| The ISSUE: |
Drew Anthon didn’t get into the hotel business to flip properties. An industry veteran with 40 years of experience, he approaches every project with a long-term perspective that necessitates reinvestment. When he bought the Eden Resort in 1977, for example, he vowed to put in the “maximum reinvestment capital that would continue to reposition that resort as a prime property in the Lancaster (Pennsylvania) market.”
More than 30 years and millions of dollars in reinvestment later, the newly renovated Best Western Eden Resort & Suites has solidified its place as the top-performing property in the market.
In today’s shaky economic climate, many hoteliers might hesitate to make any kind of investment—whether or not they’re putting money back into an existing asset. But Anthon says that shouldn’t stop them. Reinvesting now will not only give you a competitive edge in your market, but it will also give you an advantage moving into the next cycle.
“If the property’s maintained on an every-year basis, when you do have a cycle that hits a downturn, you can run that out very easily.”
| The PROCESS: |
Anthon says that before reinvesting back into your asset, you must first determine whether you view it as a long- or short-term hold. That’s exactly what he did before purchasing each of his six properties since 1975, including the Eden.
“My position from 1977 all along was it was a long-term hold for me,” he says. “I wasn’t looking to sell the property. My home base is here in Lancaster. At the present time, it’s the only property that I own.”
Should your outlook match that of Anthon’s, he says you should then examine your cash flow to determine what type of reinvestment is possible in the long run. Establish reasonable goals based on that assessment, and then work backwards to develop a pragmatic timetable to accomplish them.
Along the way, Anthon says you should expect to devote capital to basic upkeep. While the industry standard for capital expenditure is between 4 percent and 6 percent, normal maintenance and repairs can easily push that up to 10 percent.
Put more succinctly: “Replace something … six months before the public views it as needed to be replaced.”
Anthon says you should always have a property that looks fresh. If your guests start to notice things that need to be replaced, you’ve already lost the game.
To determine where to allocate that reinvestment, Anthon says it all depends on the property. You can easily dedicate most of your resources to rooms at limited-service properties. For those that mix rooms and commercial space, however, the task can be a bit trickier, as commercial space generally is subject to more wear and tear.
If nothing else, Anthon says to “let the decisions on capital expenditure first be market driven … and prioritize dollars that way.”
At the Eden, that meant bringing the 36-year-old property up to today’s standards with flat-panel televisions, Wi-Fi, microwaves, fridges and thermostatically controlled HVAC units.
“These are market-driven amenities that give us the opportunity to capture that market share within that position,” he says.
“You’re really repositioning yourself against new competition by keeping your property updated.”
| The RESULT: |
Between 1998 and 2006, Anthon ramped up his reinvestment and repositioned the property by converting 92 existing rooms into two-room suites. The Eden Resort & Suites now comprises 135 suites out of 276 total rooms. While undergoing that initiative, Anthon also finished renovation on nearly every other area of the hotel. “The property as it sits today, there’s not one area of the property that has not been gutted.”
While he may have added debt from 2006 to 2008 to finance that undertaking, Anthon says the results have paid dividends.
From 2004 to 2008, the Eden’s average daily rate increased by 31 percent, according to Smith Travel Research. According to STR, the property’s 2008 occupancy index was 135.8 (up from 106.8 in 2005); the ADR index was 112 (up from 106.8 in 2005); and the revenue-per-available-room index was 152.1 (up from 110.9 in 2005). The industry average for those measurements is 100.
While Anthon doesn’t promise that every hotel can achieve those exact results, he maintains that reinvestment will yield benefits while keeping the property competitive.
“It’s prudent to understand the opportunity that reinvestment offers in order to continue to keep the product fresh, modern, clean, and up to today’s standards.”