LONDON—Recent years have not been easy for new developments or renovation projects of any scale, but the “Making Lemonade Out of a Lemon” session at the recent Hotel Investment Conference Europe profiled four hotels that have managed to successfully reposition themselves despite the economic climate by making the most of existing reputations and existing real estate. Speakers represented hotels across the board from the budget to the high end:
The Radisson Blu, Basel
Eugene Staal, senior VP of technical development for The Rezidor Hotel Group, profiled Rezidor’s The Radisson Blu Hotel Basel, in Switzerland’s second biggest city.
The hotel, which was built in 1957 and started out with 74 rooms, needed to be repositioned by 2009, Stall said. Pandox invested in the project, which was facilitated by Rezidor. Staal said the partnership with Pandox was seen as a significant factor in the success.
The business was a “distressed asset hotel in which neither landlord nor tenant were going to invest”, Staal said. The aim was to reposition the hotel and extend the flag with a new 20-year lease agreement.
“We needed to have a very strong business mind, a commercial and practical approach”, he said. “And to keep the hotel open. We started work in 2009 in the economic downturn. It was not a gut job. It needed proper planning, thorough diligence and a micro approach … We were passionate about putting some energy back into a distressed property”.
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| Simon Matthews-Williams (left) and Duncan Berry |
Once works started on the 74 rooms, the design team, under project management by Jan Van Look, was able to isolate rooms without too much disruption.
Staal said the company maintained that the renovation could only take place if there were to be an extension. The hotel now has 205 guestrooms, conference facilities, a restaurant and a large relaxation area. There was a particular emphasis on using the food & beverage and “opening it up on to the street opening it up into the community, from what was previously a very closed façade”.
Staal’s “happy threesome of budget, scope and time” is what he believes enabled the hotel to bring the overall value up to 27 million Swiss francs, with a total of 17 million SF spent on the works. Total revenue has increased by 18% and EBITDA has increased by 30%. Revenue per available room has increase by 10%, a rise that Staal said has been driven by rate, not occupancy. GOP increased from 26% in 2007 to 39% in 2011.
The Savoy, London
It looked touch and go for a while, but the renovation of one of London’s most iconic hotels can now be considered a real success story, according to Cris Broderick, senior VP of Hotel Capital Advisers. He profiled the Savoy’s purchase and subsequent renovation by Saudi Prince Alwaleed bin Talal’s Kingdom Holding Company.
In January 2005, Alwaleed purchased the Savoy for an estimated £250 million (US$394.8 million), to be managed by Fairmont Hotels. Broderick described Prince Alwaleed: “A brand-driven investor who within the hotel industry started investing in 1994 and over the last 17 years has built up a portfolio that is worth about (US)$4 billion”.
Together with the Prince, Broderick said Hotel Capital Advisers have “employed an investment strategy of buying old European hotels in great areas that are rundown” with the aim to “buy the brand, get the earnings up and then trade the real estate”.
In early 2005 they moved onto the Savoy.
“The problem was the name was sustaining the hotel’s reputation—it was an exhausted asset physically. The owners were not willing to make changes to the asset to reposition it and succeed, and as an investor we are always looking for a seller wishing to exit”, Broderick said. “Fairmont was looking to expand outside North America, and if they found the right asset and the right market they would pay big bucks for it”.
Kingdom was eager and teamed up with HBOS bank.
Broderick said the initial concern was how to turn such a large investment into profit and to get earning up very quickly. “As the market was so strong we only wanted to execute a modest approach to the refurbishment”, he said. “The only way we can capture that rate at the top was to shut it down”.
The goal: “To make the Savoy new again without losing its character, but at the highest we can reposition this asset in London”, he said.
The age and structure of the hotel was an issue. “When the Savoy was built in the late 1800s, it had the best rooms in town, all overlooked the Thames. In the 1800s the rooms were built with no bathrooms”.
Broderick described how a later refurbishment to add modern conveniences meant that bathrooms were built into in the balconies effectively blocking all the great windows. The recent refurbishment stripped out bathrooms and opened up floor-to-ceiling windows, built new bathrooms, added guestrooms, added a new 320-square-meter Royal Suite, and added the new domed rotunda and tea room. The renovation project cost more than £220 million (US$347.4 million), double what was estimated, and opened a year later than initially planned. One problem was the work started in 2007 at peak tender pricing. Ancient plumbing, electrics and other building issues resulted in several redesigns.
Despite the astronomical costs involved, the hotel has ultimately become a success story. Compared to ADR of other luxury properties in London at their 2007 peak, the Savoy in 2007 was only bringing in a rate of £250 (US$394.77); in 2011 it has an ADR of £470 (US$742.19). The rate aim is £520 (US$820.09) by 2012. Some of the river view rooms, which were selling for £250 (US$394.77) a night, can now charge £1250 (US$1973.77). On top of that the hotel does more F&B business than rooms business. Having already doubled the hotel’s average rate from 2007, Broderick maintained it is well-positioned to achieve close to £500 (US$788.26) rate in the near future.
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Doubletree by Hilton, Chester
Simon Matthews-Williams formed Sanguine Hospitality Limited in December 2006 to buy a second hotel and now has investments totalling more than £120 million (US$189.6 million) throughout the U.K. The chairman spoke about the changes since joining the Hilton family.
Previously an independently owned concern, more than £15 million (US$23.7 million) was invested in the project and the Doubletree by Hilton, Chester makes an annual £3-million(US$4.7-million) profit, which is “good for the provinces”, Matthews-Williams said. Choosing to work with Hilton was to them like “putting the brand on”, and 60% to 70% of occupancy now comes from the Hilton reservations engine. Matthews-Williams said 40% of these are Hilton HHonours members, with a total of 2 million active members in the U.K.
In provinces there isn’t much difference between economy and upscale, according to Matthews-Williams, so the aim was to “try to create more ways of capturing people’s cash”. They did this in part by creating a large luxury spa and operating two restaurants, which now keep people on site rather than flooding into nearby Chester.
There were some difficult negotiations to be made with the refurbishment, being that the hotel is on protected green belt land. “If you can fully engage with the local authority and explain the benefits, it is amazing what you can achieve”, he said.
Since the refurbishment, the company is now seeing a 12% return on the hotel, a 20% return on the spa and a blended return of 15%. They see the addition of the spa as a terrific asset that has pushed up average room rate. Sanguine’s research shows that 60% of people when they make a booking are influenced by the spa, but in reality only a small proportion of people use the facilities. But this adds to room rate another £10 (US$15.8) by simply having those facilities. Additionally the deal with Hilton was arranged on the hotel, but not the spa and club facility.
The relationship with Hilton is extremely beneficial, although Matthews-Williams said that Hilton is “obsessed with American standards, sometimes they make changes which have a financial impact”. The brand is hungry to offer deals, he said.
“For example, last January a deal offering 50% off rack rate means that the engine just pounded”, Matthews-Williams said. “We were packed in January, and it’s clear the connection with Hilton does bring in business. … Yes, you pay the commission but where else are you going to get that business? Franchise, coupled with an international brand is brilliant”.
Comfort Hotel Lille, Lille, France
Duncan Berry, CEO of U.K. for Choice Hotels International Europe, talked about the midscale Comfort Hotel in Lille, France. One of the challenges: “Looking to ensure the franchisee sees the advantage of ensuring their property maintains the brand standards”.
In Lille, Choice has been involved since 1992 when the property was a new build. Berry said there was an “initiative to get more involved in the investment, with other hotels coming into the marketplace”. As the property is not in a very prime location, the necessity was to ensure it was being invested in, so it could compete in terms of the guest experience, he said. €250,000 (US$342,506) was spent on rooms with an additional €110,000 (US$150,702) spent on the rest of the hotel.
Berry talked about the relationship with franchisees: “We have to make sure (we) don’t push the brand standards, but we also want to ensure work is still being done to maintain the property to reflect the level of the brand and what can achieve in the market.
“From a franchise perspective—all our franchisees have the same ingredients available to them. What is very telling is seeing how they take the ingredient and follow the recipe. Some soufflés will rise, some won’t. We need to be supportive to those who are struggling and those who are doing well”.
The result has been a 20% uplift in ADR and a great improvement in guest comments, which has been good in terms of social media, Berry said.
Berry said often the challenge is “how to take an existing hotel and reposition it successfully. In terms of financial return and also in terms of product—successfully positioning it to a changed market. It could also be about brand enhancement in terms of the brand strategy itself”.