districts or adjacent warehouse districts that are the epicenter of many growing cities.

Compared with previous hotel growth spurts that were concentrated along suburban interchanges or high-dollar beach towns, these big-dollar hotel investments are spurring adjacent developments that can rapidly transform urban neighborhoods from up-and-coming to fully arrived.

With all the pre-build research that comes before seven-, eight- or nine-figure hospitality investments, other franchised businesses may want to follow in the footsteps of hotel brands investing in city centers. After all, they’ve paid big bucks to determine that a given neighborhood is here to stay rather than a mere flash in the pan.

Restoring old glory

Tom Leonhard is president of HRI Properties, a New Orleans-based developer of apartment, hotel and mixed-use properties throughout the country. HRI has completed 81 projects representing $2.5 billion of development in 16 states. While it has done some new builds, the firm’s focus is largely tilted toward adaptive reuse projects in growing cities. Leonard said much of the company’s current focus is on urban, walkable neighborhoods.

“What we’ve seen recently is large corporations recognizing and buying into that trend and actually moving corporate headquarters from suburban campuses down into urban areas,” he said. “Millennials who are the future of their workforces have really embraced that lifestyle, and in order for them to attract millennials, they recognize the need to have urban locations.”

Companies moving downtown from the ‘burbs has fueled large-scale apartment and hotel developments at HRI, and the company just completed a project in downtown Minneapolis that converted an underutilized, 105-year-old office building into a swanky 290-room Embassy Suites.

The advantages over sterile new builds are apparent before even walking through the front door. This new Embassy Suites is located at one of the most prominent intersections in the city, adjacent to the central business district, the Warehouse District fun zone, a two-line light rail stop and a beautiful new Bob Dylan mural on the brick building next door.

Inside, acres of white marble cover everything from the concierge desk to the window ledges in the spacious suites. Tall ceilings are highlighted by eight-foot-tall guest room doors, creating a dramatic entrance to the rooms. Original, thin-board hardwood floors creak with delight that they’re still going strong in a new century. Because the Plymouth Building is on the National Register of Historic Places, the windows had to be painstakingly restored to their original glory, which required a second pane that mutes the noise of the city below.

Embassy Suites

Adaptive reuse candidates, like this new Embassy Suites, are becoming rarer by the day.

“When you think about how buildings were built 100 years ago, the craftsmanship, the materials, the spaces, the high ceilings and large windows, the marble and wide corridors, none of that makes economic sense today,” Leonhard said of the building’s restored features. “When you can restore it, it makes the space unique, so that’s a real exciting part of adaptive reuse projects.”

With so many conversions in recent years, he added that such hidden gems are becoming increasingly scarce. The balance point is finding a market that has beautiful, unrestored buildings along with a healthy hotel market that can justify the expense.

“It’s very challenging to find buildings that are ripe for conversions,” Leonhard said. “In Los Angeles, there are probably 40 buildings that could be converted—but the owners want $100 million for them, so they’re just sitting there empty.”

Matching a building with a particular hotel flag is another challenge, largely dictated by the building’s layout.

“We let the building tell us what it wants to be,” he said. “The corridors are very wide, so that wasn’t conducive to putting in a standard 27.5-foot-deep hotel room—we had something like 16 feet, so that worked perfectly for an Embassy Suites.”

Bob Dylan

This neighboring Dylan mural has become a popular Instagram stop for the hotel’s guests.

Causing ‘brain damage’

Collin Barr, north region president at Minneapolis-based Ryan Companies, directed the Plymouth Building’s conversion and said historic tax credits totaling as much as 40 percent of a project’s cost are the key to making the numbers work.

“That can help provide the equity that’s needed to secure the capital stack for the project,” he said. “That’s number one, because in most submarkets the cost of new construction does not jibe with the current room rates and occupancies.”

Of course, every day isn’t filled with the delight of uncovering untouched marble or hardwood flooring, as many adaptive reuse projects require an incredible amount of time and “brain damage” to wade through the historic approval process at state, federal and local levels. In addition, old office buildings or warehouses often include skeletons in the closet of a much greater magnitude than anything in a single-family home

“Sometimes that’s a big risk factor, and you don’t know until the very end if you’re going to get your historic approvals,” Barr added. “You’re inevitably going to have some major surprises when you start ripping off the skin, flooring and ceilings of these historic buildings.”

lobby's common area

The lobby’s common areas include this fish- and wood-inspired art installation.

Both hotel experts said large-scale hotel investments tend to be the last piece of a redeveloping neighborhood, following business occupancy and travel, as well as leisure travel and amenities for local residents.

Taking their lead, fellow hotel developers, restaurateurs or other service providers may want to do as the big hotels do in search of a neighborhood that has staying power beyond the next recession or worse. By their logic, if something’s been around for more than 100 years, it’s probably worth the reinvestment.

Tom Kaiser is associate editor at Franchise Times. Send story ideas about urban franchising to tkaiser@franchisetimes.com.

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