“Everything is amazing!” and other challenges in hotel development – Thoughts on NYU Hospitality 2015

AXIS Architecture + Design at NYU Hospitality

By Cory Creath, Principal Architect at AXIS/GFA Architecture + Design

Image: courtesy of Debra Rothenberg/NYU-SCPS Tisch Center, BizBash.com.

Earlier this month I had the pleasure of representing AXIS/GFA Architecture + Design at the 2015 NYU International Hospitality Investment Conference. Now in its 37th year, the conference brings together some of the hospitality industry’s leading hotel, resort, and mixed use developers, investors, and financing leaders. As one of North America’s most prolific hotel architectural firms, the conference ranks high on the list of events AXIS looks forward to attending every year.

This year, a unanimous theme ran through all of the panels and sessions: “Everything is amazing!” Really, it didn’t matter what segment of the industry you were dealing in, or with whom you were chatting in the hallways and receptions between events – the sentiment was the same: “Business in the coming months and years is going to be amazing!” Property owners were giddy with the opportunities the promised influx of foreign investment was hoped to bring, while investors were smiling with the forecast of continuing-to-rise property values and evermore-relaxed lending criteria as banks gained more confidence in the wake of 2009. For hotel operators, they were more than happy to hear Watermark Investment Capital CEO Michael G. Medzigian’s comments noting rooming demand has increased 21% year-over-year while supply has only increased 4%, meaning for them, bullish pricing strategies and higher RevPAR. Whatever your measure of success, the picture was promising for NYU Hospitality 2015 attendees.

Of course, news of a healthy hospitality industry is precisely what we at AXIS/GFA Architecture + Design want to hear, after all, with the position as one of America’s leading hospitality architectural design firms, what’s good for the hotel industry is good for us. But with all of the rosy news dispensed at the conference, my mind started to consider what such an upbeat market meant for our clients. In the hospitality sector, AXIS’ portfolio runs the gamut; we’ve designed one-off boutique hotel developments through to projects for international hotel chains. Considering our client profiles, they range from developers building new hotels from the ground up through to owners and operators looking to leverage existing properties with to-the-bones renovations. Surely the good news at NYU Hospitality couldn’t be one-size-fits-all good news for all of our stakeholders. After all, if someone is making record profits on the back-end, someone is paying for it on the front-end.

Curiously, it was a session at the conference discussing property replacement cost that made me realize that all of this good news could indeed present a challenge for our clients. During that session, it came to be discussed that in many urban areas – and especially in markets with traditionally high demand for real estate where private real estate investment has made curbside footage expensive and/or rare – the cost of renovating a hotel was reaching and sometimes exceeding the cost of developing a hotel from scratch. For a real-world example, a project that AXIS has been a part of illustrates how previously held notions of what was sensible to spend on a renovation investment are being blown away. In that case, a property was purchased for roughly $1M per key, only to require another $100,000 to $200,000 per key in renovation costs; for contrast, new hotels are routinely being built for $700,000 to $800,000 per key. It’s clear that we have reached the point in this particular hotel industry cycle where the calculation of whether to buy and renovate versus build a ground up project, with all of its financial challenges pushing a project from scratch through zoning and local government bureaucracies, requires careful, thoughtful consideration.

And there it was – the differentiating angle for our clients, whereby amazing market news didn’t necessarily mean moving forward without careful forethought.  Buy dirt and build, or buy existing and renovate?  In either case both suggestions were equally touted at the conference, but in practice, each offered their own risks. Thankfully, with our decades of expertise managing hospitality architecture projects – both original developments and multimillion dollar renovations – we at AXIS/GFA Architecture + Design can help our clients navigate those options.

Cory Creath is a Principal Architect at AXIS/GFA Architecture + Design, and regular speaker at hospitality industry trade shows and events.  An expert on hospitality and hotel architecture, Cory’s comments will appears regularly here in On The AXIS, AXIS/GFA Architecture + Design’s official blog and sounding board.

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