College & University Hotel Ownership Symposium: Key Takeaways ~ by Rachel Roginsky, ISHC
The College & University Hotel Ownership Symposium (CUHOS) convened at Harvard University in early March. The focus of the symposium was to allow college and university employees charged with the planning and administration of their institution’s hotels an opportunity to attend seminars and discussions important to the development and oversight of hotel assets. The biennial event, hosted by Pinnacle Advisory Group at a college or university partner, featured data analysis, perspectives, and insights from expert hotel industry partners with on-campus hotel experience. Previous CUHOS symposia have been hosted by Pinnacle at the University of Notre Dame, Villanova University, and Swarthmore College.
At this year’s event, representatives from 25 colleges and universities attended two days of seminars and networking events to discuss topics including Objectives in Owning a Campus Hotel, The Development Process, Hotel Feasibility, Structuring Your Hotel Deal, Capital Planning, Operating Issues that Impact Top Line Revenues, Legal Issues, Tax Structuring (UBIT), Conference Centers/Learning Centers and Multi-Purpose Space, and Operating Issues that Impact Profits.
A key theme among all of the presenters can be summarized as ‘collaboration and partnership’ at every phase of the project from early planning to the daily activities in the building. Other principal takeaways from this year’s conference are the following:
Capital planning is an issue of key importance to most colleges and universities, according to Gary Avigne, Director of Asset Management for Colleges and Universities at Pinnacle Advisory Group. Most institutions that own a hotel, both as a real estate asset and operating business, seek to invest in the property only when the hotel is originally developed or purchased, or in some cases, re-purposed. Once the hotel is operating, the College (Owner) wants the hotel to be self-sustaining. This suggests the need for a strong focus by the hotel operator and the asset manager on capital planning. Accordingly, in addition to operational oversight and annual strategic planning, university hotel asset managers must provide administrators with development and renovation support to allow university administrators to focus on the institution’s core mission.
The importance of starting the development and renovation projects on the right foot was noted by Harry Wheeler, Principal, JCJ Architecture, reflecting a key concern of many attendees. Engaging early with the design, operations, and management teams, for either a new construction project or a renovation, is critical to developing the correct program, one that aligns with ownership goals, and thus ultimately to the project’s success.
“Universities/colleges are fully aware that a hotel can leave a lasting legacy and make a meaningful contribution to their educational mission, but the challenge most universities face lies in navigating the complex path of planning, programming, and ultimately developing these facilities to meet the needs of their communities,” agreed Kyle Hughey, CEO, Charlestowne Hotels; “It’s been shown that a hotel can be the centerpiece for fostering community, enhancing alumni relations, advancement, and supporting academic and professional events. The benefits are broad as they touch every stakeholder from students to faculty, and extend to athletics, alumni and visiting scholars.” However, “recognizing the need for a hotel is merely the first step. This process demands a specific understanding of academic culture, operational requirements, and financial modeling.” And most institutions require multifaceted help including feasibility guidance, development expertise and an operational partner to deliver an impactful campus hotel, according to Hughey.
Sales and marketing of university hotels can sometimes present unexpected challenges according to a presentation by John Hamilton and Nala Holmes, Acquisitions & Business Development of Pyramid Global. They point out that it is a common misconception that university constituents will naturally support the hotel with their university related business. As operators of several college hotels, Pyramid Global stated: “We learned quickly that there are many users: Deans, professors, recruiting, alumni relations, athletics etc., and that they all need to be sold as if they were a corporate account. The college or university that is able to influence and assist the management company with these users will benefit from a more viable project.” In addition, during the development period, they note that it will ultimately benefit the hotel to “conduct focus groups and solicit input from the many constituents that will ultimately use the hotel. Creating a sense of ownership will ultimately translate to loyalty within the university community.” They also suggest that operator input during the early planning process is key to the ultimate success of a development project that will create a welcoming living room for all University constituents to share, be proud of, and return to time and time again.
Creative pathways to financial sustainability by both looking beyond the institution for demand, but also evaluating how college and university hotel owners engage with their own hotel was the focus of a discussion with John Schultzel, Chief Growth Officer of Olympia Hospitality. He noted that “constantly exploring operating efficiencies that align with existing campus resources” is a must for the hotel operator. Additionally, “campus partners care deeply about the reputational impacts of their hotel operator’s execution, from local buzz about the restaurant to the hotel’s digital footprint. Collaboration and partnership between the operator and the College owner at every phase of the project from early planning to the daily activities in the building is very important. “
As non-profit institutions, colleges and universities have special tax needs, including structuring their ownership of real estate to deal with revenue that could be taxed as Unrelated Business Taxable Income (UBTI), according to Martha Frahm, Tax Partner and Cecilia Gordon, Hospitality Partner at Goulston & Storrs. In almost all circumstances, the revenue from a hotel owned by a college or university is likely to qualify as UBTI. In those circumstances, the educational institution has several options to address the taxable income. One of the most common approaches is to lease the real estate to a third-party that will operate the hotel, however, as hotel leases are comparatively rare in the United States commercial real estate market (as compared to Europe), using a lease raises practical and economic questions that should be addressed up front. They point out that to avoid problems down the road, all options should be discussed early in the process with tax counsel experienced in working with non-profit institutions.
As more colleges and universities study the feasibility of developing hotels on or near their campuses, or seek to renovate and reposition older properties on their campuses, I stressed the importance of understanding the local market, conducting demand research with actual college demand generators, and understanding future plans for the college that are critically important when making a decision to pursue hotel or conference center development. All of the speakers reinforced the importance of effective planning in setting up hotel projects for success both within the university or the broader community.
Rachel Roginsky is the founder and Owner of Pinnacle Advisory Group, a national hospitality consulting practice headquartered in Boston with office throughout the United States. Pinnacle has been assisting colleges and universities with hotel projects for over 35 years.