NEW YORK—With the recession having blown the wind out of the sails—and sales—of mixed-use developments that relied solely on luxury residential units as the additional component of a hotel project, developers and owners are looking to MUDs that incorporate office, retail, entertainment—and condos in some cases—as the better fit in delivering ROI.
Finding the right fit for a hotel is also a concern for brand franchisors and management companies that must ensure the property gets the best play and highest visibility and doesn’t get lost in a “mix-and-match” situation.
In Massachusetts, for example, a 12-acre MUD known as Chicopee Crossing is under development by The Colvest Group of Windsor Locks, CT. The multimillion-dollar project includes a bank, retail, office space and two restaurants. In addition, a 115-unit Residence Inn by Marriott is coming out of the ground as the hotel component via owner BK Investments, which is headed by CEO Dennis Patel.
Although it owns and manages a Hampton Inn and a Days Inn nearby, the Chicopee venture is BK Investments’ foray into mixed-use development. The real estate holding company also owns a Holiday Inn Express in Brattleboro, VT.
“Location,” said Patel, was the key attraction in deciding to make the move. “We are very familiar with this location and knew that what it was lacking was an extended-stay hotel.” Patel considers the MUD makeup a “perfect blend,” with the components complementing each other to drive traffic to the property.
For guests, he noted, “It is like they are staying in a mall and have access to retail, dining and banking.”
Rob Winchester, president/COO of Connecticut-based Waterford Hotel Group, Inc., which will manage the Residence Inn, agreed the multiple components are a boon for guests.
“One of the greatest advantages is the convenient zone for the guests. There are added amenities that are offered to the guests within a short walking distance, such as restaurants, shopping, banking, etc. It adds to the overall guest experience,” he said.
Patel said in terms of fundamentals and guest experience location and market are critical factors in whether a property would flourish better as a standalone or within a MUD.
“If you are in New Orleans or Las Vegas, it would not matter if you were in a MUD, you would still wander out to the attractions. But if you are a business traveler or unseasoned traveler, you do not want to risk the chance of getting lost. Convenience is everything. I think in this market having things in walking distance is crucial and will translate to higher occupancy and RevPAR,” he said, noting he expects the product will shift the market, which he described as “strong and emerging.”
One of the key factors cited by owners and developers going into MUDs is the ability to spread risk and, therefore, be more attractive to lenders, particularly for new-construction projects.
PeoplesBank of Holyoke is the lead lender for the Chicopee hotel project and Granite State Development Corp. is the certified development company used to secure Small Business Administration (SBA) financing.
Patel acknowledged financing the $130,000 per key hotel was difficult. “We were trying for the last four years, and because of the SBA involvement, we were able to finally get approval from PeoplesBank of Holyoke,” he said.
Patel noted Chicopee Crossing was jump-started by a $1.25-million Massachusetts Opportunity Relocation and Expansion (MORE) Jobs Capital grant. “The grant was designed to invest in public infrastructure to promote private developments such as ours. It made it possible for the highway development and traffic signal necessary for Chicopee Crossing,” he said.
On the operations side, Winchester said there are differences when it comes to managing a MUD hotel as opposed to a standalone.
“You need to communicate with other tenants and businesses to understand high-demand periods for each to anticipate and plan for items such as traffic, parking management, etc.,” he said. “We operate other hotels in MUD locations that vary in size, ranging from a convention center location to an office park. Obviously, the needs will differ.”
He added there are opportunities that exist, such as shared parking or cost reduction through shared services that might include landscaping or snowplowing. “It really comes down to communication and coordination between all occupants of the MUD,” said Winchester.
When the hotel opens in August 2013, Patel expects a robust business mix, since the MUD’s location in Chicopee is centrally located halfway between Boston and Albany—and minutes north of Springfield, MA—and is commonly referred to as the Crossroads of New England.
“It will be used as a home base for many extended-stay business travelers, as well as relocating military families, said Patel, adding the nearby Westover military base is thriving, as is an adjacent industrial park and Westover Metropolitan Airport. “Other than extended-stay occupancy, we will fill in with leisure and families visiting all of our western Massachusetts attractions.”
Often there is concern that a brand might get “lost” among all the MUD components but in this case, Patel said the retail developer agreed to limit the building in front of the hotel to one story and also agreed to locate the hotel to maximize visibility. “The hotel is four stories, giving us great exposure from the highway, and it has been approved for a pylon sign,” said Patel.
Overall, the CEO is confident in the project. “We partnered with a very strong retail developer who is going to make sure that the retail portion is finished. It is very critical to partner with the right people especially with a project of this size; there is a lot of money on the line and things could go south quickly,” he said.
Another popular MUD for hotels is the tower structure found in urban centers. For example, the Embassy Suites Buffalo in New York occupies the first eight floors of the 15-story Avant Building in the city’s central business district. Its mates in the former federal office building include Class A office space, restaurants, a beauty salon, luxury condominiums and underground parking.
According to Michael Montante, VP of Amherst, NY-based Uniland Development Co., this is the first mixed-use project of its size for the company, as well as for the city, and proved an attractive venture.
“Avant represented an opportunity to make a major investment in downtown Buffalo. Situated on a prominent downtown corner a brief walk from the nationally renowned Theater District, Allentown National Historic District, and Chippewa Entertainment District, Avant’s strategic location bridging business and cultural draws made it an ideal site for mixed-use infill redevelopment,” he said. “Now, a modern vertical community, the once outdated, monolithic building is a 24-hour destination that provides three things the CBD previously lacked: an upscale hotel; Class A office space with large floor plates; and luxury condominiums.”
With 461,315 sq. ft. of space, the Avant Building could not have been a standalone project for Uniland, said Montante of the $85-million adaptive reuse. “In most markets—and it’s true in Buffalo—to dedicate that much space to one use would have a negative effect on supply and demand. We had to break the space into smaller parts and dedicate them to the uses that this market could absorb,” he said.
He indicated, however, the tower structure holds benefits. “Because Avant’s uses include about 30 private residences, a café and upscale restaurant, there is always vibrancy in and around the hotel,” said Montante. “Condominium owners and office tenants using the hotel amenities also makes the project stronger. Guests respond to that and it shows in the success of the Embassy Suites Buffalo, which consistently outperforms the competitive set in occupancy, ADR and RevPAR.” The hotel also benefits from “a very healthy” tourism industry, particularly in summer due to its proximity to Niagara Falls.
Uniland picked the Embassy Suites brand because it wanted an international franchise with “strong reservations and reward-management systems. We also wanted an upscale hotel with suites,” added Montante.
Shawn McAteer, VP/brand performance support for Embassy Suites Hotels, said the Hilton Worldwide brand has seen an increase in being part of MUDs in the past five years due to its “shift to a flexible mindset and ‘kit of parts’ approach to development. The flexible ‘kit of parts’ philosophy allows us to work with developers to include all of
the key elements of the Embassy Suites customer experience, including two-room suites, atrium space, complimentary breakfast and Manager’s Reception areas, in non-traditional spaces like mixed-use buildings.” He added one of the biggest places the brand has demonstrated flexibility is with the interpretation of the traditional central atrium feature. “Our architects work with developers to come up with a creative solution that implements our key atrium attributes of giving guests a great sense of space and connecting them to natural elements within any building design. Allowing the customization of the atrium space is a huge selling point for developers and has really increased our involvement in both mixed-use and adaptive reuse projects,” said McAteer.
The Buffalo project faced getting done during the economic downturn, and to get it moving, Uniland brought together several groups in a public/private partnership. “We worked with Empire State Development and The New York State Energy Research and Development Authority (NYSERDA) on various grant programs, primarily to offset the extraordinary asbestos remediation costs. We also worked with National Grid to further offset remediation costs. In addition, the design qualified Uniland for NYSERDA’s Smart Loan Fund, a low-interest loan used to offset the costs of the building’s new, energy-efficient, low-E glass curtain wall facade,” he said.
Montante said each use in the building required separate mechanical and electrical systems, and interpreting and applying 50-year-old building codes required constant collaboration between Uniland and city inspectors. “The challenge resulted in the creation of new city codes for mixed-use redevelopment. The effort continues to pay dividends for similar projects undertaken since,” he said.
On the brand side, McAteer noted that one of the biggest challenges with MUDs is properly handling the entry components into the separate spaces within the building. “For instance, Embassy Suites Buffalo has three main components including the hotel, office space and residential condos on top. It was important to us that each of those customers have their own individual experience and exterior entry space that connects them directly to where they want to go without having to walk through another component. We find this sometimes to be more challenging than creating the atrium space, but think it’s important for consumers, so we strive to have those separate exterior entry points at our mixed-use properties,” said McAteer, who sees the brand’s MUD growth continuing to occur primarily in urban markets.