Historic Hotels: What’s Old is New Again Presented by: Katherine Chan
Present by: Katherine Chan
The reuse of historic buildings for hotel purposes is a growing practice within the hospitality industry, particularly amongst urban independent and lifestyle branded properties. Within this article, Pinnacle Advisory Group will discuss benefits of renovating a historic hotel into a new hotel property and also some common considerations when evaluating a potential historic hotel conversion opportunity.
As compared to conventional ground-up hotel development, historic hotel renovations frequently offer the following advantages:
- Unique Character
- Economic Benefits
- Reduced Construction / Delivery Time
In older cities such as those located within the Northeast, historic properties are integrated within the city’s network and thus are conveniently located to major demand generators. The purchase of a historic building can create a hotel opportunity in an established neighborhood which otherwise has few vacant land parcels available for development.
Historic buildings often possess distinctive elements which set them apart from modern construction. Ranging from opulent marble staircases in the lobby to more pragmatic mail chutes amongst the corridors, these aspects would be cost prohibitive or impractical to replicate in a new building. Hotel guests are becoming increasingly disenchanted with the “cookie cutter” hotel experience and the restoration and renovation of a historic property can be a valuable marketing and guest retention tool for a new hotel to distinguish itself from its competitors.
The utilization of a historic structure can often benefit from economic incentives designed for the preservation of our nation’s historic buildings during both the development phase as well as the operating phase of the property. The United States Historic Preservation Fund offers federal grants for redevelopment and individual states and local municipalities may also have funds available for a prospective project which all increase the overall feasibility of a proposed hotel development. While the eligibility requirements for each economic program vary, generally properties must be listed on the National Register of Historic Places to qualify for federal development credits. Following the completion of the renovation, historic properties may qualify for property tax abatement programs which increase the net operating income of the hotel and its resultant value. Furthermore, several programs allow the property tax program to be transferred to a new owner in the case of a sale, making the asset more attractive to prospective buyers.
Reduced Construction / Delivery Time
In addition to economic incentives applied during the developmental stage of a project and property tax incentives during its early years of operation, the adaptive reuse of a historic structure can also be beneficial in terms of construction time. A new-build property requires the securing of planning and construction permits prior to the ground-up construction process. In a historic renovation scenario, the bulk of the construction has already been completed and adaptations needed often require a less onerous permitting process than a new structure. As an end result, the total renovation time for a historic renovation is likely to be less than a new hotel. This accelerated schedule allows the building to generate income earlier and can be a strong competitive advantage in markets where there are several new additions to supply in the pipeline.
Now that we have discussed some of the benefits of historic building renovation as compared to traditional hotel construction, we will discuss three critical points to consider when redeveloping a historic property into a hotel:
- Property Layout
- Property Condition
- Brand Affiliation
A building’s layout influences its suitability for hotel use. Ideal facility qualities include ample vertical transportation for guests, staff, and goods, straightforward corridor design, and regular shaped rooms which maximize guestroom living area. The design of the hotel’s public space areas such as the lobby, restaurant, function space, and guestroom corridors should highlight historic features such as ceiling moldings, stained glass, and stone elements wherever possible.
While the individual character and quality of a historic asset may be one of its strongest assets, the quality of each property varies greatly. Some historic buildings may have been used recently as an income producing property and require only minimal adaptations for hotel use; conversely, some properties may have been abandoned for extended periods and will require significant capital investment to convert. A comprehensive inspection of the property’s condition by a qualified professional is highly recommended to determine the state of the facilities and also identify potential hazards such as lead paint and asbestos.
Additionally, a complete understanding of the hotel’s renovation restrictions as defined by the applicable local, state, and federal entities is necessary to ensure that there are no conflicts with the proposed hotel design and that the hotel is eligible for development credits and property tax abatement programs.
Many historic hotels opt to operate as an independent property. A major advantage of an independent status is that the owners retain greater control over the design and the operation of the hotel. However, if choosing this route, the hotel does not benefit from portfolio marketing or connection to a central reservations system and may require additional marketing expenses to fully realize the potential of the historic property. One option for expanding the hotel’s exposure is joining the Historic Hotels of America, a program by the National Trust for Historic Preservation which recognizes and promotes hotels which have preserved their historic attributes.
If a brand is desired, there are some hotel brands which specialize in historic properties or otherwise celebrate unique aspects of hotels within their portfolio which may be a good fit for a historic asset. When selecting a more convention brand for a historic hotel, be certain to verify the necessary elements to comply with the defined brand standards in order to assess their compatibility with the renovation design.
Each historic hotel project is as unique as its colorful past. Pinnacle Advisory Group has extensive experience with historic renovations including, but not limited to, the following cities: Houston, St. Louis, San Juan (Puerto Rico), Portland (Maine), Boston, Providence, Hartford, New York, Philadelphia, Washington, D.C., and Baltimore. We would be pleased to assist you with hospitality consulting services to evaluate your historic hotel opportunity.