LA's Hotel Boom, Part 2
When all of your hotel projects are ground up, getting through the political process is a key hurdle, according to The Athens Group COO Jay Newman, who spoke at our LA Hotel Boom event at the the Millennium Biltmore last week. People speak up because they fear development means traffic. As if that weren't enough, competing hotels are now challenging others that want to come into a market: "They're actually funding the residents and politicians to stop other hotel development."
InterContinental Hotels Group regional VP Bobby Molinary discussed wages. Any time you move an entire market to have higher expenses, he says, the market's going to react. The real question is what this does to demand in that market and whether the talent will leave hotels to go to other properties that offer higher wages.
Ratkovich COO Clare de Briere says the company's first hotel deal, at The Bloc in Downtown LA, has been an adventure. While the project didn't have entitlement issues, it did have significant physical problems, such as trying to get a four-pipe system into a building that originally had only a two-pipe system. (Same thing happened when Neil Young brought his pipes to Crosby, Stills & Nash.)
According to Suffolk Construction COO Min Zavarella, a healthy pre-construction process will determine a project's outcome. Noting that developers look for trusted advisors, he says you need to communicate constantly. "There's no developer I know that isn't starved for information."
Our moderator, Pircher, Nichols & Meeks partner Michael Scheinberg, asked at what point a hotel brand should be brought into the development process. As an operator, Bobby says IHG likes to be involved early. Noting that The Bloc's hotel management agreement was her most grueling negotiation ever, Clare says having an HMA in place early on puts some limits on how and what you design. According to Jay, early selection of a brand can be helpful in dealing with lenders and equity partners, as well as the community. However, in some cases, you want to wait as long as possible to drive a better economic deal.
Min favors a "rolling GMP," where portions of the building that aren't determined by the design standards of the hotel flag are designed first. Jay says there are some projects where the contractor is investing along with the developer, raising an interesting conflict of interest. "Sometimes you want to have an arm's length relationship with the guy who's building your project." Clare says The Bloc will be WELL certified, a new certification that does for the people who occupy buildings what LEED does for the environment.
We found our sponsor, Five Star Turf's Robert Groot, chatting with an attendee. The company makes artificial turf products for an array of uses, including commercial properties, hotels, retail and municipalities.
We also snapped Shirlee Behar and Brandon Martin of our sponsor Turnaround Solutions, a provider of flooring and renovation services. Brandon says the company will put in 1M SF of flooring this year, and will likely double that figure in 2015.