Why Hospitality Is Trending Toward Infill Historic Remodels
In the last six months, there has been a spate of hoteliers remodeling historic infill properties in DFW. The Statler, The Cabana Motor Hotel and the very recent SpringHill Suites in the Fort Worth Stockyards are just some of the more recent examples. Experts say this is the result of a confluence of factors: need for a thicker capital stack, customer preference for locale-specific experiences and the resurgence of the urban core.
CBRE Senior Vice President of Structured Debt and Finance in the Houston office Marc Sallette said capital market conditions are such that nobody can build a full-service hotel without some kind of subsidy. That is where historic tax credits come in, and they are part of what makes these historic remodels so popular. Salette said these tax credits can make up 10% to 20% of a capital stack, a huge boon in this tight-pursed lending market.
“What happens is, depending on your lender, some lenders, they want those tax credits as collateral for the construction loan. Other lenders will treat that as equity, and then you can go borrow against those tax credits … so it’s a way of getting additional financing without having to write a bigger equity check,” Sallette said.
In a tough construction market, these infill locations can also mean cutting down on some construction costs and time spent waiting for development to finish.
“Investors find historic remodels and/or adaptive reuse buildings slightly to their advantage; some of the reasons include a ready to use building and less time spent in obtaining building permits, zoning/rezoning, etc. and most importantly, constructing the shell. Most if not all of these older buildings have great location and they have a solid concrete/steel shell to begin with. The developers do spend time in demolishing the interiors and redoing all of it but that is still less time consuming than going ground up in my opinion,” Marcus & Millichap Senior Managing Director, Investments, and Senior Director of the National Hospitality Group Chris Gomes said in an email.
Another reason hotel developers are turning to the urban core is that it is where the people want to be, according to Sallette.
“A few years ago, everybody wanted to be in the suburbs and a lot of offices moved out there, too. But now, most of the downtown urban cores have been revitalized and people want to work and play in the same general vicinity,” Sallette said.
The third aspect is a growing trend toward individuality and soft-brand hotels, such as Marriott’s Autograph Collection, Starwood’s Luxury Collection or the Hyatt Unbound Collection. Sallette said this is a result of the Information Age. People are more willing to book a hotel they have never stayed in before based on pictures online as opposed to a previous era where travelers took comfort in knowing that they could expect the same look and feel at a hotel chain wherever they went.
“I think there will be a continued production of new types of hotel rooms and hotel buildings to stay at with different price points, different amenities, different experiences,” Sallette said.
He also said people are looking for unique locations that offer an authentic or local feel.
“People are looking for even a sense of place in their guest room and they want public areas and food and beverage options that are kind of more curated and unique to that location … if you have a historic building that gives an immediate, unique sense of place ... there’s an advantage from the get-go when a historic building is your product,” Sallette said.
In DFW these deals are still a hot commodity. CBRE Hotels Director, Consulting Services Jeff Binford said the desire for infill historic properties is indeed a trend and he has developers asking specifically to get into these types of projects. So more of these remodels can be expected down the line.