COVER STORY, OCTOBER 2007

HOSPITABLE MIX
The how and why of hotels in mixed-use developments.
Rick Takach

Takach

For much of the early history of commercial development, a clear line was drawn between retail offerings and other uses. The first true contemporary commercial innovation, the mall, was as pure a retail experience as possible. With the reluctant eventual exception of a handful of fast-food restaurants or a small food court, the first enclosed malls were tributes to unfettered commercial ambition. Setting clearly defined boundaries between components and limiting the scope of developments to exclusively retail selections was the industry standard.

But as the increasingly vibrant, invigorated and interconnected world of retail and mixed-use development continued to evolve, those boundaries began to seem increasingly arbitrary and capricious. As the phenomenal commercial, aesthetic and popular successes of recent lifestyle and town-center developments have shown us, the best new developments are a compelling blend of overlapping and integrated components, places to not only shop, but to eat, drink, live, work and play.

While dining options were an early and logical inclusion, and entertainment components were swiftly added to the mix, it didn’t take long before even office and residential uses were becoming a recognizable part of the development landscape. True mixed-use was becoming ever more mixed, and the importance of creating places that provide a more diverse array of options and an experiential appeal was becoming ever more apparent.

Recently, hospitality has begun to factor into the mixed-use equation and is being enthusiastically embraced by developers and hotel operators alike. Despite the complexity of the format, the inherent benefits and intriguing potential that can be realized by incorporating hotels and hospitality components into mixed-use projects has made this a trend that will continue to influence the design and development of lifestyle and town-center destinations in the years ahead.

Bringing hospitality components into mixed-use developments is becoming a particularly popular strategy in larger urban markets and rapidly growing cities where the demand for additional hotel space tends to be greater. What was once unheard of is becoming more and more popular, and many of today’s newest and most successful mixed-use projects feature hotel options.

But what is behind this phenomenon? Fundamentally, the steadily growing popularity of the hotel as an integral part of the mixed-use design concept can be attributed to the same factors that inspired other elements of mixed-use design. Mixed-use destinations derive their effectiveness from the mutually beneficial relationship between complementary components, a dynamic that can transform a run-of-the-mill plot of retail into a powerful commercial engine. While aesthetics and the designed environment are justifiably perceived as an important part of what makes quality mixed-use design so successful, it is the richness, depth, complexity and options available at a mixed-use center that makes the format so innovative. Hotels can add a new, and potentially potent, layer to that complexity, resulting in a bigger, better and more exciting development.

The bottom line, as always, is the bottom line; the biggest reason hotels are appearing in more mixed-use developments is because they are making money. Sometimes those additional profits can be seen in the hotel itself, and other times the revenue is realized through the additional traffic that hotels help generate through a development and from the interaction between hospitality components and other uses within the project. Either way, the formula is working.

Scott Lynn, director and principal with Dallas-based Metropolitan Capital Advisors, a financial intermediary specializing in the exclusive representation of investors, developers and property owners in the real estate capital markets, explains that: “Twenty years ago mixed-use was a dirty word with capital market providers. Ten years ago lenders and investors didn’t understand mixed-use. Today, mixed-use is the darling of the capital markets.”

Hotels are viewed as a “sexy” option for many in the industry right now, a way to put a project on the map and generate both bucks and buzz. Developers want them. Investors want them. And, with hotel rates higher than they have ever been, communities frequently have a pressing need for them.

But while a hotel can be a profitable and popular addition to a mixed-use development, it still needs to fit. A mixed-use hospitality component needs to be positioned appropriately to work within the context of the market and the project. Adding a hotel is not the same thing as adding a corner café. A hotel feature is an investment and a significant commitment, both financially and conceptually, that is on a whole other scale. The risks — and the rewards — can be much greater.

A key consideration is making sure that the design, operation and overall concept of the hotel is intimately related to and connected with the style and quality of the larger development and demographic context. Is a project best suited to perhaps a moderate select-service model with some limited food and beverage? A full-service, four-star operation? Developers tend to gravitate toward more luxurious concepts, but sometimes the more modest hospitality options make the most sense.

The ways in which a hospitality component might work to complement a mixed-use project are perhaps not as immediately intuitive as a coffee shop or a movie theater. Grabbing a cup of coffee and catching a movie after doing some shopping, sure, but spending the night in a hotel? The fact is that large or small, offering luxury or simple comfort, a hotel can act as an effective anchor in its own right, driving business and creating a surge of retail, dining and entertainment activity for a development. Hotels can serve as a way to connect with a different clientele, attracting out-of-town visitors and guests for whom the nearby options of a mixed-use development provide a readily available convenience.

In markets where local conditions and heightened construction activity can inflate labor costs, hotel development cost projections may exceed revenue and profit capabilities (with pre-opening efforts for a hotel taking anywhere from 6 months to 2 years to complete, the costs to open and operate a hotel can be substantially higher than other traditional mixed-use components). In many of those situations, there is still a strong demand for a hotel product, but development costs can seem prohibitive. In these scenarios, a hotel or hospitality feature can still add tremendous value to a development, both by adding a use to the project and creating valuable synergies with other lifestyle components.

More than just a profit driver, incorporating hospitality into a project provides developers with a way to further diversify the nature of their investments. In mixed-use development, different components can “pick each other up” if one falters due to shifting market conditions or other evolving factors. Hotels are viewed as such an attractive option for mixed-use projects at the moment that many developers are willing to use creative financing and cost-saving strategies to subsidize the initial outlay, with the expectation that the long-term benefits of a cohesive development that features a compelling mix of residential units, office space, restaurants and other mixed-use options alongside a strong hospitality component will outweigh the investment costs.

In all likelihood, the uncertain nature of the current national residential development market will only accelerate the hotel-in-mixed-use trend, as more developers may begin looking to convert a portion of planned or existing residential components into a more flexible hospitality format. But whatever happens in the near-term, the long-term trend lines seem clear: hotels are a dynamic and defining addition to many mixed-use developments, and they not only provide a place to stay, but they are here to stay.

Rick Takach is president and CEO of Vancouver, Washington-based Vesta Hospitality LLC.

A Heavenly Upgrade Luxury residences and hotels are about to be redefined in Lake Tahoe. The $420 million Chateau at Heavenly Village in South Lake Tahoe, California, will feature two luxury condominium-hotels totaling 477 rooms. Owners, vacationers, convention-goers and more are sure to have high regard for The Chateau at Heavenly Village. The $420 million redevelopment, which started construction this summer in South Lake Tahoe, California, next to the California/Nevada border, will feature two luxury condominium-hotels totaling 477 rooms, a 50,000-square-foot event center with an additional 21,000-square-foot pre-function area, a complete destination spa, a 1.5-acre park, and a collection of shops and restaurants. “These properties — the area’s first four-star plus, full-service condominium hotels — will deliver a level of service unprecedented in the Tahoe Basin, incorporating 24-hour room service, concierge, a 16,000-square-foot spa and health club, a business center, elegant dining, shopping and entertainment,” says Randy Lane, managing partner at Lake Tahoe Development Company in Stateline, Nevada. “Downtown South Lake Tahoe is the only alpine resort in the world that offers the combination of a world-class ski mountain adjacent to a pristine alpine lake and South Lake Tahoe gaming and entertainment.” The Chateau at Heavenly Village The huge project is a joint venture between Lake Tahoe Development Company, RockResorts International LLC and the City of South Lake Tahoe. RockResorts, a luxury hotel company owned by Vail Resorts Inc., will operate the property when it opens in late 2009. Buyers of studio, one- and two-bedroom condo units at The Chateau at Heavenly Village will enjoy the elegance and conveniences of a luxury hotel combined with a casual Tahoe feel. Property features will include cabinet-faced refrigerators and dishwashers, black granite countertops, travertine floors, and flat-screened TVs in the living room, bedrooms and bathrooms. The scenic beauty and recreational opportunities make Lake Tahoe a natural target for convention groups, but the existing supply of quality meeting space in South Lake Tahoe did not meet the demand. That will change with the opening of The Chateau at Heavenly Village. “This property is anticipated to generate in excess of 180,000 attendees annually, which will favorably impact those condominium owners that avail themselves of the opportunity to rent their units while not in residence,” says Lane. The convention center, which will accommodate up to 1,600 for a conference or banquet assembly, will be the area’s largest, and plans are to co-op with the Nevada hotel-casinos for expanded meeting groups and events. The multi-purpose facility will also accommodate concerts and various exhibits. Shops, boutiques and restaurants will offer a variety of options for owners and guests. Those with more leisurely pursuits will enjoy a 1.5-acre park and plaza, complete with outdoor seating, fire pits, a waterfall and pond, pedestrian trails, and access to a semi-private beach on the shores of Lake Tahoe. — Brian A. Lee

A Crowning Achievement in Colorado Crowne Plaza Hotels debuted its first hotel property in Colorado with the opening of Crowne Plaza Colorado Springs in August.  Crown Plaza “This is the largest branded hotel in the Colorado Springs market with 500 rooms,” says Mike Higgins, regional vice president of upscale franchising and development for InterContinental Hotels Group. “We were able to work with an owner who was new to our system and eager to not only meet, but exceed the Crowne Plaza brand standards, committing to spending $12 million in renovations to the entire property.” Renovations began at the end of June. Crowne Plaza Colorado Springs is owned by Stamford Real Estate Investments Ltd. and Harrell Hospitality Group, managed by Harrell, and licensed through a company in the InterContinental Hotels Group. Crowne Plaza Colorado Springs features 16 suites, including a presidential suite with a living and dining area. Each of the hotel’s eight loft suites includes a wet bar and living area with a half bath downstairs and a bedroom with an oversized bathroom upstairs. Three two-bedroom suites have large parlors in the middle of them, and the property offers four hospitality parlors located near the meeting rooms. “The hotel features 43,000 square feet of exceptional meeting space, with 28 meeting rooms, including the Summit Ballroom, which provides panoramic views of Pikes Peak,” says Higgins. “The meeting space, combined with the large room inventory, gives this property the opportunity to attract convention business.” The hotel also offers an indoor pool, a fitness center, complimentary shuttle service and three dining spots. — Brian A. Lee

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